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WASHINGTON - Pork production is on the increase and prices are expected to remain well above last year's according to the Quarterly Hogs and Pigs report published March 29 by the U.S. Department of Agriculture's National Agricultural Statistics Service (NASS).

But just days after the report was released, China announced a 25 percent tariff on U.S. pork that went into effect April 2, 2018.

As of March 1, there were 72.9 million hogs and pigs on U.S. farms, up 3 percent from March 2017, but down 1 percent from December 1, 2017.

Other key findings in the report were:

  • Of the 79.2 million hogs and pigs, 66.7 million were market hogs, while 6.20 million were kept for breeding.
  • Between December 2017 and February 2018, 32.3 million pigs were weaned on U.S. farms, up 4 percent from the same time period one year earlier.
  • From December 2017 and February 2018, U.S. hog and pig producers weaned an average of 10.58 pigs per litter.
  • U.S. hog producers intend to have 3.08 million sows farrow between March 2018 and May 2018, and 3.16 million sows farrow between June 2018 and August 2018.
  • Iowa hog producers accounted for the largest inventory among the states, at 22.6 million head. North Carolina and Minnesota had the second and third largest inventories with 8.90 million and 8.50 million head, respectively.

Three agriculture economists Dan Bluntzer, Kevin Bost and John Nalivka weighed in on the report during a roundtable hosted by the National Pork Board on March 29.

John Nalivka, president of Sterling Marketing, Vale, OR, said USDA reports revealed little surprises and noted that pork producers were enjoying relatively low corn/meal costs and sound returns through the first two months of 2018 where they made an average of about $26/head until the month of March.

"That's a good return compared to a year ago where that return would have been about half of that," Nalivka said. "At the same time, we’ve seen where packer margins have weakened a little bit a from year ago."

While margins took a hit with the drop in hog prices in March, Nalivka said packers are still maintaining a relatively good cut out value of around $20/head.

"We've seen about a 4 percent increase in slaughter this year and a 5 percent increase in pork production," he said. "And we certainly can’t complain about the demand side of our domestic markets, which have been supported by a strong export market and we expect that to continue."

Breeding herd

Dan Bluntzer, partner and director of research of NFC Markets, Corpus Christi, TX, said the 6.2 million breeding herd reported on March 1 is the largest on record.

"We've actually had a string of six straight quarters averaging 1.7 percent year over year increases," Bluntzer said. "We're on the expansion side of the cycle, and that should continue for the next quarter as we build up the packing capacity with these numbers of hogs."

Pigs per litter were up 1.4 percent over year ago, that makes the third straight quarter of an excess of 1% gain in per litter number.

"This is the first time we’ve increased the breeding herd margin in three years, which follows a pretty healthy expansion in September to December 2018," Bluntzer said. "Certainly there will be no holes in the hog supply at all that we foresee."

Bluntzer said the growth is really shaking up expectations for carryover for next year, barring any increases in grain prices due to weather.

"Another outside market to watch is the beef complex, as there’s no shortage of beef for the next 90-120 days," he said. "But there's plenty of protein to go around for the foreseeable future."

Pigs heading to market

Pigs heading to market have been running close to 2.4 million a week for the past month said, Kevin Bost, president of Procurement Strategies, Elgin, IL.

"It's obvious that the herd is still growing and I guess it’s going to have to grow until producers start losing money consistently which really doesn’t look like it will be any time soon," he said.

The number of kills dropped down to a low of about 2.28 million in June 2017 as an average, but was still up 5 percent from a year ago.

"It looks like the year over year increases in the kills will range from +3 to +5 percent every month through the end of the year," Bost said. "When I combine imports and exports, it just underscores the importance of the export market as well as domestic demand, because they’re both going to have to be pretty stout to absorb this kind of pork supply."

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Bost believes the U.S. pork supply will see its biggest increases in May and June, up 7-8 percent from a year ago during that same period. Production is expected to fall off a bit in July and August (3-4 percent) and will increase to around 5 percent in the fall.

Barring any disturbance in demand, Bost estimates a summer high in hog prices of $85/cwt. (CME lean hog index).

"My guess is that we would have a peak in the CME lean hog index most likely in June. However, I think that June and August will have the highest monthly average around $80/cwt.," Bost said. "The anticipated low point for this fall doesn’t look like it will really be much different than it is right now, which is around $57/cwt. unless something really weird happens with demand."

What could disrupt the flow of pork out of the U.S. is the announcement of the tariff on U.S. pork. The U.S. National Pork Producers Council reported that the U.S. pork industry sold $1.1 billion worth of products to China last year.

If forecasted pig crop/ farrowing intentions are accurate Bost says producers may be looking at a fall low of around $56-57/cwt compared to $54.16/cwt. in September 2017.

Labor challenges

Nalivka says growing hog numbers aren't going to outpace the capacity of the new processing plants coming online this summer.

"The real challenge is having the available labor to run those plants up to capacity or optimum capacity," Nalivka said. "(The labor shortage) has been putting the squeeze on the industry for the past 18 months, especially in areas where you're competing with the guys on the beef side. Labor is probably the most pressing issue in the pork industry right now."

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