"However, some downward adjustments in the breeding herd may be
needed in the coming year as the industry is forced to respond
to both higher feed and other input costs and to the potential
slowing of export growth," said Chris Hurt. "Pork producers had
a great profit run stretching back to early 2004, but that long
run of pleasant financial days appears ready to come to an end."
Hurt's comments came as he reviewed the state of the industry in
the wake of the USDA's latest report.
"There's going to be a bit more pork in the marketplace this
fall, and that's just enough to tip the scales toward lower
prices, especially given concerns about slaughter capacity," he
said. "Unfortunately, high costs will likely depress margins
into the red this fall, where they may remain through 2008."
The higher-than-expected slaughter numbers were released in
the latest USDA Hogs and Pigs report. Fall slaughter is now
expected to be up about 3 percent, which was just a bit higher
than expected. However, the slaughter capacity will be near
maximum and has generated some discussion of the similarities to
the disastrous fall of 1998, which is casting a bearish tint to
"Compounding the slaughter capacity issue this fall will be
continuing record live hog imports from Canada," he said.
"Canadian live imports are up 11 percent so far in 2007,
composed of 19 percent more slaughter hogs and 6 percent more
SEW pigs. Live imports from Canada will represent more than 9
percent of total U.S. slaughter this year, a new record."
In addition to a few more market hogs than anticipated, the
USDA's quarterly inventory report found a few more sows than
expected. The sow inventory was up about 1 percent and
represented about 0.3 percent more than anticipated. This
demonstrates how the pork industry has continued to expand
output even in the face of dramatic increases in costs of
production, led by feed prices and other inputs.
"Growing export demand has enabled the industry to continue
expanding in recent years, but that support is giving way this
year," Hurt noted. "From 2000 to 2006, growing pork exports
required an average increase in U.S. production of 1.2 percent
[to top of second column]
"So far in 2007, exports are down 3 percent. The industry continues
to expand for the export market, which is weak, at least in 2007."
Pork supplies are expected to be up about 3 percent this fall and
winter, and then up about 2 percent next spring and summer. With the
slowing growth in export sales, this means that pork availability
for U.S. consumers will be about 1-2 percent larger. Pork will face
some added competition from chicken production in 2008, but beef
supplies will remain moderate and generally supportive to domestic
Hurt said that hog prices are expected to be somewhat lower this
fall and average in a range from $44 to $47 on a live-weight basis
for 51-52 percent lean carcasses. Absolute daily lows could move
into the lower $40s. Late October and early November tend to be the
periods for seasonal lows. Winter prices are expected to improve
about $2 and to average in a range from $45 to $48. Spring and
summer prices should be much higher and are expected to average in
the very low $50s.
"Concerns have grown once more about feed prices in the upcoming
year," he said. "Using current futures prices for corn and soybean
meal and adjusting for the expected basis, costs of production are
expected to be above hog prices for most of the next 12 months.
Costs during this time period are estimated at $51.50 per live
hundredweight, and hog prices are forecast to be near $48.50.
"This means the industry may operate at a loss near $3 per
hundredweight over the coming 12 months. The larger losses of about
$4 would occur this fall and winter, while smaller losses of about
$1 are expected next spring and summer."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental