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High input costs, drought having little impact on farms’ hog herds
Iowa Correspondent

CLIVE, Iowa — Even with last month’s hog numbers dipping 2 percent from last September’s total, and slightly down from December 2011, high input costs and the continuing drought didn’t appear to have much impact on U.S. pork production.

“We’re somewhat surprised at the latest inventory report,” said Ron Birkenholz, communications director at the Iowa Pork Producers Assoc. in Clive. “As the drought strengthened this past summer, we heard about producers culling sow herds and cutting back.
“But December’s numbers don’t reflect any downsizing in the industry, at least in Iowa. We expected the numbers to be down from a year ago and they’re not.”

The Dec. 1 USDA Quarterly Hogs & Pigs report, released Dec. 28, stated U.S. inventory of all hogs and pigs on Dec. 1 was 66.3 million head, down slightly from the Dec. 1, 2011, 65.9 million head. September 2012 hog numbers, at 67.5 million head, were slightly up from September 2011 and up 3 percent from the June 2012’ total.

Bob Brown, an independent meat market consultant in Edmond, Okla., joined Kevin Bost, president of Procurement Strategies, Inc. in Des Plaines, Ill., to analyze the latest USDA hog report on Dec. 28. As the nation’s leading hog producer, Iowa had 20.6 million hogs and pigs, the report said, unchanged from September 2012, but up 3 percent from 2011’s 20 million count.

North Carolina, the nation’s second largest hog producer, had 9 million head, and Minnesota, the third largest hog producer, showed 7.2 million head, the report read.

In addition, the report stated Indiana’s total was 3.8 million, which remained unchanged from the 2011 hog count; Ohio’s hog numbers were 2.045 million, down slightly from 2011’s 2.2 million; Illinois’s total hog number was 4.6 million head, down slightly from 4.65 million total; and Kentucky reported 3.15 million total head, up significantly from 3.2 million in 2011.

Moreover, Michigan’s total was 1.08 million, up from 2011’s 1.05 million; Tennessee reported 1.5 million, down slightly from 1.7 million head; and Missouri’s hog total was 2.75 million, which remained unchanged from its 2011 total.

The report said U.S. breeding inventory, at 5.82 million head, was up slightly from 2011 and also up slightly from the previous quarter in 2012, with market hog inventory at 60.5 million head, down slightly from 2011 and down 2 percent from the previous quarter.
“It appears that the pig crop through 2013 could reach record highs,” Brown said. “Large production units that dominate the U.S. pork industry are constantly turning over their breeding herds, bringing in new genetics. It’s just one thing they all have to do to stay in business. The productivity train just keeps on running.”
The September-November 2012 pig crop, at 29.4 million head, was up slightly from the same time in 2011. Sows farrowing during this period totaled 2.9 million head, down 1 percent from 2011. The sows farrowed during this quarter represented half the breeding herd.

The report stated Iowa’s September-November 2012 pig crop was 5.2 million head, with a total of 505,000 sows farrowed, at an average litter size of 10.3 pigs per sow. The USDA report stated average pigs saved per litter was a record high 10.15 for the September-November period, compared to 10.02 in 2011; pigs saved per litter by size of operation ranged from 7.6 for operations with 1-99 hogs and pigs to 10.2 for operations with more than 5,000.

Bost expects first quarter 2013 hog slaughter levels to be as the USDA reported, with no reduction in the second through the fourth quarter from 2012’s registered slaughter numbers.

“Beyond that, there will be a bigger increase than the market has priced in,” he said. “That is not what the market has been expecting up to now.”

Moreover, U.S. hog producers intend to have 2.86 million sows farrow during the December 2012-February 2013 quarter, up slightly from the actual farrowings during the same period in 2012 and up 1 percent from 2011, the report read. Intended farrowings for March-May 2013, at 2.93 million sows, are down 2 percent from 2012 but up slightly from 2011.

The total number of hogs under contract owned by operations with more than 5,000 head, but raised by contract farmers, accounted for 47 percent of the total U.S. hog inventory, up from 45 percent in 2011.

Steve Meyer, president of Paragon Economics, Inc. in Des Moines, said high feed costs may be why U.S. hog producers weren’t reducing their herds. “An increasing number of producers have been actively managing risks and margins, and have been able to avoid the losses indicated by cash markets,” he said. “Producers came into this summer and fall in better financial shape than many of us expected.”

In a Jan. 3 CME Group report, Meyer and Len Steiner, a principal in Steiner Consulting Group in Manchester, N.H., said it’s safe to expect weights to remain that much lower than year-earlier levels, at least through the first half of 2013.

“The second half depends completely on feed costs,” they wrote. “Reported reductions of Europe’s output – and we should note that there is little consensus on the size of the cut, and some disagreement on whether there will actually be a reduction – should provide opportunities for U.S. exports to grow again.”

Meyer and Steiner said the USDA’s latest report was, as expected, “bearish with every lean hogs futures contract losing value on Monday. The damage was least for the nearby February contract, which only fell by 65 cents per cwt.” they wrote. “From April forward, though, 2013 calendar year futures prices fell by $1.25 (August) to $1.875 (May).

“February and April 2014 futures were $1.45 and $1.20 per cwt. lower, respectively,” which were price changes the two analysts said they expected.

This year, Meyer said, U.S. producers are hoping for a better growing season, along with adequate moisture to produce more yields than last year. “There are huge risks being taken by producers currently,” he said. “From my perspective, and from what I see in the industry, everything is on the line.”