Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia Hog Market Forecast 2004 Iowa Pork Congress

U.S. Per Capita Meat Consumption Retail Weight,

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

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

April 2000 was record high

February 2000 was record high

U.S. Pork Production, 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, Source: John Lawrence, Iowa State University

Iowa Farrow to Finish Profits $15.61 per hog sold Source: John Lawrence, Iowa State University

Iowa Farrow to Finish Profits $15.61 per hog sold $ 9.57 per hog sold Source: John Lawrence, Iowa State University

Iowa Farrow to Finish Profits $15.61 per hog sold $ 9.57 per hog sold $ 0.04 per hog sold Source: John Lawrence, Iowa State University

Iowa Farrow to Finish Profits, 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

U.S. Pork Industry Structure Study, 2001 U.S. Marketings by Producer Size Hogs marketed annually Under 1,000 32% 23% 17% 5% 2% 1,000-1, ,000-2, ,000-4, ,000-9, ,000-49, ,000 & up 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. 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 Prices Carcass 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 Prices Carcass Price Negotiated base price$52.00/cwt Average net price$55.21/cwt

Barrow & Gilt Sales % of marketings Negotiated hogs S/P Market formula Other market formula Other purchase agreement Packer sold Packer owned Source: USDA/AMS Prior Day Slaughter Reports

National Net Hog Prices US$ per 100 pounds of carcass weight 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 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 Prices National 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 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 Slaughter Quarterly Data, U.S. pork production is becoming more predictable

Terminal Market Barrow & Gilt Price Quarterly Data But, U.S. hog prices are still highly variable

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

Hog Price Flexibility Quarterly Data % 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

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, USDA Hogs & Pigs Reports

Pigs Per Litter, By Herd Size,

Litters Per Sow Per Year,

Average Hot Carcass Weight,

Annual U.S. Pork Production Per Sow, % per year

Sow & Gilt Inventory,

Pigs Born in Canada,

Canadian Hog Production,

Terminal Market Barrow & Gilt Prices,

Deflated Barrow & Gilt Prices,

Cost of Production

Cost of Slaughter Hog Production Iowa State University Calculations,

International Trade

Source: USDA/FAS

Taiwan broke with FMD in March 1997 Source: USDA/FAS

Vulnerable Pork Exporters Country 2002 Exports 1000 m tons Exports as % production Canada % Hungary % Brazil % U.S.A % E.U % Poland % Source: USDA/FAS

Top 12 Pork Producing Countries Thousand Metric Tons 1. China43, Russia 1, E.U.17, Japan 1, U.S.A 8, S. Korea 1, Brazil 2, Philippines 1, Canada 1, Mexico 1, Poland 1, Taiwan 900 Source: USDA/FAS

Top 12 Pork Producing Countries Percent Change from China20.3% 7. Russia 3.8% 2. E.U.12.1% 8. Japan -3.7% 3. U.S.A14.0% 9. Mexico 15.4% 4. Brazil66.6% 10. Philippines 21.5% 5. Canada46.8% 11. S. Korea 32.1% 6. Poland 6.5% 12. Taiwan -12.6% Source: USDA/FAS World16.2%

Pigs Per Breeding Animal,

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

U.S. Pork Imports & Exports,

U.S. Pork Exports By Destination 2002

U.S. Pork Imports By Origin 2002

U.S. Pork Exports, Jan-Nov 03 Country% Ch Yr Ago Japan + 4.0% Mexico + 6.7% Canada - 0.4% S. Korea % Total + 6.3%

Exchange Rate: Can $ Per US $

Sows Farrowed-U.S. & Canada Combined

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

Average Daily Sow Slaughter

Sow & Boar Imports

Average Daily Slaughter Domestic Sows

USDA Dec Hogs and Pigs Report

Actual & Predicted Change in Hog Slaughter U.S. Weekly F.I. Hog Slaughter,

Cold Storage Stocks – 12/31/03 Percent 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

U.S. Weekly F.I. Hog Slaughter

Forecast: Slaughter Up in 2004 Note: Q1 04 has 1 extra slaughter day Note: Q4 04 has 1 less slaughter day

Iowa-Minn Live Hog Price Forecast Negotiated Base Price Per Live Hundredweight 2003 Q1*$34.19 Q2*$41.80 Q3*$41.40 Q4*$36.89 Year*$ Q1$36-39 Q2$39-42 Q3$38-41 Q4$32-35 Year$36-39 *actual price – prior day purchased

Iowa-Minn Carcass Price Forecast Negotiated Base Price Per Carcass Hundredweight 2003 Q1*$46.20 Q2*$56.48 Q3*$55.95 Q4*$49.85 Year*$ 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