September 25, 2000
HOG PRODUCERS TO EXPAND THEIR
Hog producers say they will farrow
1 percent more sows this fall, followed by an even larger 3 percent
increase this winter. The response is due to profitable hog prices
during much of 2000 and to the anticipation of low feed prices.
If producers follow through on these plans, pork production is
expected to reach a new record in 2001 at 19.6 billion pounds.
This would surpass the 1999 record of 19.3 billion pounds. This
also means that hog prices could be reduced to breakeven levels
by late next summer. Any additional expansion beyond current reported
levels will likely mean losses by the fall of 2001.
Producers still have a breeding
herd which is slightly smaller than year-ago, but the high productivity
rate of the breeding herd means that farrowings will rise this
fall and winter. The market herd was down 1 percent from last
year, with each of the weight categories also down around 1 percent.
Regional differences in breeding
herd numbers have continued. Producers in the eastern corn belt
have reduced the breeding herd by 8 percent and the market herd
by 4 percent. These declines are led by reductions of the breeding
herd in Indiana (10 percent); Ohio (14 percent) and Wisconsin
(13 percent). Illinois numbers were down 2 percent. Breeding herd
numbers in the western corn belt states of Minnesota, Iowa, and
Missouri were nearly unchanged for both the breeding and the market
herd. Expansion, on the other hand, was the norm for plains states,
with breeding herds expanding in Nebraska (11 percent); Texas
(6 percent);South Dakota (4 percent); and Colorado and Oklahoma
Interestingly, the states that have
already expanded are in the areas where the corn crop will be
most limited due to drought conditions this summer. This is particularly
true for Nebraska. On the other hand, expansion is expected for
some of the states with excellent corn yields. Indiana, Minnesota,
and Iowa all have above 150 bushel per acre corn yield estimates,
and their producers are indicating large increases in farrowings
by this winter: Indiana (7 percent); Minnesota (8 percent); and
Iowa (5 percent). It appears that the large corn crop will stimulate
greater retention of gilts this fall and that the breeding herd
will show year-over-year increases by the December report.
Pork supplies are now expected to
be somewhat higher than previously anticipated. In the last quarter
of this year, pork supplies are expected to be down about 1 percent.
During the winter, supplies should be nearly unchanged from last-year.
Increased farrowings this fall will enable supplies to begin building
in the second quarter, when they are expected to be up by 3 percent.
Even larger winter farrowings mean summer pork supplies could
rise by 5 percent. Assuming further building of the breeding herd
this winter, supplies could reach a 6 percent increase by the
fall of 2001. Given these anticipated increases, pork supplies
would reach a record 19.6 billion pounds in 2001. In addition,
fourth quarter 2001 supplies are expected to exceed those of the
fourth quarter of 1998 when prices declined to devastating levels.
Hog prices are expected to weaken this fall. Using terminal prices
as a benchmark, prices are expected to average near $40 for the
final quarter of this year. This means that price lows could be
in the $36-$38 range during late-October and early-November. Winter
prices are expected to be about $1 lower, averaging in the $37
to $41 range. Spring prices are expected to improve, but with
less seasonal upsurge than normal. Second quarter 2001 prices
are expected to average in a range from $40 to $44. Building supplies
into the summer mean prices could struggle, with an estimated
average price falling in a range from $35 to $39. It is still
early to be predicting prices for the fall of 2001, but one would
expect very weak prices, perhaps in a range from $31 to $37 per
Given these supply and price projections,
hog producers can expect to see profitable prices through next
spring. However, by mid-to-late summer, hog prices could drop
back to near costs of production. In addition, if adverse weather
should impact the 2001 crop, higher feed prices could cut into
profits more quickly.
Given the information in the September
report, expansion appears to be large enough to drive prices back
to breakeven by the summer of 2001. Now the question is, "will
the expansion get even larger?" Generally, once expansion
gets underway, it continues for several quarters. Most likely
this will be the case this year, with expansion continuing at
least into next spring. If so, a period of losses can be anticipated
in the last-half of 2001 and the first-half of 2002.
Clearly the industry must be cautious
about building the herd beyond levels already indicated.
Issued by Chris