Ron Plain, Ph.D.Professor of Agricultural EconomicsUniversity of Missouri-Columbiawww.ssu.missouri.edu/faculty/RPlain

Hog Market Forecast

2004 Iowa Pork Congress

0

10

20

30

40

50

60

70

80

90

Million Metric Tons

1997 1998 1999 2000 2001 2002

World Meat Consumption

Pork Poultry Beef

U.S. Per Capita Meat ConsumptionRetail Weight, 1960-2003

170

180

190

200

210

220

230

24060 63 66 69 72 75 78 81 84 87 90 93 96 99 '02

Poun

ds

U.S. Per Capita Meat ConsumptionRetail Weight, 1960-2003

0

20

40

60

80

100

12060 63 66 69 72 75 78 81 84 87 90 93 96 99 '02

Poun

ds

Beef Pork Broilers Turkey Fish

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

2003-04 Beef Production

-25

-20

-15

-10

-5

0

5

10

Percent Change

CHOICE SLAUGHTER STEER PRICESSouthern Plains, Weekly

60

65

70

75

80

85

90

95

100

105

110

JAN

APRJU

LO

CT

$ Per Cwt.

Avg. 1995-99 2001 2002 2003

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

Retail Price of Choice Beef

275

295

315

335

355

375

395

415

435

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cen

ts P

er P

oun

d

Avg 90-99 2000 2001 2002 2003

April 2000 was record high

Retail Price of Pork

240245250255260265270275280

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cen

ts Pe

r Pou

nd

2000 2001 2002 2003

February 2000 was record high

Pork: Farm-Wholesale Price Spread

25

30

35

40

45

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cen

ts /

Ret

ail P

ound

2000 2001 2002 2003

Pork: Wholesale-Retail Price Spread

110

120

130

140

150

160

170

180

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cen

ts /

Ret

ail P

ound

Avg 96-99 2000 2001 2002 2003

U.S. Pork Production, 1930-2002

02,000

4,0006,000

8,00010,000

12,00014,000

16,00018,000

20,00030 34 38 42 46 50 54 58 62 66 70 74 78 82 86 90 94 98 '02

Mill

ion

Poun

ds

Trend: +1.5%/year

Pork Production & Profitability

• In those years after 1964 when pork production was below the 1.5% trend, Iowa hog producers averaged a profit of $14.99 per hog sold.

• In those years after 1964 when pork production was above the 1.5% trend, Iowa hog producers averaged a net loss of $0.22 per hog sold.

Iowa Farrow to Finish Profits, 1965-2003Iowa State University Calculations

-30

-20

-10

0

10

20

30

4065 68 71 74 77 80 83 86 89 92 95 98 '01

Dol

lars

Per

Hea

d

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, 1994-2003Iowa State University Calculations

-70

-50

-30

-10

10

30

5019

94

1995

1996

1997

1998

1999

2000

2001

2002

2003

Dol

lars

Per

Hea

d

Source: John Lawrence, Iowa State University

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

Correlation of Daily Hog Slaughter & Lagged Profit

-25

-20

-15

-10

-5

0

5

10

15

20

2583

-1

84-1

85-1

86-1

87-1

88-1

89-1

90-1

91-1

92-1

93-1

94-1

95-1

96-1

97-1

98-1

99-1

00-1

01-

1

02-

1

03-

1

04-

1

05-

1

-60

-40

-20

0

20

40

60

%ChDaHogSlt Profit Lag 5Q

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

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

95

90

77

78

79

77

65

0 10 20 30 40 50 60 70 80 90 100

500,000+

50 - 500,000

10 - 50,000

5 - 10,000

3 - 5,000

2 - 3,000

1 - 2,000

Size Class(no. head)

Percent

Percent of Farms with a Profit in 2000

Changes in industry structure

The modern hog industry is more difficult to downsize than the traditional industry

January-December 02 Hog PricesCarcass Price

• Negotiated base price $45.54/cwt• Average net price $49.70/cwt

Source: USDA/AMS Prior Day Slaughter Reports, simple average

January-December 2003 Hog PricesCarcass Price

• Negotiated base price $52.00/cwt• Average net price

$55.21/cwt

Percent of Hogs Sold on the Spot Market

62

4336

26

17 15 13

0

10

20

30

40

50

60

70

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Barrow & Gilt Sales % of marketings

20022003

• 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 18.82Source: USDA/AMS Prior Day Slaughter Reports

National Net Hog PricesUS$ 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 PricesNational 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

0

10

20

30

40

50

60

70

80

90

100 J

an 0

2

Mar

May Ju

l

Sep

Nov

Jan

03

Mar

May Ju

l

Sep

Nov

Per

cent

AM Report PM Report

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. Commercial Hog SlaughterQuarterly Data, 1970-2003

-30

-20

-10

0

10

20

3070 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00

'02

Per

cent

Cha

nge

Fro

m Y

ear

Ago

U.S. pork production is becoming more predictable

Terminal Market Barrow & Gilt PriceQuarterly Data 1970-2003

-60

-40

-20

0

20

40

60

8070 72 74 76 78 80 82 84 86 88 90 92 94 96 98 0 2 3

Per

cent

Cha

nge

Fro

m Y

ear

Ago

But, U.S. hog prices are still highly variable

ELASTICITY

• The fundamental relationship between hog production and hog price is changing.

Hog Price FlexibilityQuarterly Data 1970-2003

-25

-20

-15

-10

-5

0

5

10

1570 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00

'02

% 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

Avg U.S. Daily Pork Production, 1990-99

60

62

64

66

68

70

72

74

76

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Million Pounds

U.S. Monthly Average Hog Price, 1990-99

36

38

40

42

44

46

48

50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$/cwt

July-November Changes

• Daily Pork Production• 1970s +30%

• Barrow & Gilt Prices• 1970s -11%

July-November Changes

• Daily Pork Production• 1970s +30%• 1980s +24%

• Barrow & Gilt Prices• 1970s -11%• 1980s -13%

July-November Changes

• Daily Pork Production• 1970s +30%• 1980s +24%• 1990s +20%

• Barrow & Gilt Prices• 1970s -11%• 1980s -13%• 1990s -20%

Production Efficiency

Pigs Per Litter, 1930-2002USDA Hogs & Pigs Reports

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.019

30

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Hea

d

Pigs Per Litter, By Herd Size, 1996-2003

USDA Hogs & Pigs Reports

8.58.68.78.88.99.09.19.2SO

N96

SO

N97

SO

N98

SO

N99

SO

N00

SO

N01

SO

N02

SO

N03

Hea

d

5000+ Avg

Litters Per Sow Per Year, 1930-2002

1.0

1.2

1.4

1.6

1.8

2.0

2.219

30

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

Litt

ers

Average Hot Carcass Weight, 1965-2002

140

150

160

170

180

190

20019

65

1970

1975

1980

1985

1990

1995

2000

Poun

ds

Annual U.S. Pork Production Per Sow, 1960-2002

1,200

1,700

2,200

2,700

3,200

3,7001960

1965

1970

1975

1980

1985

1990

1995

2000

Pou

nds

Rate of Productivity Growth is Increasing

+4% per year

Sow & Gilt Inventory, 1996-03

0

1000

2000

3000

4000

5000

6000

7000

8000 J

an96

Oct

96

Jul

97

Apr

98

Jan

99

Oct

99

Jul

00

Apr

01

Jan

02

Oct

02

Jul

03

Thousands

Canada U.S.A.

Sow & Gilt Inventory, 1996-03

0

1000

2000

3000

4000

5000

6000

7000

8000

9000 J

an96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

01

Ju

l01

Jan

02

Ju

l02

Jan

03

Ju

l03

Thousands

Canada U.S.A.

Pigs Born in Canada, 1996-03

5000

5500

6000

6500

7000

7500

8000

8500

9000JF

M96

JAS9

6

JFM

97

JAS9

7

JFM

98

JAS9

8

JFM

99

JAS9

9

JFM

00

JAS0

0

JFM

01

JAS0

1

JFM

02

JAS0

2

JFM

03

JAS0

3

Thousands

Canadian Hog Production, 1976-02

0

5

10

15

20

25

30

35

76 78 80 82 84 86 88 90 92 94 96 98 '00

'02

Percent of U.S.

Terminal Market Barrow & Gilt Prices, 1950-2003

10

20

30

40

50

6019

5019

5319

5619

5919

6219

6519

6819

7119

7419

7719

8019

8319

8619

8919

9219

9519

9820

01

Dol

lars

Per

Hun

dred

wei

ght

Deflated Barrow & Gilt Prices, 1950-2003

0

5

10

15

20

25

30

35

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

1967

$ P

er H

undr

edw

eigh

t

Cost of Production

OMAHA CORN PRICESWeekly

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00$ Per Bu.

Avg.1995-99

2000

2001

2002

2003

2004

Cost of Slaughter Hog ProductionIowa State University Calculations, 1987-2003

37

3941

43

4547

49

5153

5519

87

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Marketing Month

Dol

lars

Per

Liv

e H

undr

edw

eigh

t

Barrow & Gilt Dressed WeightsWeekly F.I. Hog Slaughter

186

188

190

192

194

196

198

200

Pounds

2000 2001 20022003 2004

International Trade

World Pork Trade

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Million Metric Tons

Source: USDA/FAS

Top Pork Exporting Countries-2002

0

200

400

600

800

1000

1200

1400

Thousand Metric Tons

Source: USDA/FAS

Taiwan Pork Exports

283

331

70

3 0 0 0

381 388

0

50

100

150

200

250

300

350

400

450

1993 1994 1995 1996 1997 1998 1999 2000 2001

Thousand Metric Tons

Taiwan broke with FMD in March 1997

Source: USDA/FAS

Vulnerable Pork Exporters

Country

2002 Exports 1000 m tons

Exports as % 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

Top Pork Importing Countries-2002

0

200

400

600

800

1000

1200

1400

Thousand Metric Tons

Source: USDA/FAS

Top 12 Pork Producing Countries - 2002 Thousand Metric Tons

1. China 43,266 7. Russia 1,6302. E.U. 17,825 8. Japan 1,2363. U.S.A 8,929 9. S. Korea 1,1534. Brazil 2,565 10. Philippines 1,0955. Canada 1,854 11. Mexico 1,0856. 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%

Source: USDA/FAS

World 16.2%

Pigs Per Breeding Animal, 1996-03

12

13

14

15

16

17

18

19

20Q

1 96

Q3

96

Q1

97

Q3

97

Q1

98

Q3

98

Q1

99

Q3

99

Q1

00

Q3

00

Q1

01

Q3

01

Q1

02

Q3

02

Q1

03

Q3

03

Canada U.S.A.

U.S. Pork Exports

0

100

200

300

400

500

600

700

800

Thousand Metric Tons

2002 was the 11th consecutive record year for U.S. exports

U.S. Pork Imports & Exports, 1998-2003

Monthly Carcass Weight Equivalent

020406080

100120140160180

Jan-

98

Jan-

99

Jan-

00

Jan

-01

Jan

-02

Jan

-03

Mill

ion

Poun

ds

Imports Exports

U.S. Pork Exports By Destination 2002

Japan 48.1%

Mexico 19.4%

Canada 11.8%

S.Korea 4.4%

Russia 2.6%

Others 13.7%

U.S. Pork Imports By Origin 2002

Canada 82.2%

Denmark 11.5%

Poland 2.3%

Others 4.0%

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%

U.S. Hog Imports & Exports

0

1

2

3

4

5

6

719

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Mill

ion

Hea

d

Imports Exports

U.S. Hog Imports from Canada

050,000

100,000150,000200,000250,000300,000350,000400,000450,000500,000

1997

1998

1999

2000

2001

2002

2003

Head Per Month

Slaughter Hogs

Feeders Pigs

Exchange Rate: Can $ Per US $

1.10

1.20

1.30

1.40

1.50

1.60

1.70Q

1 91

Q1

94

Q1

97

Q1

00

Q1

03

Sows Farrowed-U.S. & Canada Combined

-4

-3

-2

-1

0

1

2

3

4

5JF

M99

AM

J99

JAS9

9

ON

D99

JFM

00

AM

J00

JAS0

0

ON

D00

JFM

01

AM

J01

JAS0

1

ON

D01

JFM

02

AM

J02

JAS0

2

ON

D02

JFM

03

AM

J03

JAS0

3

ON

D03

Per

cent

Cha

nge

Fro

m Y

ear

Ago

Estimated Gilt Retention & Sow Loss, 2001-2003GG Cattle & Hog Fax

0

20

40

60

80

100

120Ja

n Fe Ma

Ap

Ma

Jun

Jul

Au

Sep

Oct No

De

Jan Fe Ma

Ap

Ma

Jun

Jul

Au

Sep

Oct No

De

Jan Fe Ma

Ap

Ma

Jun

Jul

Au

Sep

Oct No

De

Tho

usan

d H

ead

Per

Wee

k

Gilts RetainedSow Loss

Average Daily Sow Slaughter

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Thou

sand

Hea

d

2000 2001 2002 2003

Sow & Boar Imports

0

20

40

60

80

100

120

140

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Thou

sand

Hea

d

2000 2001 2002 2003

Average Daily Slaughter Domestic Sows

8

8

9

9

10

10

11

11

12

12

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Thou

sand

Hea

d

2000 2001 2002 2003

USDA Dec Hogs and Pigs Report All Hogs & Pigs 101 Kept for Breeding 99 Kept for Marketing 101 Under 60 lbs 102 60-119 lbs. 102 120-179 lbs. 100 180 lbs. and over 101 Mar-May Farrowings 99 Jun-Aug Farrowings 98 Sep-Nov Farrowings 102 Dec-Feb Farrowing Intentions 101 Mar-May Farrowing Intentions 99

Actual & Predicted Change in Hog SlaughterU.S. Weekly F.I. Hog Slaughter, 2003-04

-8

-6

-4

-2

0

2

4

6

8

10

12Ja

n

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Per

cent

Cha

nge

Fro

m Y

ear

Ago

Actual USDA Dec Forecast

Actual & Predicted Change in Hog SlaughterU.S. Weekly F.I. Hog Slaughter, 2003-04

-8

-6

-4

-2

0

2

4

6

8

10

12Ja

n

Feb

Mar

Apr

May Jun

Jul

Aug Sep

Oct

Nov

Dec Jan

Feb

Mar

Per

cent

Cha

nge

Fro

m Y

ear

Ago Actual USDA Dec Forecast U.S. Raised

Cold Storage Stocks – 12/31/03Percent 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

25

30

35

40

45

50

55

60

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$/cw

t

Avg 90s 2001 2002 2003

BASE SLAUGHTER HOG PRICESNational, Weighted Average Carcass Price, Weekly

35

40

45

50

55

60

65

70

75$ Per cwt

2001

2002

2003

U.S. Weekly F.I. Hog Slaughter

1400

1500

1600

1700

1800

1900

2000

2100

2200

2300

Jan

Feb

Mar

Apr Ma

Jun

Jul

Aug Sep

Oct

Nov

Dec

Tho

usan

d H

ead

2002 2003

U.S. Weekly F.I. Hog Slaughter

1400

1500

1600

1700

1800

1900

2000

2100

2200

2300Ja

n

Feb

Mar

Ap

r

Ma

Jun

Jul

Au

g

Sep

Oct

Nov

Dec

Tho

usan

d H

ead

1998 2003

U.S. Weekly F.I. Hog Slaughter

1400

1500

1600

1700

1800

1900

2000

2100

2200

2300Ja

n

Feb

Mar

Ap

r

Ma

Jun

Jul

Au

g

Sep

Oct

Nov

Dec

Tho

usan

d H

ead

1999 2003 2004

Forecast: Slaughter Up in 2004

Thousand Head2002 2003 2004 02 to '03 03 to 04

actual forecast forecast

Q1 24148 24620 25400 1.95% 3.17%

Q2 24280 23890 24400 -1.61% 2.13%

Q3 25120 24698 25200 -1.68% 2.03%

Q4 26715 27569 27300 3.20% -0.98%

Year 100263 100777 102300 0.51% 1.51%

U.S. Commercial Hog Slaughter% Change

Note: Q1 04 has 1 extra slaughter day Note: Q4 04 has 1 less slaughter day

Iowa-Minn Live Hog Price ForecastNegotiated Base Price Per Live Hundredweight

2003• Q1* $34.19• Q2* $41.80• Q3* $41.40• Q4* $36.89

• Year* $38.57

2004• Q1 $36-39• Q2 $39-42• Q3 $38-41• Q4 $32-35

• Year $36-39

*actual price – prior day purchased

Iowa-Minn Carcass Price ForecastNegotiated Base Price Per Carcass Hundredweight

2003• Q1* $46.20• Q2* $56.48• Q3* $55.95• Q4* $49.85

• Year* $52.12

2004• Q1 $49-52• Q2 $53-56• Q3 $51-54• Q4 $45-48

• 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