Ron Plain Professor of Agricultural Economics University of Missouri-Columbia Pork Outlook Midwest/Great Plains & Western Outlook Conference Indianapolis, August 2007

Production efficiency Hog cycle Seasonality Cost of production International trade Slaughter capacity Demand Long Run Factors

Production Efficiency

Pigs Per Litter, USDA Hogs & Pigs Reports

Litters Per Sow Per Year,

Average U.S. Hog Carcass Weight,

Annual U.S. Pork Production Per Sow,

growth rate: 2.027% growth rate 2.793%

U.S. Live Hog Imports,

U.S. Live Hog Exports,

Net U.S. Live Hog Imports,

Annual U.S. Pork Production Per Sow,

growth rate: 2.027% growth rate 2.793%

Average Annual Productivity Growth Pigs/litter+ 0.37%+ 0.89% Litters/sow/year+ 0.49%+ 1.06% Pigs/sow/year+ 0.87%+ 1.96% Dom slght/pig weaned+ 0.53%- 0.12% Dom slght/sow/year+ 1.40%+ 1.84% Slaughter weight+ 0.62%+ 0.62% Dom pork prod/sow/year+ 2.02%+ 2.47% Net hog trade impact+ 0.01%+ 0.32% Pork prod/sow/year+ 2.03%+ 2.79%

Hog Cycle

U.S. Commercial Hog Slaughter Quarterly Data,

Terminal Market Barrow & Gilt Price Quarterly Data

Hog Price Flexibility Quarterly Data % ch T Mkt B&G price / % ch com hog slt In 8 of last 15 quarters, price & slaughter moved in the same direction

Seasonality

July to November Changes Daily Pork Production 1970s+30% 1980s+24% 1990s+20% % Barrow & Gilt Prices 1970s-11% 1980s-13% 1990s-20% %

Cost of Production

Cost of Slaughter Hog Production Iowa State University Calculations, Source: John Lawrence, Iowa State University

Ethanol Capacity Growth Source: Renewable Fuel Association website

Corn Milled for Ethanol Forecast % corn for ethanol: : 6% : 14% : 20% : 26%

International Pork Trade

2006 was the 15th consecutive record year for U.S. exports

Iowa Farrow to Finish Profits, Source: John Lawrence, Iowa State University 35 consecutive months of profit, longest of record

Source: USDA/NASS

Source: USDA/ERS

Pork Trade Overview The steady decrease in US pork imports and increase in pork exports has caused per capita US pork consumption to decline. Thus, hog producers were able to enjoy three consecutive years with record hog slaughter and profitable prices.

U.S. Pork Imports & Exports, % of 2006 U.S. pork production was exported

U.S. Pork Exports, Jan-May 2007 Change from year ago Country 000 lbs Percent Japan+ 48, % Mexico- 79, % Canada + 3, % S. Korea+ 4, % Russia- 23, % China & HK+ 30, % Taiwan- 13, % TOTAL- 37, %

U.S. Pork Exports,

China Pork Trade China is reported to be buying 70,000 MT of U.S. pork to help ease a run up in domestic pork prices (up 67.7% in June) caused by a pork shortage due to high feed prices and blue ear disease. In perspective, 70,000 MT* equals: 94% of 2006 China/HK imports of U.S. pork 5.1% of 2006 U.S. pork exports 0.73% of 2006 U.S. pork production * carcass weight equivalent

Fall Price Decline Aug-OctOct-DecAug-Dec 10 yr average-$6.82- $4.63-$ yr minimum-$3.09+$2.51-$ 1.16 Futures-$2.62- $1.35-$ 3.97

Live Hog Trade

Pigs Born in Canada,

U.S. Pig Crop,

Growth in U.S.-Canadian Pig Crop Source: USDA/FAS During the past decade, 74% of the increase in U.S.-Canadian pig production took place in Canada. (million head)

Exchange Rate: Can $ Per US $

Change in Hog Slaughter: US & Canada Weekly F.I. Hog Slaughter,

Slaughter Capacity

Steve Meyer’s survey indicates 2007 capacity of 425,185

Demand

Annual U.S. Pork Production,

U.S. Per Capita Pork Consumption,

Change in Export Pork Demand Base Elasticity = - 0.5

Demand Inventory Weights Price Forecast Short Run Factors

Record high

Change in Pork Demand Base Elasticity =

Change in Hog Demand Base Elasticity = - 0.2

Inventory Reports

Pig/Month Accumulated Profits, Source: John Lawrence, Iowa State University

Hog Inventory Reports U.S. June Canada April

Sows Farrowed-U.S. & Canada Combined

Estimated Gilt Retention & Sow Loss, GG Cattle & Hog Fax

Hog Weights

Hog Prices

Source: USDA Prior Day Purchased reports

Source: USDA Prior Day Slaughtered reports

Barrow & Gilt Negotiated Live Price Source: USDA Prior Day Purchased reports

Major Unknowns Circovirus vaccine & death losses China & pork exports Weather Slaughter capacity

My Forecast

Commercial Hog Slaughter Forecast Million Head * actual Qtr * * Qtr * * Qtr * Qtr * Year * Change % +2.4%. +2.7% +1.2% +2.4% +1.2% +2.8% +1.0% +2.4% +1.4% Note: Q4 07 & Q3 08 have 1 more slaughter day

Iowa-Minn Hog Price Forecast Negotiated Base Price Per Carcass Hundredweight Qtr 1$56.37*$60.65*$64-68 Qtr 2$65.41*$69.60*$67-71 Qtr 3$68.24*$68-70$64-68 Qtr 4$60.76*$61-65$58-62 Year$62.68*$65-67$63-67 * actual price – prior day purchased

Iowa-Minn Live Hog Price Forecast Negotiated Base Price Per Live Hundredweight Qtr 1$41.71*$44.88*$47-50 Qtr 2$48.40*$51.50*$49-52 Qtr 3$50.50*$50-52$47-50 Qtr 4$44.96*$45-48$43-46 Year$46.38*$48-50$46-49 * actual price – 74% of carcass price

Forecast Summary Farrowings 0-2% above year-ago Continued 2-3% productivity growth More imports of Canadian hogs/pigs Possible increase in pork exports Stable domestic demand Rising feed cost

Any Questions?