2017, 4th Quarter, Hogs & Pigs Report

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Don Wick


Jim Robb, Director, Livestock Marketing Information Center, Lakewood, CO

Bob Brown, Market Consultant, Edmond, OK

Dr. Chris Hurt, Professor, Agricultural Economics, Purdue University 




Don Wick:  00:01  From the Pork Checkoff in Des Moines Iowa it’s Pork Pod! Pork Pod, a look at the hot topics in today’s pork industry.  The Pork Checkoff is working for you through various forms of research, promotion and consumer information projects. This is Don Wick speaking on behalf of the Pork Checkoff. And today we focus in on the latest Hogs and Pigs Report that quarterly hogs and pigs report came out on Friday December 22nd. And the Pork Checkoff posted a teleconference with market analysts. The update includes Steve Meyer of EMI analytics. Jim Robb of the livestock market information center. Bob Brown, a market consultant out of Edmond Oklahoma and Dr. Chris Hurt from Purdue.

Cindy Cunningham:  00:41  Before we hear from our panelists I would like Steve Meyer with EMI analytics to recap the numbers from today’s report. Steve.

Steve Meyer:  00:49  Thank you Cindy. Good afternoon everyone. Let’s get right to the numbers here so that we can hear from our analysts in a moment. USDA December 1 inventory, all hogs and pigs 73.23 million head. That’s up two point four percent from one year ago. The average of analysts pre report estimates for that number was 2 percent higher so not much difference in the all hogs and pigs inventory. That we kept for breeding at 6.179 million head, up one point one percent. Analysts had expected that number to be up eight tenths of one percent kept for marketing 67.051 million head two and a half percent larger than a year ago. The average of analysts for that number was two point one percent.  On the weight categories under 50 pounds 21.447 million head two point seven percent more than one year ago.  Analysts expect that number to be up 2 percent 50 to 119 lbs 18.459 million head, up two and a half percent from one year ago. Analysts had expected that number to be up one point nine percent. The 120 to 179 category 14.105 million head two point four percent more than one year ago and analysts expected that number to be up two point two percent for the 180 and over 12.949 million head two point three percent more than last year. Analysts had expected that number to be up two point four percent. So in all of the inventory categories the actual year over year change was less than 1 percent different from analyst pre-record estimates. On the farrowing’s, September November sows farrowed at 3.109 million litters, two point one percent more than a year ago analysts said expect that number to be up only 1 percent.  The sleb intentions 3.070  million litterers 2.8 percent more than last year. Analysts had expected that number to be a one point one percent and March May intentions 3.38 million head up two point three percent from last year. Analysts had expected that number to be up one point two percent. So all of the farrowing’s numbers over 1 percent larger than what analysts had expected. September November pig crop at 33.399 million head three point two percent larger than a year ago. Analysts expect that number to be up 2 percent. And finally September November pig say litter at ten point seven for another record for this quarter up one point one percent from last year. Analysts had expected that number to be plus 1 percent. Those are the numbers Cindy.

Cindy Cunningham:  03:23  We will hear more from Steve shortly on slaughter capacity. But first we’ll move to our market analysts. We’ll start with Bob Brown. Market consultant in Edmond Oklahoma. Bob.

Bob Brown:  03:39  All those numbers that Steve read were all record high for this particular quarter and that December 1 is the one that’s been tracked for the longest time data back to 73. And I think it goes back to the 20s and even before that. But except for the breeding herd, breading herd was still the highest since 2007 was 69000 head above a year ago which is for the breeding herd of a big margin over the prior year. And it’s interesting that the USDA for some particular reason revised up the last four quarters of the breeding herd by 20 to 40000 head which again for the breeding herd is quite of quite a big move. At the same time they revised downward the first half pig crops so the these PED crop for instance was revised downward by 250 4000 and the March May pickup was revised downward by 474 thousand. Again, you know matching that up to hogs slaughter what we actually saw in hog slaughter in particular the September November hog slaughter weekly numbers kept falling below most of our estimates and that gave us a little bit of a clue that there might be a revision down revision there. The pigs number as Steve said was record high for any quarter actually and in the month of November in particular we do get monthly data on this. Now it was ten point eight. So it was the highest single month ever. And just to give you some idea of the impact. for instance, the impact of this growth in productivity. The month of September 2017 there was the 11 million 366 thousand pigs born. OK. Almost 11.4 million. That was this year ten years ago in the same quarter the same month again September 07, there were 10 million hogs born and there were 11000 fewer farrowing’s. So we had 11000 fewer litters this year with a gain of 1.4 million so over 10 years we’ve had this huge continuing growth that was in the productivity is only interrupted by the PED the year of 2014.

Cindy Cunningham:  06:07  Thanks Bob we appreciate that. We will move now to Chris Hurt. He is a professor of agricultural economics at Purdue University. Chris your thoughts.

Chris Hurt:  06:16  Well thank you very much. I noted Bob talked about record high numbers. I think one of the things we have to recognize is we have a growth industry in the pork side of the industry and that is very positive. And when you think about the growth orientation it’s not just the domestic side where we’re getting population growth near one percent slightly under. But obviously the export market is very important. So this adds to our ability to expand the herd and expand production in the 2 or 2 percent a year or maybe somewhat higher when we’re talking about prices. We obviously have to talk not just about the supply side which we often lament as analysts and spend a lot of time on but I think the theme for 2017 and 2018 is going to be always supply and we’re going to talk a lot about demand as well. Let’s just hit 2017 as an example. We ended up with about two and a half percent greater supply of pork in the market in 2017. We’re going to market that at a farm price about 10 percent higher prices. Now generally when you have higher supplies you’re thinking about somewhat lower prices and what that says is that we had to at least relative to 2016 a very strong demand year. And as we go back and review 2017 think about demand and then project for next year I think we see a lot of the same kind of factors coming into play. First as we think about the U.S. economy did very well this year we expect it to do even better next year in terms of some increase in the growth rates. Our unemployment rate dropped to four point one percent towards the end this year.  Again a level that’s considered to be close to full employment and the highest employment or lowest unemployment since the year 2000. As we go into 2018 we’re also expecting as we have a very tight labor market and a relatively strong U.S. economy that we’re going to see bidding up of wage rates. So not only are more people working but somewhat increased rate of wage rate increase as we go into next year. And then there are the potential tax cuts. And again I think we’re going to see that a two pronged effect both more money in the pockets of many consumers in the United States with the adjustments that are made and also a higher wage rate to growth. And I should say higher economic growth stimulated by some tax rate cuts. So then on the global market we have been doing great for 2018.  USDA is projecting near a 6 percent increase in exports. And if you look at their 18 projection versus two years ago 2016 up almost 13 percent on pork exports a lot of demand is helping us to market more of pork and even see stronger prices maybe for next year. Cindy.

Cindy Cunningham:  09:35  Thanks Chris we appreciate your comments. We’ll move next to Jim Robb. Jim is with the Livestock Marketing Information Center in Lakewood Colorado. Jim.

Jim Robb:  09:44  Pleasure to visit with you today. Looking back the report to the farrowing in September November quarter and the intentions were a little bit higher than we anticipated. So we’ve been adjusting higher since the report. Our forecast for slaughter essentially for the first six months of 2018 and when we step back a little bit and look at the overall marketplace the cattle on feed report came out today and that shows probably more cattle headed for slaughter in the late spring and summer of 2018 and maybe people anticipated. So well recognizing and agreeing with Professor Herd regarding demand. We think overall the biggest headwind in the marketplace is just the sheer amount of total red meat and poultry that will be produced in 2018. That number on a net basis will exceed 102 billion pounds in the United States and exceed 100 billion pounds for the first time ever.  So these are not all the same product obviously the demand profile between pork and chicken are quite different, consumers pay different prices bubbling put that big picture together that that is probably the headwind in the marketplace should there be any stumbling on the demand side. We take those numbers to a per capita basis and adjust for imports and exports. It looks like we’re going to ask consumers overall in the United States in 2018 to eat as much total red meat and poultry as they did in 2007. So the largest since 2007. Not unprecedented numbers but still much larger than we’ve had in many recent years. We think in the price profile besides the total red meat and poultry and the ratcheting up here of production numbers in our estimates big story in the pork complex has been the margin story.  We’ve had higher hog prices and lower wholesale pork prices and that’s a margin compression at the Packer level. So I’d like to turn it over to Steve Myer to talk a little bit about the slaughter capacity and give us an update that’s behind that picture.

Steve Meyer:  11:52  Thanks Jim. This has been a big story for this year of course. We had spent a long time in the pork industry rationalizing capacity and actually got into a pretty severe packing capacity constraint last fall that was managed about as well as it could be especially by producers that kind of stood on weights and kept these hogs moving at lighter weights for most of the fourth quarter last year. But record slaughters record high capacity utilization record high grades packers margins last fall. We had a plant opened in September 2016. A small plant in Pleasant Hope Missouri. That plant has had some operational difficulties. The last year with the cooler system we understand they are about to get that worked out. They kill about 2500 head per day capacity. They’ve only been around a thousand head at most of the last year so. A new plant opened in Wyndham Minnesota in April.  It’s a real a remodel pork plant called Prime Pork. They have a capacity of about 5100 per day and they’ve gotten to that capacity and it’s been very active in the market since they’re opening and ramping up during the summer months then September 5th saw the increase. The largest increase in the slaughter capacity probably in the history of our business. When two new plants both state of the art facilities. One Prime Seaboard in Sioux City opened a capacity of 10200 head per day. And then the Clemens Food Group plant in Coldwater Michigan which is also has I believe 11 pack of pork producers from the Eastern Corn Belt who are financially involved with that plant. It opened on September 5th with a capacity of 12000 per day. Both of those have been ramping up.  The Cold Water plant has had very few problems there. They were at about 7300 head per day last week. The prime Seaboard plant has had some difficulties. They got to about 6000 have been right around that number maybe a little more than that in the last five to six weeks. They’ve had mainly challenges of what we understand is in their cut lines, they’re breaking lines but they’ll get those saw and they’re headed for 12000. They thought they would be up to capacity once shift capacity at the end of November. They clearly aren’t there. The cold water plant is supposed to be up to capacity in February. We’re guessing that the Seaboard plant will still be on that timeline as well. Finally we’ll have another planted 2019 Prestige Foods is building a plant in Wright County Iowa that’s supposed to open next November.  They reported last week that they just about have all the roof completed on that which is a big deal in December in Iowa. If he can get a roof on that thing then you’ve got a lot better working conditions. So another increase in capacity coming. We’ll see how that impacts margins. What does it do to cut out value? What does it do to produce prices as competition increases for hogs?

Don Wick:  14:51  Thank you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself. Visit Pork.org