Ron Plain Professor of Agricultural Economics University of Missouri-Columbia plainr/ Pork Outlook Midwest/Great Plains & Western.

Ron PlainProfessor of Agricultural EconomicsUniversity of Missouri-Columbiahttp://web.missouri.edu/~plainr/

Pork Outlook

Midwest/Great Plains & Western Outlook Conference Indianapolis, August 2007

Production efficiencyHog cycleSeasonalityCost of productionInternational tradeSlaughter capacityDemand

Long Run Factors

Production Efficiency

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

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.519

30

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

2.219

30

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Litters

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

110

120

130

140

150

160

170

180

190

200

210

30

35

40

45

50

55

60

65

70

75

80

85

90

95

00

05

Pounds

Annual U.S. Pork Production Per Sow, 1930-2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

Annual U.S. Pork Production Per Sow, 1930-2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

1930-80 growth rate: 2.027%

1980-06 growth rate 2.793%

U.S. Live Hog Imports, 1930-2006

0

1

2

3

4

5

6

7

8

9

10

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

Million Head

U.S. Live Hog Exports, 1930-2006

0

1

2

3

4

5

6

7

8

9

10

1930 35 40 45 50 55 60 65 70 75 80 85 90 95

2000 05

Million Head

Net U.S. Live Hog Imports, 1930-2006

-1

0

1

2

3

4

5

6

7

8

9

10

1930 35 40 45 50 55 60 65 70 75 80 85 90 95

2000 05

Million Head

Annual U.S. Pork Production Per Sow, 1930-2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

total domestic

Annual U.S. Pork Production Per Sow, 1930-2006

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

1930-80 growth rate: 2.027%

1980-06 growth rate 2.793%

Average Annual Productivity Growth

1930-80 1980-06

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 SlaughterQuarterly Data, 1970-2007

-30

-20

-10

0

10

20

30

70

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

Hog Price FlexibilityQuarterly Data 1970-2007

-30

-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 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

Seasonality

Average U.S. Daily Pork Production

60

65

70

75

80

85

90

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

Million Lbs

1990-99 2000-06

U.S. Monthly Average Hog Price

36

38

40

42

44

46

48

50

52

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

$/cwt

1990-99 2000-06

July to November Changes

Daily Pork Production• 1970s +30%• 1980s +24%• 1990s +20%• 2000- 6 +18%

Barrow & Gilt Prices• 1970s -11%• 1980s -13%• 1990s -20%• 2000- 6 -18%

Cost of Production

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

37

39

41

43

45

47

49

51

53

55

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

$ Per Bu.

Avg.1999-03

2005

2006

2007

Ethanol Capacity Growth

0

2

4

6

8

10

12

2001 2002 2003 2004 2005 2006 2007

bil

lio

n g

al.

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

6.090

-91

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

Billi

on B

ushe

ls

Forecast

% corn for ethanol:2000-01: 6%2005-06: 14%2006-07: 20%2007-08: 26%

International Pork Trade

U.S. Pork Exports

0

200

400

600

800

1000

1200

1400

1600

Thousand Metric Tons

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

Value of U.S. Pork Exports

0

5

10

15

20

25

3019

86

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

U.S. Commercial Pork Production

12

13

14

15

16

17

18

19

20

21

2219

95

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

Pou

nds

Source: USDA/ERS

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

Bil

lio

n P

ou

nd

s

Source: USDA/ERS

U.S. Production + Imports - Exports

12

13

14

15

16

17

18

19

2019

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Billion Pounds

U.S. Per Capita Pork Consumption

30

35

40

45

50

5519

95

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

29019

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Cents Per Pound

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, 2000-2007Monthly Carcass Weight Equivalent

0

50

100

150

200

250

300

350Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan

-05

Jan

-06

Jan

07

Mil. lbs.

Imports Exports

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

U.S. Pork Exports, Jan-May 2007

Change from year ago Country 000 lbs Percent

Japan + 48,697 + 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%

U.S. Pork Exports, 2000-2007Monthly Carcass Weight Equivalent

0

50

100

150

200

250

300Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan

-05

Jan

-06

Jan

07

Mil. lbs.

Japan Total

U.S. Pork Exports, 2000-2007Monthly Carcass Weight Equivalent

0

50

100

150

200

250

300Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan

-05

Jan

-06

Jan

07

Mil. lbs.

Mexico Total

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. pork5.1% of 2006 U.S. pork exports0.73% of 2006 U.S. pork production

* carcass weight equivalent

Fall Price Decline

Aug-Oct Oct-Dec Aug-

Dec

10 yr average -$6.82 - $4.63 -$11.45

10 yr minimum -$3.09 +$2.51 -$ 1.16

Futures -$2.62 - $1.35 -$ 3.97

Live Hog Trade

Pigs Born in Canada, 1996-07

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000J

FM

96

JF

M9

7

JF

M9

8

JF

M9

9

JF

M0

0

JF

M0

1

JF

M0

2

JF

M0

3

JF

M0

4

JF

M0

5

JF

M0

6

JF

M0

7

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

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

13.9805

4.869 Canada

U.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

1.70Q

1 90

Q1

91

Q1

92

Q1

93

Q1

94

Q1

95

Q1

96

Q1

97

Q1

98

Q1

99

Q1

00

Q1

01

Q1

02

Q1

03

Q1

04

Q1

05

Q1

06

Q1

07

U.S. Hog Imports from Canada

0

100,000

200,000

300,000

400,000

500,000

600,000

700,00019

97

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Head per mo.

Slaughter Hogs Feeders Pigs

U.S. Weekly Feeder Pig Imports

60000

70000

80000

90000

100000

110000

120000

130000

140000

150000JA

N

AP

JUL

OC

Head

2005

2006

2007

U.S. Weekly Slaughter Hog Imports

35000

40000

45000

50000

55000

60000

65000

70000

75000

80000

85000

Jan

Apr Ju

l

Oct

Head

2005

2006

2007

Canadian Hog Exports as % of Canadian Slauaghter

7

9

11

13

15

17

19

21

23

25

Percent

2005

2006

2007

Change in Hog Slaughter: US & Canada Weekly F.I. Hog Slaughter, 2006-07

-20

-15

-10

-5

0

5

10

15

Ja

n

Fe

b

Ma

r

Ap

r

Ma

Ju

n

Ju

l

Au

Se

p

Oc

tN

o

De

c

Ja

n

Fe

b

Ma

r

Ap

r

Ma

Ju

n

Ju

l

Au

% change from yr. ago USA

combinedCanada

Slaughter Capacity

Daily Hog Slaughter Capacity

340000

350000

360000

370000

380000

390000

400000

410000

420000

430000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Head

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

Demand

Annual U.S. Pork Production, 1930-2006

0

5

10

15

20

25

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Billion Pounds

actual 1.5% trend

U.S. Per Capita Pork Consumption, 1930-2006

0102030405060708090

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

Retail Weight

U.S. Per Capita Pork Consumption, 1930-2006

0

10

20

30

40

50

60

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Pounds

Boneless Weight

Change in Export Pork DemandBase Elasticity = - 0.5

-30-20-10

010203040506070

2001 Ju

n

Nov Apr

Sep Fe

b

Jul

Dec

May Oct

Mar

Aug

2006 Ju

n

Nov Apr

% C

hang

e Y

ear

Ago

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

ha

ng

e f

rom

Ye

ar

Ag

o

100

105

110

115

120

125

130

135

140

145

150

Ye

n P

er

$

% changeYen/$

Demand

Inventory

Weights

Price

Forecast

Short Run Factors

Retail Price of Pork

275

277

279

281

283

285

287

289

291

293Cents/lb.

2005

2006

2007

Record high

Change in Pork DemandBase Elasticity = - 0.75

-10-8-6-4-20

2468

10

20

01

>

Ju

n

No

v

Ap

r

Se

p

Fe

b

Ju

l

De

c

Ma

y

Oc

t

Ma

r

Au

g

20

06

>

Ju

n

No

v

Ap

r

% change from year ago

Change in Hog DemandBase Elasticity = - 0.2

-8

-3

2

7

12

17

20

01

>

Ju

n

No

v

Ap

r

Se

p

Fe

b

Ju

l

De

c

Ma

y

Oc

t

Ma

r

Au

g

20

06

>

Ju

n

No

v

Ap

r

% change from year ago

Inventory Reports

Pig/Month Accumulated Profits, 1990-2007Iowa State University Calculations

0

200

400

600

800

1000

1200

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Dollars

Source: John Lawrence, Iowa State University

Hog Inventory Reports

U.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

5J

FM

99

JA

S9

9

JF

M0

0

JA

S0

0

JF

M0

1

JA

S0

1

JF

M0

2

JA

S0

2

JF

M0

3

JA

S0

3

JF

M0

4

JA

S0

4

JF

M0

5

JA

S0

5

JF

M0

6

JA

S0

6

JF

M0

7

% change from yr. ago

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

0

20

40

60

80

100

120

140'0

6

Fe

b

Ma

r

Ap

r

Ma

Ju

n

Ju

l

Au

Se

p

Oc

t

No

v

De

c

'07

Fe

b

Ma

r

Ap

r

Ma

Ju

n

Ju

l

Th

ou

san

d H

ead

Per

Wee

k

Gilts Retained Sow Loss

Hog Weights

Barrow & Gilt Carcass WeightsPrior Day Slaughter Weekly Average

196

198

200

202

204

206

208Pounds

2005

2006

2007

Hog Prices

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

50

55

60

65

70

75

80

85

$ 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

$ per cwt.

Avg.2002-05

2006

2007

Source: USDA Prior Day Slaughtered reports

Barrow & Gilt Negotiated Live Price

40

42

44

46

48

50

52

54

56

58

60

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

• Slaughter capacity

My Forecast

Commercial Hog Slaughter Forecast Million Head

*actual

2006 2007 2008

Qtr 1 26.208* 26.686* 27.330

Qtr 2 24.839* 25.524* 25.830

Qtr 3 25.810* 26.425 27.165

Qtr 4 27.880* 29.100 29.400

Year 104.737* 107.734 109.725

------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

Iowa-Minn Hog Price ForecastNegotiated Base Price Per Carcass Hundredweight

2006 2007 2008

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 ForecastNegotiated Base Price Per Live Hundredweight

2006 2007 2008

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?