U.S. swine breeding herd expansion is proceeding on pace with analysts' expectations. USDA's Hogs & Pigs Report released late Wednesday showed the Dec. 1, 2005 breeding herd up 42,000 sows or 0.7% from Dec. 1, 2004. That's fractionally larger than the average trade guess in advance of the report of up 0.6%.
The U.S. had 55.186 million market hogs, up 181,000 head or 0.3% from a year ago. On average traders expected the market hog inventory to be up about 0.8%. The slightly fewer than expected market hogs are a bit friendly for first half 2006 hog prices.
Market hogs represent about 90% of the entire inventory. As a result, all hog inventory came in up 0.3% against trade expectations of up 0.7%.
Expect lower prices in 2006
Jim Mintert, Kansas State University economist, predicts the annual average price for 2006 will be 6% to 7% below 2005.
"The roughly 1% rise in pork production is one driving force," he says. "The more important factors are on the demand side. Strong consumer demand held hog prices in 2004 and 2005 higher than we would have expected based on supplies. Our analysis suggests 3rd quarter 2005 pork demand was down 8% to 9% from a year earlier. We expect fourth quarter demand to be down a similar amount."
Need to build demand
Beyond domestic demand, Mintert also looks at export demand. Pork exports for the first 10 months of 2005 were up about 24%. Everyone points to Japan not buying beef as the reason for strong pork exports. But pork exports to Japan were only up 16%. Those figures suggest export demand is up across the board.
"Still, both pork and beef must recognize that they have benefited from low carbohydrate diets for several years," says Mintert. "Now it's time to get back to basics and build demand through research on new product development, then promoting those products. Those products need to focus on what consumers want. That is something that's wholesome, nutritious, easy to prepare plus is attractive and flavorful to solve the immediate problem of 'What's for supper tonight?'"
Why no more expansion?
Fifteen years ago profits at levels we've seen over the last two years would have brought forth 5% to 6% swine herd expansion. Producers and lenders well remember the 1998 hog price wreck.
"We've restructured the industry," says Daniel Bluntzer, director of research, Frontier Risk Management, Chicago. "We think producers are wisely restraining expansion because they know well the adverse impact a rapid expansion could have on both prices and profits."
More packing capacity helps
John Nalivka, Sterling Marketing, Vale, Oregon, calculates packers currently have capacity to slaughter about 410,000 hogs per day. The new Triumph Foods plant at St. Joe, Missouri and expansions at other plants will boost capacity about 10,000 to 12,000 head per day by early 2006.
"We're back kind of like we were in the late 1980s," he says. "The gap between slaughter capacity and production is widening. As that gap widens, it should help pull up hog prices."
Looking at more numbers
The September-November 2005 U.S. pig crop, at 26.1 million head, was up 1% from 2004 and up 2% from 2003. Sows farrowing during this period totaled 2.89 million head, unchanged from last year. The sows farrowed during this quarter represented 48% of the breeding herd. The average pigs saved per litter was 9.03 for the September-November 2005 period, compared to 8.96 last year. Pigs saved per litter by size of operation ranged from 7.50 for operations with 1-99 hogs and pigs to 9.10 for operations with more than 5,000 hogs and pigs.
U.S. hog producers intend to have 2.88 million sows farrow during the December 2005-February 2006 quarter, up 1% from the actual farrowings during the same period in both 2005 and 2004. Intended farrowings for March-May 2006, at 2.89 million sows, are up slightly from 2005 and up 1% from 2004.