Feedstuffs is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

LIVESTOCK MARKETS: Pork outlook turns sour

LIVESTOCK MARKETS: Pork outlook turns sour
Hog prices have collapsed far below break-even levels.

Packer capacity concerns increased further after the U.S. Department of Agriculture (USDA) National Agricultural Statistics Service (NASS) released Oct. 3  the latest “Quarterly Hogs and Pigs” report, showing a larger-than-anticipated number of hogs.  U.S. inventory of all hogs and pigs on September 1, 2016 was 70.9 million head, a 2% increase from the same period last year and a 4% increase from the June report. 


“There is worry that there are more hogs headed to market this fall than available packing capacity, and the latest USDA inventory indicates there are more hogs than had been anticipated,” said Purdue University agriculture economist Chris Hurt. “These factors are providing a sour taste for the industry's financial outlook through 2017.”

In fact, he said hog prices have collapsed to levels far below breakeven levels.

Producers indicated that the number of market hogs was up nearly 3% on September 1, and numbers in the heaviest weight categories increased 4%. This is consistent with September slaughter numbers that were about 5% higher. However, Hurt said the greatest concern was in the last half of September when the packer head counts were almost 18% higher.

“Over the past two weeks, slaughter numbers have averaged about 2.45 million head per week and packer capacity is thought to be around 2.5 million head per week. This means capacity is just 2% higher than the head counts for the past two weeks.”

Capacity issues should be somewhat alleviated by the end of the year as the USDA report suggested the numbers will be up 4% in October, but then is expected to drop to 3% higher in October. They are expected to be 2% higher by December. If those projections are correct, Hurt said packer capacity will be sufficient. However, some analysts suggested slaughter has actually been closer to 6% higher than last year.

The nation's breeding herd was reported as up just 0.5%, which Hurt said continues a modest expansion that began in 2014 following record high hog prices and record producer profits.

“While the breeding herd expansion has remained small this year, the number of pigs per litter is setting new records.”

The summer weaning rate increased nearly 2% to a record 10.58 pigs per litter. Hurt said the annual rate for 2016 is expected to reach a record 10.5 pigs per litter. Farrowing intentions for this fall were unchanged from a year-ago, and were down slightly for the winter. Even with the number of pigs per litter rising about 1% per year, he said the modest farrowing reductions will still result in increases in pork production in 2017.

According to Hurt, market weights dropped a bit more than 1% in September and could be an indication that producers have recently been pulling some hogs forward to avoid even lower prices later in the fall. “If this is the case, it may provide some relief to slaughter numbers into October and November.”

Pork supplies are expected to be up 2-3% in the final quarter this year. Pork production in the first quarter of 2017 is expected to be up 1% and then be unchanged to up 1% for the second and the third quarters next year.

Hog prices have been dropping due to the larger-than-anticipated market hog numbers, concerns about inadequate fall packer capacity, and increasing supplies of competitive meats, Hurt noted. In fact, he said national lean prices on a liveweight basis have fallen to the higher $30s, prices not seen since 2008 and 2009 when the Great Recession weakened meat demand. Liveweight prices are expected to average in the mid-to-higher $30s this fall, in the higher $30's this winter, and then in the mid-to-upper $40s for the second and third quarters of 2017. Hog prices averaged about $50s in 2015, but will drop to an average near $46 this year and to around $43 next year, Hurt said.

Even though lower corn and soybean meal prices this fall will drop estimated costs of production to about $47-48/cwt., estimated losses will be $25-30 per head. “Losses are expected to moderate in the spring and summer of 2017 and intensify once more in the fall of 2017.”

For the year 2016, estimated losses are about $10 per head and for 2017, projected losses are at $16 per head.

The issue of inadequate packer capacity is expected to be eliminated in 2017 with the opening of two new facilities in Iowa and Michigan, which Hurt said will expand capacity by around 6%.

“With the recent squeeze on capacity, packer margins have been strong. The new capacity should reduce packer margins and provide the opportunity for farm level prices to be higher. However, this is not likely to be helpful this fall and winter.”

For the time being, however, Hurt said losses are expected to be large this fall and winter, and at levels not seen since late 2012.

“Expected losses for 2017 should begin to move the industry toward thoughts of reducing the breeding herd. If price prospects do not improve it will likely be the second half of 2017 when a movement toward liquidation gets underway. This means that hog prices could begin to improve in the spring of 2018.”

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.