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					2004 Iowa Pork Congress

                                 Hog
                               Market
                               Forecast
Ron Plain, Ph.D.
Professor of Agricultural Economics
University of Missouri-Columbia
www.ssu.missouri.edu/faculty/RPlain
U.S. Per Capita Meat Consumption
         Retail Weight, 1960-2003
U.S. Per Capita Meat Consumption
         Retail Weight, 1960-2003
      Compared to 1960

• Today, the average American
  annually consumes 59 pounds
  more meat, 57 pounds of which is
  chicken.
       One Cow in Alberta


On May 20, Canada announced they had
 found a cow in Alberta with BSE. Most
countries immediately stopped importing
       Canadian cattle and beef.

9% of the beef Americans ate in 2002 came
        from cattle born in Canada
     One Cow in Washington


On December 23, USDA announced they
had found a cow in Washington with BSE.
  Most countries immediately stopped
      importing U.S. cattle and beef.


9% of U.S. beef production in 2002 was exported
April 2000 was record high
February 2000 was record high
U.S. Pork Production, 1930-2002




           Trend: +1.5%/year
    Pork Production & Profitability

• In those years after     • In those years after
  1964 when pork             1964 when pork
  production was             production was
  below the 1.5%             above the 1.5%
  trend, Iowa hog            trend, Iowa hog
  producers averaged         producers averaged
  a profit of $14.99 per     a net loss of $0.22
  hog sold.                  per hog sold.
  Iowa Farrow to Finish Profits, 1965-2003




Source: John Lawrence, Iowa State University
  Iowa Farrow to Finish Profits

  • 1967-78                  $15.61 per hog sold




Source: John Lawrence, Iowa State University
  Iowa Farrow to Finish Profits

  • 1967-78                  $15.61 per hog sold
  • 1979-90                  $ 9.57 per hog sold




Source: John Lawrence, Iowa State University
  Iowa Farrow to Finish Profits

  • 1967-78                  $15.61 per hog sold
  • 1979-90                  $ 9.57 per hog sold
  • 1991-02                 -$ 0.04 per hog sold



Source: John Lawrence, Iowa State University
  Iowa Farrow to Finish Profits, 1994-2003




       The typical U.S. producer has lost money 22 of last 26 months




Source: John Lawrence, Iowa State University
Correlation of Daily Hog Slaughter & Lagged Profit
U.S. Pork Industry Structure Study, 2001




                 U.S. Marketings by Producer Size
       Hogs
       marketed
       annually                            1988              1991              1994              1997              2000

       Under 1,000                          32%               23%               17%               5%                2%
       1,000-1,999                          19                20                17               12                 7
       2,000-2,999                          11                13                12               10                 5
       3,000-4,999                          10                12                12               10                 7
       5,000-9,999                           9                10                12               10                10
      10,000-49,999                         12                13                13               16                18
      50,000 & up                            7                 9                17               37                51

University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics, and
Research Institute for Livestock Pricing
U.S. Pork Industry Structure Study, 2001




                  Percent of Farms with a Profit in 2000
               Size Class
               (no. head)




                                                                     Percent

University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics,
and Research Institute for Livestock Pricing.
Changes in industry structure


The modern hog industry is more
 difficult to downsize than the
 traditional industry
  January-December 02 Hog Prices
                           Carcass Price
  • Negotiated base price                            $45.54/cwt
  • Average net price                                $49.70/cwt

 January-December 2003 Hog Prices
                           Carcass Price
  • Negotiated base price                            $52.00/cwt
  • Average net price                                $55.21/cwt

Source: USDA/AMS Prior Day Slaughter Reports, simple average
                  Barrow & Gilt Sales
                                                   % of marketings
                                                   2002      2003
•    Negotiated hogs                               14.66     13.28
•    S/P Market formula                            43.39     39.15
•    Other market formula                           9.27      7.63
•    Other purchase agreement                      13.01     19.01
•    Packer sold                                    2.24      2.11
•    Packer owned                                  17.42     18.82
    Source: USDA/AMS Prior Day Slaughter Reports
              National Net Hog Prices
           US$ per 100 pounds of carcass weight
•                              2002                                 2003
•    Negotiated hogs          $47.02                               $53.52
•    S/P market formula       $48.71                               $54.65
•    Other market formula     $51.32                               $56.04
•    Other purchase agreement $54.87                               $57.20
•    Packer sold              $51.02                               $57.40

    Source: USDA/AMS Prior Day Slaughter Reports, simple average
Prior Day Base Price for Negotiated Purchases
  •                                        2002      2003
  •   National report                      $45.04   $51.82
  •   ECB report                           $44.59   $51.54
  •   WCB report                           $45.34   $51.95
  •   Iowa-Minn report                     $45.29   $51.85
      – ECB/national premium               -$0.45   -$0.28
      – WCB/national premium                $0.30    $0.13
      – I-M/national premium                $0.25    $0.03

Source: USDA/AMS Prior Day Purchased Reports
January-December 03 Hog Prices
National Base Price for Negotiated Purchases

 • Morning report                    $51.39/cwt
 • Afternoon report                  $51.69/cwt
 • Prior day report                  $51.82/cwt
     – Afternoon/morning premium          $0.30
     – Prior day/morning premium          $0.43


Source: USDA/AMS Hog Price Reports
      Share of Reported Negotiated Hogs




Source: USDA/AMS National Hog Price Reports
   Mandatory Price Reports

• The law creating the USDA/AMS
  mandatory cattle-beef-hog price
  reports expires in October 2004.
The Hog Cycle
U.S. pork production is becoming more predictable
        U.S. Commercial Hog Slaughter
               Quarterly Data, 1970-2003
But, U.S. hog prices are still highly variable
       Terminal Market Barrow & Gilt Price
                   Quarterly Data 1970-2003
        ELASTICITY

• The fundamental relationship
  between hog production and hog
  price is changing.
           Hog Price Flexibility
             Quarterly Data 1970-2003




% ch T Mkt B&G price / % ch com hog slt
In the last 6 years live hog prices have
stayed between $8/cwt and $68/cwt…


and there is a good chance they will trade
within this same range most of the time in
the next 6 years
Seasonality
      July-November Changes
• Daily Pork Production   • Barrow & Gilt Prices
• 1970s          +30%     • 1970s         -11%
      July-November Changes
• Daily Pork Production   • Barrow & Gilt Prices
• 1970s          +30%     • 1970s         -11%
• 1980s          +24%     • 1980s         -13%
        July-November Changes
•   Daily Pork Production   •   Barrow & Gilt Prices
•   1970s          +30%     •   1970s         -11%
•   1980s          +24%     •   1980s         -13%
•   1990s          +20%     •   1990s         -20%
Production Efficiency
Pigs Per Litter, 1930-2002
   USDA Hogs & Pigs Reports
Pigs Per Litter, By Herd Size, 1996-2003
Litters Per Sow Per Year, 1930-2002
Average Hot Carcass Weight, 1965-2002
Annual U.S. Pork Production Per Sow, 1960-2002

                         +4% per year
Sow & Gilt Inventory, 1996-03
Sow & Gilt Inventory, 1996-03
Pigs Born in Canada, 1996-03
Canadian Hog Production, 1976-02
Terminal Market Barrow & Gilt Prices, 1950-2003
Deflated Barrow & Gilt Prices, 1950-2003
Cost of Production
Cost of Slaughter Hog Production
Iowa State University Calculations, 1987-2003
International Trade
Source: USDA/FAS
Source: USDA/FAS
                   Taiwan broke with FMD in March 1997




Source: USDA/FAS
    Vulnerable Pork Exporters
                   2002 Exports   Exports as %
Country            1000 m tons    production

Canada               863            46.8%
Hungary              125            26.0%
Brazil               590            23.0%
U.S.A.               731             8.2%
E.U.                1194             6.7%
Poland                93             5.7%

Source: USDA/FAS
Source: USDA/FAS
   Top 12 Pork Producing Countries - 2002
                   Thousand Metric Tons

1. China       43,266               7. Russia        1,630
2. E.U.        17,825               8. Japan         1,236
3. U.S.A        8,929               9. S. Korea      1,153
4. Brazil       2,565              10. Philippines   1,095
5. Canada       1,854              11. Mexico        1,085
6. Poland       1,640              12. Taiwan          900

Source: USDA/FAS
   Top 12 Pork Producing Countries - 2002
                   Percent Change from 1997

1. China       20.3%          7. Russia           3.8%
2. E.U.        12.1%          8. Japan           -3.7%
3. U.S.A       14.0%          9. Mexico         15.4%
4. Brazil      66.6%         10. Philippines    21.5%
5. Canada      46.8%         11. S. Korea       32.1%
6. Poland       6.5%         12. Taiwan        -12.6%
                    World      16.2%
Source: USDA/FAS
Pigs Per Breeding Animal, 1996-03
2002 was the 11th consecutive record year for U.S. exports
U.S. Pork Imports & Exports, 1998-2003
U.S. Pork Exports By Destination
             2002
U.S. Pork Imports By Origin
           2002
U.S. Pork Exports, Jan-Nov 03
•   Country         % Ch Yr Ago
•   Japan            + 4.0%
•   Mexico           + 6.7%
•   Canada     -   0.4%
•   S. Korea         + 16.8%
•   Total            + 6.3%
Exchange Rate: Can $ Per US $
Sows Farrowed-U.S. & Canada Combined
Estimated Gilt Retention & Sow Loss, 2001-2003
               GG Cattle & Hog Fax
Average Daily Sow Slaughter
Sow & Boar Imports
Average Daily Slaughter Domestic Sows
USDA Dec Hogs and Pigs Report
Actual & Predicted Change in Hog Slaughter
    U.S. Weekly F.I. Hog Slaughter, 2003-04
Actual & Predicted Change in Hog Slaughter
    U.S. Weekly F.I. Hog Slaughter, 2003-04
Cold Storage Stocks – 12/31/03
   Percent Change From Year Ago

 • Pork:          up    0.5%
 • Beef:          down 24.5%
 • Chicken:       down 20.7%
 • Turkey:        down 13.0%
Terminal Market Barrow & Gilt Price
U.S. Weekly F.I. Hog Slaughter
U.S. Weekly F.I. Hog Slaughter
U.S. Weekly F.I. Hog Slaughter
       Forecast: Slaughter Up in 2004




Note: Q1 04 has 1 extra slaughter day
Note: Q4 04 has 1 less slaughter day
    Iowa-Minn Live Hog Price Forecast
    Negotiated Base Price Per Live Hundredweight

      2003                              2004
•   Q1*      $34.19           •   Q1         $36-39
•   Q2*      $41.80           •   Q2         $39-42
•   Q3*      $41.40           •   Q3         $38-41
•   Q4*      $36.89           •   Q4         $32-35

• Year*      $38.57           • Year         $36-39

           *actual price – prior day purchased
     Iowa-Minn Carcass Price Forecast
    Negotiated Base Price Per Carcass Hundredweight

        2003                             2004
•   Q1*        $46.20           •   Q1            $49-52
•   Q2*        $56.48           •   Q2            $53-56
•   Q3*        $55.95           •   Q3            $51-54
•   Q4*        $49.85           •   Q4            $45-48

• Year*        $52.12           • Year            $49-54

            *actual price – prior day purchased
Summary of the Good News
Pork exports are strong
Domestic meat demand is up
Adequate slaughter capacity
         Survival
It is not the strongest of a species
that will survive, nor the most
intelligent; but the most adaptable
to change.
              --Charles Darwin

				
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