By now, many of the readers of this blog have had time to read and digest the numbers in last Friday’s USDA Hogs and Pigs report. In addition, many of you have seen my interpretation of the report which keyed on the on-going changing structure of the US industry. At the same time, USDA continues to tweak the COOL regulations that became effective on Tuesday.
With all of this as background, the demand for large groups of high quality weaned and feeder pigs to fill production facilities in the upper Midwest continues. I’m sure the sharp decline in feed grain prices this week, which reduced the feed cost to grow a pig from weaning to slaughter by more than $15 per pig or almost $6/cwt gain, will also spur further demand.
Smithfield announced this past week that effective in April, 2009, all pork products from their packing plants will be labeled as US born, grown and processed. This means that producers who currently are filling facilities with Canadian born pigs (124,000 pigs in the week ending September 27, 2008) will no long have a market at a Smithfield plant.
It appears that the US will end the year importing approximately 7.2 million feeder pigs (pigs weighing less than 55 kg). While the pace of Canadian imports may slow due to fewer pigs being born in Canada, there is nothing in the available data to suggest fewer pigs will be imported due to COOL. This suggests a remixing of market destinations for many in the upper Midwest region. It appears that Smithfield will have to become somewhat aggressive in sourcing US born pigs to fill their slaughter needs, while producers who have traditionally sold Canadian born pigs to Smithfield plants will have to forge new marketing arrangements with other US plants.
At the same time as this shift in marketing arrangements is occurring, Iowa and southern Minnesota and Indiana remain in a growth mode relative to other US states for pigs to fill facilities. On September 1, 2008, USDA estimated that Iowa now has 29.9% of the US kept for market inventory, or 18.7 million pigs. Minnesota is number 3 with 11.4% or 7.1 million growing pigs. Indiana, a state where the governor has announced his support to double the number of pigs, now had 5.4% of the growing pig population or 3.4 million head. All of these states continue to grow in their share of the US industry.
Contrast this with what’s happening in Illinois. Illinois ranks number 2 in the US for both corn and soybean production. Yet the state continues to very gradually decline in their share of the growing pig inventory. Illinois now has 3.95 million growing pigs in inventory, or 6.3% of the US total. On the other hand, their share of the breeding herd continues to grow. For rural communities that have corn and soybean production as their basic agronomic crops, this suggests that alternative markets are becoming more important to their usage than pork production once was.
With the large number of imported Canadian feeder pigs, the growing number of Illinois feeder pigs that depart that state, and the on-going importation of feeder pigs born in Oklahoma, Missouri and Nebraska, I often remind audiences that the big sucking sound they hear is the demand in Iowa and southern Minnesota for feeder pigs. The data available suggests that pork production will remain as a key economic driver in this region.