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"This may make the years 2007 and 2008 more financially
vulnerable, but before starting to worry about the future, we
should celebrate the three-year winning streak," said Chris
Hurt. Hurt noted that the possible third consecutive year of
profit, a "three-peat," comes in an industry that could hardly
find a positive tilt from 1998 through 2003.
"The financial tide finally turned to black in the spring of
2004 and has been on a winning streak ever since," Hurt said.
"Profits in 2004 averaged about $9 per live hundredweight for
farrow-to-finish production. That number was near $10 in 2005,
and the forecast for 2006 is for profits to be around $6."
The U.S. inventory of hogs continues to be very stable,
according to the latest inventory update from USDA. Total
inventory numbers in the December report were up only 0.4
percent, with the number in the breeding herd up 0.7 percent and
the market inventory up only 0.3 percent.
"Overall, the U.S. breeding herd has been trending lower, as
a result of the sow herd shifting to Canada and as a result of
higher productivity," said Hurt. "The U.S. breeding herd dropped
from near 7 million head in 1998 to about 6 million head by
2002. Since then, the breeding herd has been in a narrow range
from 5.9 to 6.1 million head.
"The current 0.7 percent increase in the breeding herd is
extremely small by historical standards but is the largest
annual increase since 2000. The 2005 expansion was an increase
of 42,000 head."
Hurt said that evidence points to the 42,000 sows being added
in the eastern Corn Belt. The region had an increase of 35,000
head, and four of the five states in the region had an increase
as well: Indiana, 20,000; Illinois, 10,000; Ohio, 10,000; and
Wisconsin, 5,000. Only Michigan had a reduction, of 10,000.
"Perhaps this is signaling a reversal of the longer-run trend
of the breeding herd moving away from the eastern Corn Belt,"
said Hurt. "In 1990, 27 percent of the U.S. breeding herd was in
the eastern Corn Belt. That portion declined steadily to a low
of only 17.2 percent in 2004. So, is the eastern Corn Belt
coming back?
"It is too early to tell from the data, but it will be
interesting to watch in coming years."
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Pork production is expected to increase by about 2 percent in 2006.
The number of head available for slaughter is expected to reach
record highs in 2006 at 105.4 million head, an increase of 1.8
percent from last year.
"This is a combination of a small increase in U.S. sows farrowed,
increased number of pigs per litter and some increase in the number
of pigs from Canada," said Hurt. "Weights are also expected to be up
by about 0.3 percent in 2006.
"In the first half of the year, production is expected to be up
by just 1 percent. However, production in the last half of 2006 may
rise by about 3 percent. This likely will mean that the [top] prices
will come in the first half of the year, with weaker prices in the
last half."
Prices on a live basis for 51 percent to 52 percent lean
carcasses averaged near $50 in 2005. With larger production, slowing
pork export growth, rising Canadian live hog imports and widening
U.S. marketing margins, hog prices are expected to drop to an
average closer to $46 in 2006. Prices are expected to average in the
mid-$40s during the winter and move into the higher $40s for the
spring quarter.
"Summer prices may be a bit discouraging this year, having
averaged above $50 for the past two years," said Hurt. "For the
third quarter, prices are expected to begin near $50 per live
hundredweight in July but weaken to below $45 at the close of
September. Fall prices are expected to drop further and average in
the $42-to-$45 range.
"With costs of production anticipated to be slightly under $40,
producers can look forward to about $6 of profit per live
hundredweight for the year."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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