Five year Forecast and Analysis on the United States Hog Market

Introduction

Abstract

Executive Summary

This has been a tough year for hog producers, and the pain shows no signs of easing. The Iowa State University budgets show that U.S. hog producers lost more than $40 per head on hogs sold in August, the biggest monthly loss so far this year. However, the losses in August are just one more month in a string of losses dating back to October 2007. Over the 23 month period, budgets show losses averaging $22.50 per head. With hog slaughter over that period totaling more than 220 million head, a total of nearly $5 billion in this downturn. Even so, the cutback in hog inventories is modest at best. According to the September Hogs and Pigs report, the breeding herd inventory is down just 3 percent from a year earlier and farrowing intentions are also down just 3 percent this quarter and during the winter months. If these numbers are accurate, the losses hog producers are enduring will continue at least into early 2010 and possibly longer.

The good news, if you can call it that, is that corn prices have been declining. In 2008, corn prices averaged nearly $5 per bushel. So far this year, the average is $3.50 and recent prices have been near, and even a little below, $3 per bushel. However, budgets show that hog prices need to be near $45 per cwt on a live-weight basis for producers to see a profit, even if corn prices are near $3 per bushel. Cash hog prices are currently in the mid-$30s per cwt range with the seasonal increase in slaughter now underway.

So what lies ahead for hog producers? The data in the latest Hogs and Pigs report shows that producers are cutting back on production, but that we will have plenty of hogs over the next several months. The market hog inventory at the beginning of September was down 2 percent from yearearlier levels. That data suggests prices will probably stay below the $45 breakeven level through the rest of 2009 and into early 2010. Last year, cash hog prices fell by about $15 per cwt from early October through the end of the year. Early next year, hog slaughter should be down about percent year-over-year and hog prices will continue to struggle. It looks like it may be spring or summer before there is any reasonable chance for hog producers to see sustained profits return.

The huge losses the hog industry has suffered over the last two years will take a toll on the number of hog producers. Many small- to medium-sized producers, and even some big producers, have seen their equity vanish as the negative returns continued month after month. Producers have tried to hold on through the tough times, but some won' t be able to last until spring if the losses continue. A decline in the number of hog operations of 4,000 to 5,000 seems possible by next year.

USDA' s forecast shows U.S. pork production falling by about 1.5 percent from 2009 to 2010. With a reduction in output of less than 2 percent next year, it is hard to see how hog producers will be able to return to solid financial footing. We expect a slightly bigger reduction of about 2.2 percent in output for 2010. Under that scenario, hog prices may move back above breakeven by next summer, but profits remain relatively modest. Producers continue to reduce the size of the breeding herd throughout 2010, and there is a resulting improvement in profits two years from now. By 2011 the good profits provide economic incentives for producers to begin to expand again, but the expansion is modest.

The economic balance for hog producers can tip based on developments in the crop sector. However, if we assume good corn crops in 2010 and 2011, hog production profits are possible. Hog prices improve in 2010 and move still higher in 2011. With herd expansion occurring in late 2011 and through 2012, hog prices begin to weaken again. But, unless there is a spike in corn prices, economic returns for hog producers should be mostly positive over the forecast period. However, the industry will probably not recoup the $5 billion that has been lost over the two years from late 2007 through late 2009.

Table of Contents

Table of Contents

• Summary
• Market Hog Prices
• Net Returns for Hog Production
• Breeding Hog Inventory
• Market Hog Inventory
• Pork Production

Five year Forecast and Analysis on the United States Hog Market published by Doane Advisory Service in January 10, 2012. This report price starts from US $ 2000.

Press Release

US hog industry show losses averaging $22.50 per head from 2007 to 2009