It was the best of times , it was the worst of times. Sounds like a pretty good opening for a book - or an apt description of the poultry and pork industries at the end of 1998. While poultry folks have, through hook-or- crook, found a way to limit the increase in poultry supplies, pork folks have gone overboard on expansion. The results have been some record margins both ways. What will 1999 hold - probably more of the same!
 
 

Pork Production

The September Hog and Pig Report showed that U.S. hog numbers were up 3 percent (62.9 million head vs 61.2) and that the breeding herd was about even with last year (6.94 MH) . This was the seventh straight Hog and Pig Inventory report to show a year-to-year increase in the breeding herd, a string begun with the March 1997 report.
 

September 1, 1998 Hog and Pig Inventory

	1996	1997	1998	% 98 of 97
	-----1000 Head-----
All Hog & Pigs	58,150	61,163	62,900	103
Kept For Breeding	6,765	6,944	6,936	100
Market	51,385	54,219	55,964	103
Pig Under 60 lbs.	19,320	20,876	21,210	102
60 to 180 lbs.	23,370	24,366	25,254	104
180 lbs. up	8,695	8,976	9.500	106
Sept. to Nov. Sow Farrowing Intention	2,717	2,929	2,992	102
Dec. to Feb '99 Sow Farrowing Intentions	2,702	2,918	2,997	103

Total market hog numbers were 3% higher on September 1 than last year. We will soon be marketing hogs out of the market hogs inventory weighing 60-180 lbs. on September 1 and the March-May pig crop. Most of the hogs in these two categories should be going to market during October-December. The 60-180 market hog group was up by 3.6% from last year, while the March-May pig crop was pegged as 4% larger than 1997's.

Using a simple average of the 5 year ratios of the 60-180 lb. market weight group and the March-May pig crop to slaughter results in a projected fourth quarter slaughter of around 26.1 million head, about3.6% larger than last year. It's important to note that only the fourth quarter of 1994's slaughter is larger. The fourth quarter of 1994 brought more hogs to slaughter than processing capacity and record larger slaughter margins. It would appear that total capacity is just up to the kind of kill levels we'll be seeing the next three months, but you can bet the slaughter margins will have to be awfully good to get all the hogs killed. Market weights will be slightly larger than last year and so commercial production for the quarter will expected to register close to a 4% increase.

January to March's slaughter can be estimated from the under 60 lb. weight group on September 1 and from the June-August pig crop. The pig count was up about 1.6% over last year, while the June-August pig crop was up about 2%. Using a combined forecast from the two categories results in a 1999 first quarter slaughter estimate of 24.9 million head, .6% higher than 1998's first quarter. Slightly heavier slaughter weights in 1999 than 1998 would result in commercial production a little more than slaughter, up about 1.1% for the quarter.

Assuming the farrowing intentions prove out with trend line increases in pigs per litter, slaughter in the second quarter of 1999 would come in at almost 24.7 million head or about 4.5% greater than this year's April-May slaughter. The third quarter slaughter would project out to around 25.6 million head or 1.6% larger than this July-September's slaughter. With lower feed cost during the spring and summer of 1999, resulting slaughter weights could be higher than this year.

Sow slaughter has increase significantly the last few weeks but gilt slaughter data does not indicate a full blow liquidation is under way. These indicators suggest that the farrowing intentions, and particularly those for December-May, may be slightly on the high side, but not by much. It may well be the end of 1999 before any cut back in production is seen. With harvest time corn prices noticeably lower than last year, its hard to imagine the corn belt producers folding their tents. Just how and when the industry cuts production is very uncertain at this point.

*** Forecast based on hog/corn ration and lagged production changes
 
 

Imports/Exports and Net Production Changes
 

The U.S. became a net pork exporter in 1995. From a net import position equaling about 7.5% of production in 1987, imports have declined, while exports have increased. 1998 exports will exceed imports for the third year, growing from net exports of 110 million pounds in 1995 to 600 million pounds in 1998. Lower pork prices are offsetting stronger importer's currencies to help keep 1998 exports strong. Through the first 6 months of 1998, pork exports were up more than 37% while imports were unchanged. USDA predicts that exports will be up about 20% for the year followed by a 4% growth in 1999.

Offsetting some of the gains in exports are larger live hog numbers coming from Canada at least in part because of the exchange rates. Through the first half of 1998, Canadian imports were up about a half million head. While large, this is still only about 1% of the 48.4 million head first half slaughter.

Pork Demand

U.S. pork demand is about the only thing to cheer about and it hasn't helped pork producers - yet. Even with the large pork supplies moving through the system, retail prices have only fallen marginally. Despite a 10% increase in production the first half of the year, retail prices were down only fractionally (230.5 vs 229.9). The July composite retail price was also about a cent less than July 1997 at 231 vs 232.7. has apparently resumed a decline which began in the early 1970's.
 

Live Hog Price Forecast

Iowa/Southern Minnesota direct prices for #1-3, 220-260 lbs. market hogs are forecast based on the combination of two models. Iowa/Souther Minnesota is chosen since most Southern market prices are based in some way on reported prices in this market. One model used is simply an updated 5 year seasonal index model using the most recent monthly price as the base yearly price. The second model is a yearly updated model relating net production changes to live hog price changes. The mid-point price forecast using each method is presented along with the updated seasonal price index.
 

Price forecast based on a combination of the two forecast methods have proven to be more efficient than either individual method. I would tend to lean toward the forecast based strictly on projected supply changes from the hog and pig report from summer forward. Keep in mind the projections from April forward are based on sow farrowing intentions as of September 1.

Implications Of The Forecast

Obviously, unless something changes in a hurry, pork producers are in for a continuation of a very tough situation. Average Georgia producers have had prices below cash cost for almost a year now. Hogs sold in September are losing an average of $24/head. That their cost are coming down with grain prices is of little consolation to those facing such losses. Many producers in other regions have had opportunities to sign cost plus type long term contracts, but not in the South. However, these contracts are now putting pressure on packers who have a large percentage of hogs tied to such contracts. Some packers are now attempting to renegotiate the cost plus type contracts. About the best that can be said of the situation is that those producers who have the courage and cash to hold to growth plans will find plenty of opportunities.

1. ¹ Southern Regional Outlook Conference, Atlanta, Georgia, September 28-29, 1998

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