Swine Industry Update: Depressed Prices Hit Hard As Numbers Rise

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Mark Greenwood
December 2007

Depressed Prices Hit Hard As Numbers Rise
Ouch! That might be the best way to describe swine economics today. If you are selling hogs on the open market today, and have not locked in any pigs, my best estimate of the losses that you are absorbing range in the neighborhood of $25-$30 a head. Average revenue this month will be around $100-$105 a head, with costs at $125-$135 a head, depending on market weights that you are selling at.

Even producers who did lock in hogs on the board or with the packer have been hit hard by a much wider basis than in the past. Basis will have a tendency to widen when you continually bring 420,000 head a day to the marketplace. This week might set the all-time record for slaughter numbers in our industry.

Yesterday we saw a nice improvement in cut-out value with hams jumping over $10/cwt. Maybe we have seen our bottom on hog prices -- but if we continue to have these types of numbers coming to the marketplace, how will we continue to get rid of the supply that is coming?

Canada Sits in Dire Straits
If you read any swine information at all concerning the Canadian pork industry, it is in dire straits today. They have been facing very tough economic times and have been bringing pigs into the United States either as market hogs or as wean or feeder pigs. Slaughter hogs from Canada year to date are up over 400,000 vs. last year. On the wean or feeder pig side, these numbers are up over 450,000 from a year ago, and in the last 18 weeks these numbers are up over 250,000 over the same period last year. I do not see this trend changing for a while as these numbers continue to flood into the U.S. marketplace.

There are reports of some liquidation occurring in Canada, but it will take at least 12 months (in my opinion) before we see any sign of reduced numbers coming from Canada.


Hog Numbers No Big Surprise
I have struggled the past month or so to understand why people have been so surprised by the numbers that are coming to the marketplace. I want to try and simplify what is happening in the pork industry. The June Hogs and Pigs Report indicated that we had over 56.7 million head of pigs that have been saved to raise to market.

Most producers have vaccinated their pigs for circovirus, and seen a reduction in mortality of at least 4%. If you take 4% reduction in losses times 56.7 million head of pigs, that equals 2.268 million more head of pigs that need to be processed over approximately a 28-week period. That equates to an extra 81,000 head a week or an extra 16,000 head a day. If that number is reduced to a 26-week period, that number goes to 87,000 head a week, or an extra 17,000 head a day in a five-day period.

I also did not mention that we have probably added another 150,000-200,000 sows in the last 18 months, and these pigs have also arrived at the marketplace or the sow productivity improvements that the industry has also achieved. These numbers are very hard to dispute, and we will have more supply coming into the marketplace for a while.

High Feed Prices Offer No Comfort
Don't think that just because feed prices are high that hog prices will be high. I have made this statement in earlier columns that risk management along with production will separate producers in the future. It will be imperative to be proactive in this area to be successful in moving forward in this dynamic marketplace.

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