Are we too productive?

Yesterday the USDA and Statistics Canada released their combined quarterly estimates of the Canadian and US Hogs and Pigs inventory. The US numbers came from the June 1 estimate while the Canadian numbers are their July 1 estimate.


The combined breeding herd was estimated to be down 3.0% from last summer’s inventory at 7.347 million head. While this 3% reduction versus 1 year ago sounds like we’re headed in the right direction in terms of reducing our over production of pigs, inventory doesn’t tell the whole story.


Included in the report are the pig crop estimates and the number of sows farrowing in each quarter. Productivity in the breeding herd continues to rapidly improve. For the first quarter of 2004, the combined herd had a pig crop that averaged 9.01 pigs per sow that farrowed. 48.8% of the kept for breeding inventory farrowed in that quarter which works out to 1.95 farrowings per female per year.


Contrast that number with the numbers in the just released report. For the spring quarter just ended, producers farrowed 50.5% of the breeding herd which works out to 2.02 farrowing per female per year. This contrasts with a 49.3% farrowing rate for the second quarter of 2004 which works out to 1.97 farrowings per female per year.


In addition, the pig crop was a whopping 9.66 pigs per sow that farrowed. Since the first quarter of 2004, the pig crop per sow farrowed has increased at the rate of 0.028 pigs per quarter or 0.11 pigs per sow farrowed per year.


These increases in productivity are huge, especially in light of a summer that saw sale weights at record levels.


When we combine the rapid increase in feed grain prices from the past 2 years with the increases in productivity and the increases in sale weight, it is no wonder that we have a glut of pork coming to town. Part of the problem is that the rules the industry used to make production decisions have changed. No longer do we hear discussion of a hog-corn ratio as the deciding factor for whether the industry contracts or expands. Rather, we worry about the price of a barrel of oil as a predictor of feed price.


No mention is made of the decrease in seasonal variation in production that was a very strong source of seasonal variation in prices received. In the data series from the combined USDA and Statistics Canada report from yesterday, the productivity of the sow herd didn’t increase from the third to the fourth quarter for the past 5 years like it did for the first two quarters of every year. On the other hand, it did not regress, as it typically would have done 10 years ago. Producers in both countries have become very good at capturing the production potential of the breeding herd in all seasons of the year.


With this improved capturing of potential comes the increase in production. This implies that the decrease in the breeding herd necessary to return profitability to the US and Canadian production sectors will have to be even larger than many thought.


There are reports of increased numbers of sows being offered to packers, and of some small to mid sized operations making plans or in the process of ending their farrowing activities. However, if Mark Greenwood of AgStar Financial Services is right in his estimate of a need to reduce the US and Canadian breeding herd by 500,000 head, we’ve got a long way to go.

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