PORK INDUSTRY

State of the

2011

Is the Hog Herd Growing or Shrinking?

From 1996 through 2006, the national average price of corn was $2.11/bu. and the average live hog price needed to cover the cost of production was $39.91/cwt., as calculated by John Lawrence at Iowa State University. Since then, corn has averaged $4.07/bu. and the breakeven price for farrowto-finish operations has averaged $53.11/cwt. It goes without saying that the market wants to buy fewer hogs at $53.11/cwt. than it does at $39.91/cwt. The higher cost of production has forced hog farmers to reduce the swine herd in an attempt to get supply below demand. Hog slaughter last year was 6.1 million, fewer than the 2008 record. The key question at this point is: Have producers cut enough? The answer largely depends on the size of this years corn crop and whether the economy is poised for growth or a slide into another recession. The livestock and poultry industries badly need a record corn crop in 2011. The current record is 13.092 billion bushels harvested in 2009. A corn harvest of at least 13 billion bushels is probably necessary to allow corn to average under $6.50/ bu. A 14 billion bushel crop is likely needed for corn to average below $5.00/bu. for the coming year. Corn at $5.00/bu. means the cost of production for hogs should be near $60/cwt., while $6.50 corn will mean a breakeven live hog price of roughly $68/ cwt. Meat demand is dependent on consumers having money in their pockets and that depends on whether they have jobs. The U.S. economy grew only 1.8% in the first quarter of 2011. Slow economic growth will keep employment low and meat demand weak. If we slip back into a recession, then the strong prices we saw this spring are probably not sustainable. The U.S. sow herd has been shrinking, but sow productivity has been increasing. Pigs per litter during December-February averaged 2% higher than a year ago. The average increase for the previous 10 quarters was also 2%. That may not sound like a big increase, but from 2000 through 2006, the average annual increase in pigs per litter was only 0.5%. More pigs per litter have been offsetting much of the price benefits of a smaller sow herd. Average hog slaughter weight was above the year-ago level by 4 lb. in the first four months of 2011. In part, this is due to genetic progress, but the excellent quality of last falls corn crop also contributed. The U.S. sow herd on March 1, 2011 was up 0.5% from the year before, but down 7.1% from the previous inventory peak set in December 2007. The number of sows farrowed last winter was 0.6% fewer than a year earlier. USDA is forecasting that spring and summer farrowings will be down 2.6%, respectively. Canadian Count Down, Too The Canadian sow herd has declined for 24 consecutive quarters. Their April 1 breeding herd inventory was down 0.2% from a year earlier and down 19.1% from the previous peak in January 2005. Statistics Canada reported first quarter 2011 farrowings were down 2.1%. They also forecast second quarter litters farrowed will be up 0.7%, while third quarter farrowings will be down 0.2%. Combined U.S.-Canadian farrowings are

Ron Plain
Extension Livestock Marketing Specialist University of Missouri

expected to be down 1.9% this spring and down 2.1% this summer. Hogs imported into the United States peaked in 2007 at 10.0 million head. Last year, 5.75 million hogs came south from Canada. This year, USDA is forecasting imports of 5.8 million live hogs with about 82% expected to be feeder pigs. The smaller Canadian swine herd is the primary reason for the decline in live hog imports. Pork Supplies Slip, Exports Rebound U.S. pork exports in 2010 totaled 4.2 billion pounds, up 3.2% from the year before and the second highest ever. This year pork exports are expected to be up 10% or so from 2010. Last year, we exported 18.8% of our pork production and imported 3.8%. This year pork exports are expected to approach 20% of U.S. production and imports are expected to hold around 4% of production.
U.S. Commercial Hog Slaughter National Negotiated Barrow & Gilt Prices

Year Qtr 2011 1 2011 2 2011 3 2011 4 2011 Total 2012 1 2012 2 2012 3 2012 4 2012 Total

1000s % Yr Ago 27,486 99.5 26,000 99.7 27,200 101.0 29,140 99.9 109,831 99.6 27,410 99.7 26,000 100.0 26,900 100.5 29,900 101.0 110,210 100.3

$/cwt-live 61.89 68 - 71 67 - 70 62 - 65 65 - 68 61 - 64 67 - 70 65 - 68 59 - 62 63 - 66

$cwt-carcass 78.85 87 - 91 87 - 91 79 - 83 83 - 87 79 - 83 86 - 90 85 - 89 76 - 80 81 - 85

Not only is there less pork on the market, there are also less competing meats. The long period of low corn prices in the late 1990s and early 21st century resulted in low feed costs and a large inventory of livestock and poultry. U.S. per capita consumption of red meat and poultry increased from 199.1 lb. in 1990 to 221.4 lb. in 2006. More recently, high feed costs have caused herd contraction. Production of pork, beef, chicken and turkey were all lower in 2009 than in 2008. This was the first time all four major meats were down in the same year since 1973. Per capita consumption of red meat and poultry in 2011 is forecast to be 208 lb., down 0.6 lb. from 2010, and down 13.3 lb. from 2007. What Lies Ahead My forecasts for hog slaughter and prices for 2011 and 2012 appear in the accompanying tables. Given an expected 0.4% decline in 2011 hog slaughter and a strong demand picture, I am forecasting hog prices this year will average nearly 16% above the 2010 average. I expect hog slaughter will increase only slightly in 2012, although I expect weights to be a pound or so heavier, leaving 2012 U.S. pork production up 1% compared to 2011. My price forecast for 2012 is slightly below the level for 2011. The good news is that the price forecasts for both years are higher than for any previous years. The bad news is that if corn stays close to $7/bu., both years may be little better than breakeven years.

December 1 U.S. Hog Inventories (Million) 2000 - 2010

Source: USDA

Nebraska Prices for Choice Steers and Barrows and Gilts

100 80

$/Cwt.

60 40 20 0 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Year
Source: USDA

Choice Steers

Barrows & Gilts

October 1 Canadian Hog Inventories (Million) 2000 - 2010

Source: USDA

Breeding Herd Numbers By States*

D Washington Oregon 3 Montana 23 Idah o D Utah 80 North Dakota Minnesota 37 560 South Dakota 170 Nebraska 375 Kansas 170 Oklahom a 410 Texas 60 Alaska 0.2 Hawaii 3 Wisconsin 45 Iowa 1,020 Missour i 355 Arkansas 58 38 Vermont Maine 0.5 1 12 New York Pennsylvania 100
West Virginia

Nevada 0.4 California 8

Wyomin g 28 Colorado 150

Michigan 110

Illinois 480 Indiana

290

Ohio 170

New Hampshire 0.7 Massachusetts 2 Rhode Island 0.5

Kentucky 35
Tennessee 16

1.2

25 Virginia

Arizona 20

New Mexico 0.5

Alabama 16

North Carolina 840 South Carolina Georgia 14

Connecticut 0.8 New Jersey 0.7 Delaware 1.5 Maryland 3

27

Louisiana 2

Mississippi

Florida 3

*per 1,000 head

Source: USDA; Hogs and Pigs Report, December 1, 2010

U.S. Total = 5,778,000

D=withheld to avoid disclosing data from individual operations

35 25 15 5 -5 -15 -25 -35

Estimated Farrow-to-Finish Quarterly Returns to Average Iowa Producers

$/Head

'01
Source: Iowa State University

'02

'03

'04

'05

'06
Year

'07

'08

'09

'10

140

U.S. Per Capita Consumption of Carcass Beef and Pork and Ready-to-Cook Poultry

Pounds

120 100 80 60 40 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10

Year

Source: USDA

Carcass Beef

Carcass Pork

RTC Poultry

500 400 300 200 100 0 '80

Retail Prices for Beef and Pork

$/Cwt

'83

'86

'89

'92
Beef

Year

'95

'98
Pork

'01

'04

'07

'10

Source: USDA

5000 3500 2000 500 -1000 -2500 -4000 -5500

Annual Pork Trade Carcass Equivalent

Million Pounds

'80
Source: USDA

'83

'86
Imports

'89

'92

Exports

Year

'95

'98

'01

'04

'07

'10

Net Imports

Number of U.S. Farms with Hogs

Annual Marketings
Farms with Hogs
300,000

250,000
200,000 150,000 100,000

50,000
0 '91 '93 '95 '97 '99 '01 '03 '05 200-999 '07 '09 1000+ '11*

Source: USDA and *2011 Projections by Ron Plain

All Farms with Hogs

Under 200

Year

Farms with Annual Marketings

<200 200-999 1,000-1,999 2,000-3,999 4,000+ All Farms

2009
50,400 6,100 3,200 3,550 8,200 71,450

2010
48,200 4,800 2,600 3,600 8,500 67,700

Percent Change
-1.6% -7.7% -7.1% -1.4% 0.6% -2.0%

Hogs per Farm and Farms with Hogs

Number of Farms
300,000 250,000 200,000

United States

1,200 800

150,000
100,000 50,000 0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

600
400 200 0

Source: USDA

# Farms with Hogs

Year

# Hogs per Farm

Hogs per Farm

1,000

Growing Share of Larger Operations

The number of operations marketing 1,000-4,000 hogs per year has, for the most part, decreased since 1993. Those marketing over 4,000 head per year has been increasing since 1993. Smaller operations marketing less than 1,000 head make up the largest percent of operations.

Hogs and Pigs: Percent of Operations by Size Group in the U.S.

100 90 Percent by Operations 80 70 60 50 40 30 20

10
0 Under 1,000 1,000-1,999 2,000-3,999 Hogs Marketed 1993 2000 2005 2010 Over 4,000

Source: USDA

Large Units Produce Growing Percent of Inventory

Since 1993, the production from operations marketing more than 4,000 hogs per year has increased from 33% to 86% of the U.S. total.

Whereas, since 1993, the production from operations marketing less than 1,000 hogs per year has decreased from 28% to 2.9%

U.S. Annual Hog Marketings by Size of Operation

100 90 80 Percent of Marketings 70 60 50 40 30 20 10 0 Under 1,000 1,000-1,999 1993 1999 2,000-3,999 2004 2009 Over 4,000 Hogs Marketed
Source: USDA

Top Pork Producing States Contain Large Market Share

Iowa and North Carolina contain 43.1% of the United States hog inventory. The top four pork producing states account for over 61% of the total United States inventory. Minnesotas market share was 11.1% in 2009. North Carolinas market share was 14.7% in 2009.

2010 Market Share

13.7 24.6 6.7 13.7 29.4

12.0

Source: USDA

Iowa Minnesota Other Top 10 States

North Carolina Illinois Other U.S. States

Hogs and Pigs: Percent of U.S. Hog Inventory in Top Pork Producing States
Iowa
35 33 31 29 27 25 23 21 19 17 15 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Breeding Herd

North Carolina
18 16 14 12 10 8 6 4 2 0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Breeding Herd

Percent

Year

Percent

Market Hogs

Year

Market Hogs

Minnesota
13 12 11 10 9 8 7 11 10

Illinois

Percent

Percent
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Breeding Herd

9 8 7

6
90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Breeding Herd

Year

Market Hogs

Year

Market Hogs

Source: USDA

Growing Interest in Arid Regions of the United States

Since 1992, states in the arid regions of the United States have become growth centers for the pork industry. However, it is important to keep the growth in perspective. Since 1992, Oklahoma and Utah have both had inventory increases of 871% and 1,582%, respectively. Hog numbers in both Oklahoma and Minnesota have increased at least 2 million head over the past 17 years.

State Oklahoma Colorado Utah

1992 Inventory (1,000)

2010 Inventory (1,000)

Change (1,000)

% Change

240
410 44 4,700 510 106 35

2,330
720 740 7,700 660 165 99

2,090
310 696 3,000 150 59 64

871%
76% 1,582% 64% 29% 56% 183%

Minnesota
Texas Arizona Wyoming
Source: USDA

Hogs and Pigs: Breeding, Market and Total Inventory, by State and United States December 1, 2010

Source: USDA *Indicates states with least total hogs

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