Hog producers are on track for a third consecutive year of profit. "If that occurs, accumulated earnings will be large enough to encourage further expansion," says Chris Hurt, Purdue University Extension marketing specialist.
Hurt expects first half 2006 production to rise just 1%. However, second half production may climb about 3%. He expects the best prices to come in the first half of 2006 with weaker prices in the last half.
"Record production will come from a combination of a small rise in U.S. sows farrowed, more pigs per litter and some increase in the number of pigs from Canada," says Hurt. "Weights will likely rise by about 0.3% in 2006.
Producers should earn around $6 per cwt. profit
"Prices on a live basis for 51% to 52% lean carcasses averaged near $50 in 2005," says Hurt. "With larger production, slowing pork export growth, rising Canadian live hog imports and widening U.S. marketing margins, hog prices will probably average closer to $46 in 2006."
Hurt expects winter prices to average in the mid-$40s, then move into the higher $40s for the spring quarter.
"Summer prices may be a bit discouraging after having averaged above $50 for the past two years," cautions Hurt. "We think third quarter prices will begin near $50 in July, but weaken to below $45 at the close of September. Fall prices are expected to drop further, and average in the $42 to $45 range.
"With costs of production anticipated to be slightly under $40, producers can look forward to about $6 of profit per live hundredweight for the year," he says. "That would be down from $9 to $10 in 2004 and 2005."
Eastern Corn Belt farrowings recovering
"Overall, the U.S. breeding herd has been trending lower as a result of the sow herd shifting to Canada and higher productivity," explains Hurt. "The U.S. breeding herd dropped from near seven million head in 1998 to about six million by 2002. Since then, the breeding herd has been in a narrow range from 5.9 to 6.1 million head.
"The current 0.7% rise in the breeding herd is extremely small by historical standards, but is the largest annual gain since 2000. The 2005 expansion was an increase of 42,000 head."
Hurt says that evidence points to those 42,000 sows being added in the eastern Corn Belt. USDA's December report showed a rise of 35,000 head in the region with four of the five states in the region up as well. These were: Indiana at 20,000; Illinois, 10,000; Ohio, 10,000; and Wisconsin, 5,000. Only Michigan had a reduction of 10,000.
"Perhaps this is signaling a reversal of the longer-run trend of the breeding herd moving away from the eastern Corn Belt," says Hurt. "In 1990, 27% of the U.S. breeding herd was in the eastern Corn Belt. That portion declined steadily to a low of only 17.2% in 2004. So, is the eastern Corn Belt coming back? It is too early to tell from the data, But it will be interesting to watch in coming years."