Industry Surprised by Hog Report Numbers

Nearly all the numbers in USDA's Quarterly Hogs and Pigs report released Tuesday afternoon were below pre-report estimates.

U.S. inventory of all hogs and pigs on December 1, 2004 was 60.5 million head. This was up slightly from December 1, 2003, but down 1% from September 1, 2004.

Breeding inventory, at 5.969 million head, was down 1% from December 1, 2003, but up slightly from last quarter. Market hog inventory, at 54.5 million head, was up slightly from last year, but 2% below last quarter.

Bob Brown, independent livestock and meat consultant from Edmond, Okla., predicts that USDA will revise higher the breeding herd numbers in future reports. He says with outstanding demand and lower costs, he can't imagine why U.S. producers aren't beginning to expand.

U.S. hog producers intend to have 2.855 million sows farrow during the December 2004-February 2005 quarter, 1% above the actual farrows during the same period in 2004, and 3% above 2003. Intended farrowings for March-May 2005, at 2.868 million sows, are down slightly from the same period in 2004, and down 1% from the same period in 2003.

Chris Hurt, livestock economist from Purdue University, says many producers in the eastern Corn Belt States, Delta and Mid-south have been looking for a chance to get out and following through with exiting. Ohio and Indiana's breeding herd are down 3%. Iowa's breeding herd was up 1% and Illinois is up 2%, potentially because of a bumper crop year. Minnesota, Missouri and North Carolina are unchanged.

Hurt doesn't doubt expansion will come eventually. The question is more when it will occur.

Producers weren't as quick to expand in 2004 with unknown feed costs. Producers captured nearly $17 in profits in the last quarter because of low corn prices.

Hurt projects the cost of production to stay moderate with the price tag reaching around $39 next summer and to finish the year around $38 per live hundredweight. He forecasts strong profits in the next three quarters and waning some in the fourth quarter.

Len Steiner, president of Steiner Consulting Group in Manchester, N.H., says cheap grain will likely convert into cheap meat. He predicts an average of $69 based on the Chicago Mercantile Exchange lean basis. Here are his quarterly projections:

• 1st quarter: $73
• 2nd quarter: $73
• 3rd quarter: $71
• 4th quarter: $60

Brown had similar estimates, although slightly lower for a CME basis.

• 1st quarter: $71, compared to $61 for year ago
• 2nd quarter: $75 compared to $75 for year ago
• 3rd quarter: $70 compared to $77 for year ago
• 4th quarter: $60 compared to $74 for year ago

Hurt points to a 2% greater supply of pork and more narrow margins. He estimates an average price of $48.75 per live weight, down about $4 from 2004. His quarterly estimates are as follows:

• 1st quarter: $49
• 2nd quarter: $51.50
• 3rd quarter: $38.50
• 4th quarter: $46