Iowa Hog Numbers Up 4% From Year Ago

Iowa Hog Numbers Up 4% From Year Ago

Slightly larger than expected numbers of hogs turned up in USDA's September 2011 Hogs & Pigs Report. While not bearish, the rise in hog numbers the past 12 months dims any bullish enthusiasm.

Hog numbers were up 1% in the United States and up 4% in Iowa on September 1, 2011 compared to the same date a year ago. That slight rise in hog numbers during the past 12 months isn't bearish, but the report certainly dims the bullish enthusiasm some producers had as a result of this summer's better than expected hog prices.

The slightly larger than expected numbers turned up in all major categories in this latest quarterly USDA Hogs and Pigs Report, released September 28. As a result analysts are ratcheting down their price expectations for much of 2012 by $2 to $4 per hundredweight on a carcass basis. Jim Robb, director of the Livestock Marketing Information Center in Lakewood, Colorado, projects national base carcass prices at:

* Fourth quarter 2011:   $82 to $86

* First quarter 2012:      $83 to $88

* Second quarter 2012: $89 to $95

* Third quarter 2012:     $90 to $98

Next year's prices should run above 2011 levels for most, if not all, of 2012. However, the spread will diminish as 2012 progresses. The wildcard remains demand—particularly if the world and U.S. economies slow and our dollar strengthens enough to erode buying for export.

Profits fade as increasing feed costs squeeze hog margins

Shane Ellis, Iowa State University Extension livestock economist, points out that hog producers have enjoyed a good year in 2011, with per head profits reaching $21.33 in August. "Profits will probably drop down into the single digits for September, but it's still a profitable time for hog production," says Ellis. Looking into the months ahead and into the coming year, the profit picture isn't as good.

Declining hog prices, concurrent with rising prices of major feed inputs, spell narrower spreads between the cost of feed and the selling price of finished hogs.

USDA estimates quarterly feed cost spreads for producers will remain positive through 2012. That's as calculated with USDA forecast prices of corn, soybean meal and hogs. "However, spreads will narrow for the fourth quarter of 2011," says Millie Haley, economist with USDA's Economic Research Service. "Spreads for the first three quarters of 2012 will likely be lower than those of 2011."

Pricey feed will likely drive hog weights lower into the next year

Hog producers will likely respond to lower feeding spreads by shipping hogs to slaughter at lighter weights. However, packer discounts for underweight animals are likely to limit producer incentives to reduce slaughter weights too sharply.

USDA reflects expectations for narrowing feed spreads in lower year-over-year estimated average dressed weights for the second half of 2011 and into 2012. Fourth-quarter pork production is anticipated to be 6.1 billion pounds, about 1% below the same period last year.

The USDA report shows hog weights in the Iowa/Minnesota region are back to the 270 pound mark which is considered requisite for slaughter. This represents a gain of about 2 pounds per animal over the last three weeks, says USDA. The weight gain has been a factor in lower hog prices, which have dropped about $10 per hundredweight since July and August on reports that the hog weather had caused hogs to eat less and thus gain less weight. Since then prices have retreated, closing at $83.47 per hundredweight for the December contract on September 28 on the Chicago Board of Trade.

Chinese pork buying boosted summer cash hog prices to record high

Rumors of a surge in Chinese pork buying surfaced in early summer. Official trade data take time to work their way through the statistics system. But the trade data are now available and they confirm those rumors.

Pork exports rose sharply in July, propelled largely by shipments to Asia; China and South Korea in particular. July exports were 386 million pounds, almost 18% higher than a year ago. In July China bought about 44 million pounds of U.S. pork products, more than double the July 2010 volume.

China's pork production is down due to disease outbreaks in 2010 and continued industry exit by small backyard producers. Production is falling at a time when strong economic growth and rising disposable income are boosting pork demand and pork prices in China.

U.S. exports to China will likely top 2010 levels through 2011. Third-quarter U.S. pork exports are expected to be 1.2 billion pounds, up more than 26% from a year ago. Fourth-quarter exports are forecast at 1.3 billion pounds, more than 13% higher than fourth quarter 2010 sales.

Total exports this year are expected to reach 4.95 billion pounds. Total exports in 2012 are forecast at 5.135 billion pounds, up almost 4%. Although still robust, the 2012 export growth rate is expected to moderate compared with 2011 as Asian pork supplies rebound from production declines due to disease problems.

TAGS: USDA Extension
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