1

Ron PlainProfessor of Agricultural EconomicsUniversity of Missouri-Columbiawww.ssu.missouri.edu/faculty/RPlain

Hog Price

Outlook

2007 AAEA Livestock Outlook Symposium

Production Efficiency

2

Pigs Per Litter, 1930-2006USDA Hogs & Pigs Reports

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Head

Litters Per Sow Per Year, 1930-2006

1.0

1.2

1.4

1.6

1.8

2.0

2.2

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Litters

3

Average U.S. Hog Carcass Weight, 1930-2006

110120130

140150160170180

190200210

30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05

Pounds

Annual U.S. Pork Production Per Sow, 1960-2006

1,200

1,700

2,200

2,700

3,200

3,700

4,200

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

4

Annual U.S. Pork Production Per Sow, 1960-2006

1,200

1,700

2,200

2,700

3,200

3,700

4,20019

60

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

1960-78 growth rate: 1.3%

1978-06 growth rate 2.8%

Hog Cycle

5

U.S. Commercial Hog SlaughterQuarterly Data, 1970-2007

-30

-20

-10

0

10

20

3070 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

% change from year ago

Terminal Market Barrow & Gilt PriceQuarterly Data 1970-2007

-60

-40

-20

0

20

40

60

80

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

% change from year ago

6

Hog Price FlexibilityQuarterly Data 1970-2007

-30-25-20-15-10-505

1015

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06

% ch T Mkt B&G price / % ch com hog slt

In 8 of last 15 quarters, price & slaughter moved in the same direction

Cost of Production

7

Cost of Slaughter Hog ProductionIowa State University Calculations, 1987-2007

37394143454749515355

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Marketing Month

$ Per Live Cwt

Source: John Lawrence, Iowa State University

OMAHA CORN PRICESWeekly

1.251.501.752.002.252.502.753.003.253.503.754.004.254.50

JAN

APRJU

LOCT

$ Per Bu.

Avg.1999-032005

2006

2007

8

Ethanol Capacity Growth

0

2

4

6

8

10

12

2001 2003 2005 2007

billion

gal

.

Jan. 1 capacity Under construction

Source: Renewable Fuel Association website

http://www.ethanolrfa.org/industry/statistics/#B

Corn Milled for Ethanol

0.0

1.0

2.0

3.0

4.0

5.0

6.0

90-9

1

92-9

3

94-9

5

96-9

7

98-9

9

00-0

1

02-0

3

04-0

5

06-0

7

08-0

9

Bill

ion

Bus

hels

Forecast

% corn for ethanol:

2000-01: 6%

2005-06: 14%

2006-07: 20%

2007-08: 26%

9

Hog Weights

Barrow & Gilt Carcass WeightsPrior Day Slaughter Weekly Average

196

198

200

202

204

206

208

JAN

FEBMAR

APRMAY

JUN

JUL

AUGSEP

OCTNOV

DEC

Pounds

2005

2006

2007

10

International Pork Trade

U.S. Pork Exports

0

200

400

600

800

1000

1200

1400

1600

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

Thousand Metric Tons

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

11

Value of U.S. Pork Exports

0

5

10

15

20

25

30

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$/hog slt

Pork ByProduct

Iowa Farrow to Finish Profits, 1994-2006Iowa State University Calculations

-70

-50

-30

-10

10

30

50

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

$ Per Head

Source: John Lawrence, Iowa State University

35 consecutive months of profit, longest of record

12

U.S. Commercial Pork Production

1213141516171819202122

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Billion Pounds

Source: USDA/NASS

U.S. Pork ExportsCarcass Weight Equivalent

0

0.5

1

1.5

2

2.5

3

3.5

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Bill

ion

Poun

ds

Source: USDA/ERS

13

U.S. Pork ImportsCarcass Weight Equivalent

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Bill

ion

Poun

ds

Source: USDA/ERS

U.S. Production + Imports - Exports

12

13

14

15

16

17

18

19

20

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Billion Pounds

14

U.S. Per Capita Pork Consumption

30

35

40

45

50

55

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Pounds

Source: USDA/ERS

U.S. Retail Pork Price

170

190

210

230

250

270

290

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Cents Per Pound

Source: USDA/ERS

15

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, 2000-2007Monthly Carcass Weight Equivalent

0

50

100

150

200

250

300

350

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan

-05

Jan

-06

Jan

07

Mil. lbs.

Imports Exports

2006: imports down 3.4% & exports up 12.4%

14.3% of 2006 U.S. pork production was exported

16

U.S. Pork Exports, Jan-May 2007Change from year ago

Country 000 lbs PercentJapan + 48,697 + 11.5%Mexico - 79,081 - 29.1%Canada + 3,186 + 2.5%S. Korea + 4,049 + 3.1%Russia - 23,402 - 23.2%China & HK + 30,123 + 45.5%Taiwan - 13,651 - 41.2%TOTAL - 37,029 - 2.9%

Live Hog Trade

17

Pigs Born in Canada, 1996-06

0100020003000400050006000700080009000

10000

JFM

96

JFM

97

JFM

98

JFM

99

JFM

00

JFM

01

JFM

02

JFM

03

JFM

04

JFM

05

JFM

06

JFM

07

Thousands

U.S. Pig Crop, 1996-07

0

5000

10000

15000

20000

25000

30000

DJF

96

JJA

96

DJF

97

JJA

97

DJF

98

JJA

98

DJF

99

JJA

99

DJF

00

JJA

00

DJF

01

JJA

01

DJF

02

JJA

02

DJF

03

JJA

03

DJF

04

JJA

04

DJF

05

JJA

05

DJF

06

JJA

06

DJF

07

Thousands

18

Growth in U.S.-Canadian Pig Crop1995-2005

13.9805

4.869 CanadaU.S.A.

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 $

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

Q1

90Q

1 91

Q1

92Q

1 93

Q1

94Q

1 95

Q1

96Q

1 97

Q1

98Q

1 99

Q1

00Q

1 01

Q1

02Q

1 03

Q1

04Q

1 05

Q1

06Q

1 07

19

U.S. Hog Imports from Canada

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Head per mo.

Slaughter Hogs Feeders Pigs

2006 imports: slt hogs down 1% & feeder pigs up 11%

Inventory Reports

20

Hog Inventory ReportsU.S. June Canada April

All Hogs & Pigs 101.7 96.9 Kept for Breeding 100.9 98.4 Kept for Marketing 101.8 96.7 Under 60 lbs 101.8 102.7 60-119 lbs. 101.5 89.5 120-179 lbs. 101.2 87.9 180 lbs. and over 103.0 Sep-Nov Farrowings 101.7 100.8 Dec-Feb Farrowings 101.6 98.1 Mar-May Farrowings 101.3 100.7 Jun-Aug Farrowing Intentions 101.6 Sep-Nov Farrowing Intentions 100.4

Sows Farrowed-U.S. & Canada Combined

-4

-3

-2

-1

0

1

2

3

4

5

JFM

99

JAS9

9

JFM

00

JAS0

0

JFM

01

JAS0

1

JFM

02

JAS0

2

JFM

03

JAS0

3

JFM

04

JAS0

4

JFM

05

JAS0

5

JFM

06

JAS0

6

JFM

07

% change from yr. ago

21

Estimated Gilt Retention & Sow Loss, 2006-2007GG Cattle & Hog Fax

0

20

40

60

80

100

120

140

'06

Feb

Mar Apr Ma

Jun

Jul

Au

Sep

Oct

Nov

Dec '0

7

Feb

Mar Apr Ma

Jun

Thou

sand

Hea

d Pe

r Wee

k Gilts Retained Sow Loss

Slaughter Capacity

22

Daily Hog Slaughter Capacity

340000

350000

360000

370000

380000

390000

400000

410000

420000

430000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Head

The Bryant Foods plant in West Point, MS, closed in March

Demand

23

Change in Export Pork DemandBase Elasticity = - 0.5

-30-20-10

010203040506070

2001 Ju

n

Nov Apr

Sep

Feb

Jul

Dec

May Oct

Mar

Aug

2006 Ju

n

Nov Apr

% C

hang

e Ye

ar A

go

Change in Export Pork DemandBase Elasticity = - 0.5

-40

-20

0

20

40

60

80

100

1999 May

Sep

2000 May

Sep

2001 May

Sep

2002 May

Sep

2003 May

Sep

2004 May

Sep

2005 May

Sep

2006 May

Sep

2007 May

% C

hang

e fro

mYe

ar A

go

100

105

110

115

120

125

130

135

140

145

150

Yen

Per $

% changeYen/$

24

Retail Price of Pork

275

277

279

281

283

285

287

289

291

293

Jan

Feb Mar AprMay Ju

n Jul

AugSep Oct

NovDec

Cents/lb.

2005

2006

2007

Record high

Change in Pork DemandBase Elasticity = - 0.75

-10-8-6-4-202468

10

200

1 >

Jun

Nov Apr

Sep

Feb

Jul

Dec

May Oct

Mar

Aug

2006

>

Jun

Nov Apr

% change from year ago

25

Change in Hog DemandBase Elasticity = - 0.2

-8

-3

2

7

12

17 2

001

>

Jun

Nov Apr

Sep

Feb

Jul

Dec

May Oct

Mar

Aug

2006

>

Jun

Nov Apr

% change from year ago

Hog Prices

26

BARROW AND GILT BASE PRICESIowa - Minnesota, Carcass Basis, Weekly

50

55

60

65

70

75

80

85

JAN

APRJU

LOCT

$ per cwt.

Avg.2001-05

2006

2007

Source: USDA Prior Day Purchased reports

BARROW AND GILT NET PRICESNational, Carcass Basis, Weekly

50

55

60

65

70

75

80

JAN

APRJU

LOCT

$ per cwt.

Avg.2002-05

2006

2007

Source: USDA Prior Day Slaughtered reports

27

Barrow & Gilt Negotiated Live Price

4042444648505254565860

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

2004-06 2007

Source: USDA Prior Day Purchased reports

Major Unknowns

• Circovirus vaccine & death losses

• China & pork exports

• Weather

28

My Forecast

Commercial Hog Slaughter ForecastMillion Head

*actual

109.725107.734104.737*Year

29.40029.10027.880*Qtr 4

27.16526.42525.810*Qtr 3

25.83025.523*24.839*Qtr 2

27.33026.686*26.208*Qtr 1

200820072006 ------Change------

06-07 07-08.

+1.8% +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

29

Iowa-Minn Hog Price ForecastNegotiated Base Price Per Carcass Hundredweight

$60-64$62-65$62.68*Year$56-60$57-61$60.76*Qtr 4

$61-65$62-66$68.24*Qtr 3

$64-68$69.60*$65.41*Qtr 2

$61-65$60.65*$56.37*Qtr 1

200820072006

*actual price – prior day purchased

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

$45-48$46-48$46.38*Year

$42-45$42-46$44.96*Qtr 4

$45-49$46-50$50.50*Qtr 3

$47-51$51.50*$48.40*Qtr 2

$45-49$44.88*$41.71*Qtr 1

200820072006

*actual price – 74% of carcass price

30

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?