Demand Keeps Hog Producers in Black Ink
Economists predict strong prices until at least the fourth quarter of 2005, despite increased breeding herd expectations.
Jacqui Fatka
Published: Sep 24, 2004
After viewing USDA's Quarterly Hog and Pig report, economists were confident hog producers will likely remain profitable for 2005, calling into question only the 4th quarter of 2005.
Few surprises were found in the report that showed a 1% increase in inventory of all hogs and pigs on September 1, 2004 compared to 2003. The breeding inventory was also up 1% compared to 2003, and up 1% from last quarter. Market hog inventory was 1% above last year and 2% more than last quarter.
There will be no shortage of pigs for 2005, says Daniel Bluntzer, livestock analyst in Chicago's Frontier Risk Management. He adds the number one figure to watch is the increase in breeding herd which will definitely impact 2005 production figures. In addition, the average pigs saved per litter was 9.00 for the June-August 2004 period,
compared to 8.90 last year.
Ron Plain, University of Missouri ag economists, says something that is good news, while also worrisome, is that USDA is not projecting much increase in sow productivity. "If we do gain in productivity, we might end up with a few more litters farrowed than the numbers indicate," he says.
Phenomenal demand should continue
Livestock economist at Iowa State University John Lawrence anticipates cost of production for hog producers to be between the upper 30s to lower 40s. This should allow producers to remain profitable through the 4th quarter. "They'll probably be in black ink through a good part of 2005," he says.
Demand has amazed Plain, as well as many others in the industry. "Some people are beginning to think [phenomenal demand] is fading away," he says. However the last four weeks recorded 15 of the 27 biggest hog slaughter days ever. "Yet during that time cash prices climbed darn near $10 per cwt."
Bluntzer says demand is the name of the game, whether the demand is retail, wholesale or exports. But if any of those falter, there's no way to slice the numbers. "I'm not saying we're in demand trouble, but slash $5-$10 off if demand falls," he says. Lawrence on the other hand is confident in solid prices, despite a small dip in demand.
Supply and predictions for 2005
Looking at carcass base prices, Plain projects:
- $66 to 69 for this year's fourth quarter and the first quarter of 2005.
- $70 to 73 for next year's second quarter.
- $68 to 70 for the third quarter.
- $62 to 65 for 2005's fourth quarter, assuming we don't run into slaughter capacity problems.
Lawrence is projecting live hog costs of production at $39 to the low-$40s for 2005. He's projecting interior Iowa-Southern Minnesota live hog prices of:
- $45 to 48 for this year's fourth quarter.
- $46 to 49 for next year's first quarter.
- $49 to 52 for 2005's second and third quarters.
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