"The reduction in farrowing intentions
for the spring 2004 quarter suggests the industry is moving in that
direction," said Chris Hurt. "Producers must also watch feed
ingredient costs. It is likely that the required soybean rationing
has not yet occurred and that tight world stocks of corn could still
mean higher prices.
"Many factors point to a period of
tight world stocks of grains and soybeans and an era of higher and
more volatile prices than during the 1998 to 2002 period. The hog
industry may still have to reduce pork supplies to meet the reality
of this higher cost structure."
Hurt's comments came as he reviewed the
state of the pork industry. He began with supply prospects for 2004.
The USDA's "December Hogs and Pigs" report indicated that the
breeding herd is down 1 percent, but the market supply is up 2
percent. Producers intend to farrow 2 percent more sows this winter
but cut back by 1 percent in the spring.
"If so, production in 2004 will be
nearly unchanged from the 2003 record of 19.8 billion pounds," said
Hurt. "With population growth, this means that production per capita
will drop about 1 percent and provide the foundation for a modest
improvement in prices."
The issue of mad cow disease in the
United States will also be an influence on the industry in 2004. The
exact outcome is uncertain, but "best estimates" can be made at this
time, he noted.
"On the domestic front, expect to see
retail beef prices drop by 10 to 12 percent," he said. "Lower beef
prices will tend to result in some reduction in pork demand.
However, these 'cross effects' are relatively small for today's
consumer, so we anticipate only about a 1 percent reduction in pork
demand … from the lower beef prices."
The second component of mad cow
disease's impact on the United States is the loss of beef exports
and the question of how much additional pork importers will buy from
the United States. These estimates are much more difficult since
there is not a historical precedent to draw upon. Japan, Mexico and
South Korea were the major buyers of U.S. beef in 2002, accounting
for a remarkable 2 billion pounds of the 2.4 billion pounds of beef
How much of this will come back to the
United States in the form of additional pork exports is unclear.
[to top of second column in
"No one knows the answer, but the
Japanese have an import safeguard which triggers when the volume of
pork imports reaches a 19 percent increase compared to the average
of the last three years," he said. "This may limit the increase in
their pork imports to about 20 percent.
"South Korea has a fairly low-cost
domestic pork production industry, which will likely limit
additional purchases of U.S. pork. Mexico will likely buy more U.S.
pork, but is not as large a pork importer as Japan. Assuming that
beef imports are restricted for six months, these positive pork
demand impacts might reach 1 percent of U.S. production, although
there remains considerable uncertainty."
Hurt believes the negative demand
impacts from lower U.S. beef prices may be roughly offset by the
positive impacts of the lost beef exports.
He noted that the issue of what happens
with mad cow disease in Canada and the potential opening of their
beef export markets in 2004 is also important. After Canada's May 20
announcement, the flow of market hogs to the Unites States
increased, representing an additional supply of about 1.5 percent of
U.S. slaughter. This depressed U.S. prices by about $2 per live
"If Canadian beef exports resume
sometime in 2004, beef prices will rise in Canada and fewer market
hogs will be sent to the United States," he said. "The much stronger
Canadian dollar will also help trim incentives for Canadians to send
market hogs to the United States in 2004."
Hog prices are expected to rise by
about $2 per live hundredweight in 2004, to an average of about $41.
Prices are expected to move toward $40 by late winter and into the
mid-$40s by late spring. Prices are expected to be in the lower to
mid-$40s in the summer and drop to an average in the very high $30s
in the last quarter of the year.
"Unfortunately, hog producers may also
have higher costs of production to deal with in 2004," Hurt said.
"Using current futures prices, higher corn prices are expected to
increase costs by about 20 cents per live hundredweight compared to
2003. Higher soybean meal prices are expected to increase costs an
additional $1.20 per live hundredweight.
overall costs may rise by about $1.50, with hog prices rising about
$2 for the year. This would mean little improvement in the overall
profitability for 2004. It is estimated that producers lost about $1
per live hundredweight in 2003 and that losses would be reduced to
about 50 cents in 2004."
of Illinois news release]