HOG PRODUCERS THOUGHTS TURN TO EXPANSION?
hogs and producers hesitant to expand the breeding herd are providing
an environment where profitable production is expected through
the next 12 months. But, prospects of an extended period of profits
will likely begin turning producer thoughts toward expansion.
The reason for the smaller-than-expected number of market hogs
is a revision in the farrowings from last winter. The USDA reduced
that estimate by nearly one percent in the June Quarterly Hogs
and Pigs report. In addition, the number of pigs per litter has
also leveled off at about 8.9 pigs.
of expansion is not a major surprise. Producers still remember
the $8 per live hundredweight price in December of 1998. The memories
of such a traumatic financial event have faded slowly. The losses
were so large during late 1998 and 1999, that many producers just
recovered financially by the spring of 2001. Another important
reason for lack of expansion in the face of very favorable profits
was the concern over foot and mouth disease (FMD) this past spring.
While FMD in Europe actually added to U.S. exports, the concern
that the disease might come to the U.S. made producers cautious.
Prices could have dropped as much as $12 per hundredweight with
an outbreak here. A large drop in prices would have resulted from
the inability to export pork, which is about 7 percent of total
change is the decline in the breeding herd in some "high
growth" western states. Leading the decline was Colorado,
which had a 19 percent (40,000 head) decline in the breeding herd.
Colorado, with its sparse hog populations and wide open spaces,
had become a haven for large sow units. Expansion began in earnest
in the early 1990's. Breeding herd populations mushroomed from
about 40,000 animals to 210,000 by 2000. The other state demonstrating
possible expansion exhaustion is Oklahoma, which grew from a mere
35,000 animals in 1990 to 340,000 by 2000. The breeding herd there
is down by 10,000 animals, or 3 percent, this year. While this
is not as significant as the decline in Colorado, it is the first
time that the Oklahoma breeding herd inventory has been down since
Iowa is the
other state where major reductions in the size of the breeding
herd occurred. The herd is down by 40,000, or three percent. However,
this decline was entirely offset by modest expansion in three
neighboring states: South Dakota, Minnesota, and Missouri. In
the eastern corn belt, producers kept the overall size of the
breeding herd the same as one year ago.
In the first-half
of 2001, pork production was up by 1.7 percent, yet hog prices
were about four percent higher, at $47.50 per live hundredweight.
When supplies and prices are both higher, we often look to demand
for an explanation. Improved pork trade should receive much of
the credit for improved demand. In the first-half of 2001, pork
exports were up about 18 percent, while pork imports were down
seven percent. For the first-half of the year, the trade improvement
added 1.6 percent to aggregate demand and resulted in prices being
about $1.25 per live hundredweight higher. The positive benefits
from trade were assisted by FMD in Europe, where exports were
blocked by much of the world, including the U.S. and Asia. Since
May, restrictions on Danish trade have been lifted, so the positive
benefits will be reduced.
are expected to be about two percent higher this summer, compared
to the supplies of last summer, and roughly unchanged in the fall.
Supplies will rise two percent in the winter and three to four
percent in the spring.
been very profitable and positive margins are expected to continue
for the next 12 months. Liveweight prices are expected to edge
lower as the summer progresses, reaching the mid-$40s in September.
Fall prices may average in the $40 to $44 range. Lows in late
October and early November could drop toward the $40 mark. Winter
prices should improve somewhat, with an average price near $43,
and spring 2002 prices are expected to return to near the $50
level for an average, with May and June prices even higher.
would now seem to be right for producers to begin expansion plans.
The losses of 1998 have been covered and producers are now earning
large positive cash flows; the threat of FMD, while not over,
is receiving less media attention; and the long-term outlook now
appears positive. International trade may not be as positive for
hog prices in the last-half of the year, but with sow productivity
growth now leveling off, some small sow expansion could now take
place. However, this expansion needs to remain at only one to
two percent per year. Keeping a controlled expansion in place
has never been easy for the pork industry.
Issued by Chris