Pork Producers Hold Line on Breeding Herd Expansion

The 5.941 million head March 1 U.S. swine breeding herd was 20,000 hogs smaller than on March 1, 2004. That dip is less than 1%. Still, it says U.S. pork producers are not expanding farrowings.

The 53.957 million head market hog inventory was up 1%. The December-February pig crop was up 2%. It was fueled by both a 1% rise in December-February sow farrowings plus a rise in pigs per litter from 8.85 a year earlier to 8.94 pigs for December 2004 through February 2005 farrowings.

Today traders will likely be looking beyond the report. A possible exception is some strength in summer futures driven by weight breakdowns in the report.

First half 2005 prices strongest of year

Glenn Grimes, University of Missouri has made preliminary price forecasts for the rest of this year. His quarterly average forecasts for U.S. basis 51% to 52% lean hogs are:

• First quarter 2005, $52.25 compared to $44.06 last year.
• Second quarter 2005, $51 to $54 compared to $54.87 last year.
• Third quarter 2005, $50 to $53 compared to $56.56 last year.
• Fourth quarter 2005, $47 to $50 compared to $52.48 last year.

"We hope we miss the deferred forecasts as we have almost consistently for the last 15 months," he says.

Jim Robb, Livestock Marketing and Information Center, Lakewood, Colo. sees stronger prices in the first half of 2005 being counterbalanced by weaker prices in the second half giving a 2005 annual average about 2% lower than 2004.

High fuel prices keep taking dollars out of consumers' pockets. Grimes fears tightening consumer purse strings have yet to impact meat consumption.

"I think pork demand will soften a bit, especially if we get the border open to Canadian cattle this summer," he says. "That will give pork a little more competition from beef.

"We had extremely strong pork demand a year ago," he adds. "We think some weakness is likely, especially in the third and fourth quarters. It may show up some in the second quarter.

"February's cold storage report, which showed stocks of pork building through February, is another signal of demand weakness," he adds.

Robb sees some signs that the demand lift red meat and poultry have gotten from the Atkins diet may have run at least some of its course.

"Pork exports should remain robust," says Robb. "But how and when the U.S. border opens for live cattle imports from Canada and the subsequent pork/beef interaction will be one of the keys.

"We don't think pork exports will post the phenomenal year-over-year growth they did in 2004," he adds. "But we think 2005 exports, after a very good January, could be up 7% to 10% from last year. Again, the real hedge is how much beef competition comes in the international marketplace."

Opening the border to Canadian cattle might result in more beef exports to Mexico. If so, that could trim Mexican imports of U.S. pork.

On the good news/bad news front, analysts expect the U.S. dollar to continue weakening relative to foreign currencies. That's good news for exports. But it also reflects that Uncle Sam is a long way from getting his fiscal house in order. High energy prices could re-ignite inflation. The Federal Reserve might boost interest rates faster to fight inflation. High interest rates could choke economic growth. Most of those outcomes would not be friendly to U.S. consumer demand.