Iowa Southern Minnesota live hog prices (51- to 52-percent lean) averaged $33.26 per cwt. in 1999, 4 percent above 1998's. Still, hog prices for the year were below $40 per cwt. for only the third time in the last 20 years (prior to 1999 those years were 1998 and 1980). Hog prices generally strengthened as 1999 progressed. In the fourth quarter of they year, slaughter barrow and gilt prices averaged $36.24, the highest average since the second quarter of 1998.

Looking ahead, hog prices are forecast to post year-to-year increases throughout 2001. Iowa Southern Minnesota live hog equivalent prices (51- to 52-percent lean) for calendar year 2000 are forecast to average in the $39 to $42 range, about 24 percent above 1999's. In 2001, the year-to-year gains in hog prices could moderate to 3 to 5 percent. Low feedstuff costs and higher animal prices will improve hog producer returns substantially in 2000, compared to the huge amount of red ink posted from mid 1998 throughout most of 1999.
 
 

In 1999, U.S. pork production was record large, farrow-to-finish operations were swimming in red ink, breeding animal numbers were reduced, productivity increased, rather good pork demand (year-to-year increase) was apparent, and pork import tonnage increased while exports did not grow. U.S. commercial pork production in 1999 was about 19.3 billion pounds, exceeding the previous record established in 1998 by nearly 350 million pounds.

Breeding hog numbers in the U.S. declined by nearly 7 percent in 1999. Between December 1, 1998 and one year later, 30 states posted declines in breeding hog numbers. Thirty-six states had a year-to-year decline in the number of market hogs, as of December 1, 1999.

The number of hog operations in the U.S. also continued to decline and the number of hogs controlled by larger operations continued to increase. The number of hog operations dropped 14 percent from a year earlier to 98,460. The proportion of hogs on 5,000 head and larger operations increased to 46.5 percent from 42 percent in 1998. And the percentage of hogs being raised under contract increased from 23 percent on December 1, 1998 to 32 percent on December 1, 1999.

Slaughter processing capacity constraints of the fourth quarter of 1998 spilled over into 1999. By the fourth quarter of 1999, year-to-year declines in slaughter hog availability and modest increases in plant capacity limited near-term capacity problems. Compared to the situation in 1998, the live-to-cutout price spread narrowed dramatically in the fourth quarter of 1999.

Even though pork production was record large in 1999, the long-term trends of increased population and exports kept U.S. per capita pork consumption below that of the early 1970’s and early 1980’s. Still, on a retail weight basis each person in the U.S. consumed on average 1.6 pounds more pork in 1999 than in 1998. Increased pork production combined with increased beef and poultry production in 1999 to pull U.S. red meat and poultry consumption to a new record of 221 pounds (retail weight). That was a one-year increase of over 6 pounds per person.

Commercial hog slaughter in 1999 was about 101.6 million head, 0.5 percent larger than the previous record set one year earlier (1998). Yet pork production was 1.8 percent larger than 1998’s. This increase was due to the average dressed weight for 1999 increasing 1.3 percent (2.4 pounds) to just over 190 pounds. The average annual hog dressed weight has been trending up since the 1950’s at 1.25 pounds per year.

As 1999 progressed, frozen stocks of pork peaked then began to decline. Stocks were record large in April, and helped cap pork and live animal prices. But by the end of November, stocks had been pulled below a year earlier.

U.S. pork imports increased in 1999 and pork exports declined. In recent years, pork export tonnage by the U.S. has increased rapidly. In 1999, pork export (tonnage) was below a year earlier for the first, second and third quarters. Pork exports for the fourth quarter were projected to be above a year earlier, much of that increase was due to pork shipped to Russia as part of a food aid (donation) program.
 
 

The December 1, 1999 USDA Hogs and Pigs report showed the fifth consecutive quarter of year-to-year declines in the breeding hog inventory. Since 1973, breeding hog liquidations have averaged just over 7 quarters in length. With hog prices expected to move above average breakeven levels in 2000, the breeding hog inventory should stabilize and possibly turn up in the second half of 2000.

As of December 1, 1999, the market hog inventory was reportedly 4.2 percent smaller than a year earlier. The greatest year-to-year decline in market hogs on a percentage basis was in the heavier weight groups – the over 180 pound market hogs were down 4.7 percent from 1998’s. For the month of December, Federally Inspected hog slaughter was down 5.4 percent from 1998’s, but there was one less slaughter day. Adjusting for that one less slaughter day suggests slaughter was down only about 1 percent. Slaughter declines in January and February will have to be much larger than December’s, to confirm USDA’s market hog breakdown.

Hog slaughter for calendar year 2000 is expected to be 3 to 4 percent smaller than 1999’s. On a quarterly basis, slaughter is forecast to be down throughout 2000. Average carcass weights are expected to increase in 2000. Pork production could be down about 2 percent in the first quarter of 2000 compared to 1999’s. In the second and third quarters, the year-to-year decline in pork output is forecast to be 3 to 4 percent. In the fourth quarter of 2000, pork production could decline about 3 percent from 1999’s. For the year (2000), U.S. commercial pork production is expected to be about 18.7 billion pounds, about 3 percent below 1999’s, but only about 1.3 percent below 1998’s.

Price forecasts of 2000 incorporate steady to modest improvements in domestic pork demand. U.S. pork exports are forecast to increase modestly in 2000. Packer gross margins (live-to-cutout price spreads) are expected to continue to post year-to-year declines throughout most of 2000.

Live hog prices in 2000 are expected to post strong year-to-year increases. Compared to prices in 1999, annual average hog prices in 2000 will likely increase over 20 percent. Iowa/Southern Minnesota live hog prices (51- to 52-percent lean) are forecast to average in the high $30’s per cwt. in the winter quarter, increase to the mid $40’s by the summer quarter and then seasonally decline to the high $30’s to low $40’s in the fall. For the year, live hog prices should average in the high $30’s to low $40’s per cwt.
 
 

The stage has been set for year-to-year declines in hog slaughter at least well into 2001. The size of the U.S. corn crops in the next few years, including the size of the 2000 corn crop, could have major impacts on producer decisions about the size of their breeding herds. Feedgrain costs are a major determinant of hog producer profits and short corn crops in 2000 or 2001 will likely extend breeding herd liquidation.

With normal crop conditions in 2000, the size of the U.S. hog inventory will begin to stabilize. Still, barrow and gilt slaughter is not expected to post year-to-year increases until the fourth quarter of 2001. Productivity (average pigs per litter and litters per year) and carcass weights are expected to continue to increase. For the year of 2001, hog slaughter may decline 2 to 3 percent during the first through third quarters. Hog slaughter in the fourth quarter (October-December) 2001 could be 1 to 2 percent above 2000’s.

Commercial pork production in calendar year 2001 is forecast to be about 18.6 billion pounds, down 1 percent from a year earlier. And during the fourth quarter, production may exceed 2000’s and could be only slightly below 1999’s.

Preliminary forecasts put U.S. pork exports on an increasing path in 2001. And imports could be declining some. Per capita U.S. pork consumption could post a year-to-year decline of 1 to 2 pounds (retail weight basis) in 2001.

Iowa/Southern Minnesota live hog equivalent prices (51- to 52-percent lean) are forecast to average in the low to mid $40’s per cwt. in 2001. Year-to-year price increases are expected to be smaller than in 2000 (up about 4 percent).

Longer-term, the major question to be answered is when will slaughter capacity problems for the U.S. hog industry re-emerge. If breeding hog numbers stabilize as 2000 progresses and late 2001 starts a period of year-to-year slaughter increases, capacity problems could emerge rather quickly. Fourth quarter 2001 U.S. commercial hog slaughter is forecast to be about 26.2 million head, about 1.4 million head smaller than 1998’s problem fourth quarter. And new slaughter capacity in Manitoba, Canada should help on both sides of the border. So, if current slaughter capacity remains in place, major problems in 2001 are not currently anticipated. Given how quickly slaughter hog numbers can expand, the fourth quarter of 2002 could be a problem, especially if any plants shut down between now and then. Further, 2003 could easily be another 1998.

For current production and price summaries see the Livestock Market Information Center Web Page at:

http://lmic1.co.nrcs.usda.gov/current.html

Or the University of Georgia Agricultural Economics Page at:

http://www.ces.uga.edu/Agriculture/agecon/agecon.html

Prepared For Presentation at the Eastern North Carolina Chapter, Agricultural Lending Conference
Raleigh, North Carolina, February 3, 2000

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