Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia

1. 2004 Iowa Pork Congress Hog Market Forecast Ron Plain, Ph.D. Professor of Agricultural Economics University of Missouri-Columbia www.ssu.missouri.edu/faculty/RPlain

3. U.S. Per Capita Meat ConsumptionRetail Weight, 1960-2003

4. U.S. Per Capita Meat ConsumptionRetail Weight, 1960-2003

5. Compared to 1960 • Today, the average American annually consumes 59 pounds more meat, 57 pounds of which is chicken.

6. 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

9. 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

10. April 2000 was record high

11. February 2000 was record high

14. U.S. Pork Production, 1930-2002 Trend: +1.5%/year

15. 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. Pork Production & Profitability

16. Iowa Farrow to Finish Profits, 1965-2003 Source: John Lawrence, Iowa State University

17. Iowa Farrow to Finish Profits • 1967-78 $15.61 per hog sold Source: John Lawrence, Iowa State University

18. Iowa Farrow to Finish Profits • 1967-78 $15.61 per hog sold • 1979-90 $ 9.57 per hog sold Source: John Lawrence, Iowa State University

19. Iowa Farrow to Finish Profits • 1967-78 $15.61 per hog sold • 1979-90 $ 9.57 per hog sold • 1991-02 -$ 0.04 per hog sold Source: John Lawrence, Iowa State University

20. Iowa Farrow to Finish Profits, 1994-2003 The typical U.S. producer has lost money 22 of last 26 months Source: John Lawrence, Iowa State University

21. Correlation of Daily Hog Slaughter & Lagged Profit

22. U.S. Pork Industry Structure Study, 2001 U.S. Marketings by Producer Size Hogs marketed annually 1988 1991 1994 1997 2000 Under 1,000 32% 23% 17% 5% 2% 1,000-1,999 19 20 17 12 7 2,000-2,999 11 13 12 10 5 3,000-4,999 10 12 12 10 7 5,000-9,999 9 10 12 10 10 10,000-49,999 12 13 13 16 18 50,000 & up 7 9 17 37 51 University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics, and Research Institute for Livestock Pricing

23. U.S. Pork Industry Structure Study, 2001 Percent of Farms with a Profit in 2000 Size Class (no. head) Percent University of Missouri, Iowa State University, National Pork Board, Pork magazine, PIC, Land O’Lakes, Dekalb Choice Genetics, and Research Institute for Livestock Pricing.

24. Changes in industry structure The modern hog industry is more difficult to downsize than the traditional industry

25. January-December 02 Hog PricesCarcass Price • Negotiated base price $45.54/cwt • Average net price $49.70/cwt January-December 2003 Hog PricesCarcass Price • Negotiated base price $52.00/cwt • Average net price $55.21/cwt Source: USDA/AMS Prior Day Slaughter Reports, simple average

27. Barrow & Gilt Sales % of marketings 2002 2003 • Negotiated hogs 14.66 13.28 • S/P Market formula 43.39 39.15 • Other market formula 9.27 7.63 • Other purchase agreement 13.01 19.01 • Packer sold 2.24 2.11 • Packer owned 17.42 18.82 Source: USDA/AMS Prior Day Slaughter Reports

28. National Net Hog PricesUS$ per 100 pounds of carcass weight • 2002 2003 • 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

29. Prior Day Base Price for Negotiated Purchases • 2002 2003 • 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

30. January-December 03 Hog PricesNational 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

31. Share of Reported Negotiated Hogs Source: USDA/AMS National Hog Price Reports

32. Mandatory Price Reports • The law creating the USDA/AMS mandatory cattle-beef-hog price reports expires in October 2004.

33. The Hog Cycle

34. U.S. pork production is becoming more predictable U.S. Commercial Hog SlaughterQuarterly Data, 1970-2003

35. But, U.S. hog prices are still highly variable Terminal Market Barrow & Gilt PriceQuarterly Data 1970-2003

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

37. Hog Price FlexibilityQuarterly Data 1970-2003 % ch T Mkt B&G price / % ch com hog slt

38. 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

39. Seasonality

42. Daily Pork Production 1970s +30% Barrow & Gilt Prices 1970s -11% July-November Changes

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

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

45. Production Efficiency

46. Pigs Per Litter, 1930-2002USDA Hogs & Pigs Reports

47. Pigs Per Litter, By Herd Size, 1996-2003

48. Litters Per Sow Per Year, 1930-2002

49. Average Hot Carcass Weight, 1965-2002

50. Annual U.S. Pork Production Per Sow, 1960-2002 +4% per year