The Quarterly Hogs and Pigs report released by USDA on March 26 indicates that the U.S. pork industry continues to reduce its capacity to produce hogs in response to an extended string of negative monthly producer returns that began in late 2007 and only recently began to abate. The industry began to pare back breeding herd numbers in June 2008. The March 1 inventory of market hogs shows that prior breeding herd reductions are translating into smaller inventories. The inventory of market hogs was 2.7 percent below a year ago, and the stock of breeding animals was 3.9 percent below March 2009. Lower numbers of breeding animals will continue to have supply implications going forward. A reduced capacity to produce hogs, together with lower producer farrowing intentions for both the spring (-4 percent) and summer (-2.4 percent) pig crops, strongly suggests that the industry will have fewer domestic-born animals to sell for the balance of 2010, continuing into 2011.

The March report also shows that the litter rate for the winter pig crop grew at a slower rate than in the recent past. The pigs-per-litter rate for the December-February pig crop is 9.61, a 1.37-percent increase from last year’s litter rate; not bad certainly, but less than the 5-year average of year-over-year changes in the December-February litter rate (1.39 percent), and far less than the percentage increases registered in 2009 (2.6 percent) and 2008 (1.65 percent). Lower pigs-per litter growth rates could be due to an aging breeding herd, a phenomenon that often develops when the industry downsizes. Breeding herds are not refreshed with new gilts as quickly—or sometimes not at all—when operations are losing money or are planning to shut down altogether. Fertility rates of younger animals are typically higher than those of older sows. Litter rates tend to increase faster when younger animals comprise a greater percentage of the breeding inventory. Lower rates of increase in litter rates could turn out to be another factor that contributes to lower hog numbers for the balance of 2010 and into 2011.

Lower inventories of market hogs and breeding animals, lower producer intentions for the spring and summer pig crops, and the possibility of smaller increases in litter rates going forward are reflected in USDA’s April forecast of 2010 commercial pork production of 22.3 billion pounds, about 3 percent below 2009.

Lower expected hog supplies—domestic and Canadian born—plus the likelihood of stronger consumer pork demand are expected to yield year-over-year higher hog prices for the balance of 2010. Second-quarter 2010 prices of 51-52 percent lean live-equivalent hogs are expected to be $52-$54 per hundredweight (cwt); third quarter, $53-$57 per cwt, and fourth quarter, $45-$49 per cwt.