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Hogs, pigs report shocks analyst with big numbers

By MEGGIE I. FOSTER
Assistant Editor

WASHINGTON, D.C. — While everything seemed to signal for liquidation in the hog industry, the USDA’s Hogs and Pigs Report released last Friday told an opposite story, a staggering 6 percent increase in pig inventory.

Despite the fact that many producers are losing substantial amounts of money per head, Ron Plain, professor of agricultural economics at University of Missouri and Farm World’s Hog Outlook columnist said that as of June 1, the hog industry was in an expansionary mode. The report showed the spring quarter pig inventory up 4 percent from last year and total hog and pig inventory up nearly 6 percent.

According to the Chicago Mercantile Exchange (CME), the report was “bearish” in that most numbers came in on the high side of what the market was expecting and will likely put additional pressure on hog futures.

“There were definitely more hogs than we expected to see in the inventory and unfortunately that means hog prices will continue to be disappointing through the rest of 2008,” said Plain. “Producers can expect to see a lot of red ink this fall and we may see more sows being pushed off the farm.”

Additionally, the report showed that the number of feeder pigs was 3.7 percent higher than a year ago while sow farrowings from March to May were up 1.9 percent. According to the CME commentary following the report, this implies hog slaughter for the 4th quarter of 2008 will be near 2.5 percent higher than the all time record levels of a year ago.

“The light at the end of this tunnel is not close for pork producers,” said Plain. “For some producers, this may be the right time to get out. It’s going to have to happen or prices will not stabilize.”
Plain said that producers who own hogs and purchase grain off the farm will suffer the greatest loss, while contract finishers will likely fare the best.

“Contract growers don’t own the pigs so they will do well, and they will be even better off if they raise their own corn,” Plain said. “It’s going to be a tough year in ’08 and unfortunately into 2009.”

The good news for producers, Plain added, is that farrowing intentions for the fall dropped 4 percent, implying an eventual drop in pig inventory well into 2009. “This gives you some hope, but for many producers it’s just not soon enough,” he explained.

Even better news for producers showed as a result of improved numbers in pig performance, Plain indicated.

“We noticed a tremendous improvement and even a record in pigs per litter,” he said. “It looks like pig performance is doing quite well with more pigs per litter and a reduced death loss toping the marks.”

While producers are doing well in every other category, they are unfortunately swimming in pig inventory.”

As cautionary economic advice goes, Plain advised producers to “sell em light. This is no time to keep em big.”

He encouraged producers to forward price future hog sales when available.

And unfortunately for some producers, Plain said it may be the time to hang up the boots and liquidate the pig herd.

“We’re looking at expenses that are much, much higher than income,” he lamented, pointing to the rising cost of feed, particularly with $7 corn on the rise. “It’s a loss some producers just aren’t’ going to be able to make it through.”

7/2/2008