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Hog producers cutting back herds in response to high feed costs

By Jean Caspers-Simmet

Date Modified: 11/21/2012 1:14 PM

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CLIVE, Iowa —With mounting red ink due to record feed costs, USDA's Quarterly Hogs and Pigs Report released Sept. 28 shows producers are quickly cutting production, said the three marketing economists who participated in a conference call sponsored by the National Pork Board.

"One of the main items I was looking at was the size of the breeding herd," said Altin Kalo, chief economist at Steiner Consulting Group in Manchester, N.H. "USDA had it pegged at 5.788 million head, a 0.43 percent reduction from a year ago. The previous quarter it was up 1 percent. The question coming into the report is how do you reduce the breeding herd enough consistent with what's going on in feed markets?"

The reduction came in the number of gilts being retained in the sow herd, Kalo said. Normally the ratio of retained gilts is 95 percent to 96 percent vs. the slaughter number. This quarter the ratio dipped to 85 percent.

"We made a U-turn," Kalo said. "Coming into May and June, producers were looking to expand the herd, but now we're looking at a dramatic reduction in the breeding herd."

"if you've been following what's been going on in the hog industry the last few weeks, we've had a tremendous increase in hog slaughter and tremendous drop in hog prices in the last couple months," said Ron Plain, professor of agricultural economics at the University of Missouri at Columbia, Mo. "We started August with carcass prices of $90 per hundredweight. By mid-September we were down to $63. Why we dropped off so fast is related to how many hogs we're slaughtering. We had a huge hog slaughter this fall."

For Plain the $64,000 question is did USDA miss the numbers and are there more hogs out there or were producers simply responding to record high feed costs and lots of red ink in feeding them and moving hogs to the packing plant sooner than normal?

"Based on USDA market hog numbers, it was definitely the latter," Plain said. "The good news is that slaughter should drop off relative to what it had been and the opportunity for hog prices to rebound a bit."

"It's pretty obvious the industry has gone into a significant contractionary mode as far as intentions go," said Dan Vaught president of Vaught Futures Insight in Altus, Ark. "It's probably faster than a lot of people expected, but not terribly surprising given the big surge in corn prices. We're looking at significantly smaller hog and pork supplies next spring and summer, and probably significant increases in prices."

Vaught said there will be an upward surge in litter sizes in the next couple of reports.

"When producers liquidate their herds, they get rid of the least productive animals," Vaught said. "They are probably much more serious about husbandry as each animal accounts for so much."

Kalo sees prices of $76 (Iowa-Minnesota carcass price) per hundredweight in the fourth quarter of 2012, $83 in the first quarter of 2013, $97 in the second quarter, $99 in the third and $87 in the fourth quarter.

Plain forecasts a fourth quarter price of $74 per hundredweight. Prices will move up to $79 in the first quarter, $93 in the second and third and $84 in the fourth.