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338. 1 3 A46 1 81 6 WAITE MEMORIAL BOOK DEPT. OF AG. AND APPLIED 1994 BUFORD AVE. - 232 CO UNIVERSITY OF MINNESOTA ST. PAUL, M S.A. AGRICULTURAL LETTER FRB CHICAGO FEDERAL RESERVE BANK OF CHICAGO July 12, 1991 Hog production expanding faster than expected Hog farmers have been expanding production since December at a faster-than-expected rate. An updated USDA survey found that the nation's inventory of hogs intended for market as of June 1 numbered almost 4.5 percent more than a year earlier. The gain is likely to widen if producers carryout their current intentions of farrowing nearly 7 percent more sows during the six months ending with November. These measures foreshadow unexpectedly large increases in pork production through the middle of next year. Hog prices are likely to retreat sharply, perhaps falling below the cost of production for some producers. • In addition to updating the figures since the previous quarterly report, the latest Hogs and Pigs report also contained some significant upward revisions to previously published estimates. In particular, the estimate of the DecemberFebruary pig crop and the estimate of the March 1 inventory of hogs held for breeding purposes were both revised upward about 1.5 percent. Two key states, Iowa and North Carolina, accounted for all of the revisions. In conjunction with the revised estimates, the updated report shows that the number of sows farrowed during the March-May quarter was 3.8 percent higher than had been suggested as producer in tentions in March and 4.6 percent higher than in the same period the year before. Further expansion appears likely the rest of this year. The June 1 inventory of hogs held for breeding purposes was estimated at 7.47 million head, up a little over 5.5 percent from last year. An updated reading of producer's intentions million head 70 60 50 40 1981 '83 '85 June 1 '87 '89 suggests that sow farrowings during the June-August period will be up 7 percent from the year before, well above the modest 2 percent gain indicated by the March survey. For the September-November quarter, producers intend to expand farrowings by nearly 6.5 percent. Hog farmers in all District states except Michigan are expanding production. The biggest gains are in Iowa where the June 1 inventory of market hogs was up 7 percent from a year ago and the inventory of hogs held for breeding purposes was up 8 percent. Hog numbers were down 8 percent in Michigan but up 2 to 5 percent in the other three District states. District states account for nearly half of the nation's inventory of all hogs and pigs. Hog slaughter and pork production during the second quarter, although down seasonally from the first quarter, moved above year-earlier levels. Reports from federally inspected plants show that hog slaughter and pork production were both up some 3 to 4 percent from the second quarter of last year. On a per capita basis, that marked the first year-overyear rise in pork production since the spring of 1989. The gains are likely to widen in the months ahead. Based on the December-May pig crop and the June 1 inventory of hogs intended for market, it appears that hog slaughter and pork production during the second half of this year will be up some 5 to 7 percent. And based on producer farrowing intentions for this summer and fall, the year-over-year gain during the first half of 1992 could reach 7 or 8 percent. From a longer-term perspective, per capita pork production in the first half of next year will likely reach an 11-year high. The magnitude of the projected gains in pork production portend sharply lower hog prices in the months ahead. After averaging $51.50 per hundredweight in the first quarter, hog prices rose seasonally this spring. But at just under $55, hog prices in June were down more than a tenth from the year-ago level. Prices will trend lower during the second half and remain well below year-earlier levels for several more quarters. Most observers believe that hog prices will average around $45 per hundredweight during the fourth quarter and fluctuate mostly in the low- to mid- $40s during the first half of next year. Unless the current pace of expansion at the farm level begins to moderate considerably by early next year, prices during the second half of 1992 could register further sharp declines. Although production costs vary widely, it now appears the strong earnings that most hog farmers have enjoyed since the latter half of 1989 will end in 1992. Hog numbers move up to an 8-year high • Number 1816 '91 Gary L. Benjamin Selected agricultural economic indicators Percent change from Receipts from farm marketings ($ millions) Crops* Livestock Government payments Latest period Value Prior period Year ago Two years ago February February February February 11,704 4,611 6,597 496 -24.4 -42.0 -11.7 835.8 -4 2 0 -53 -11 13 -2 -78 Real estate farm debt outstanding ($ billions) Commercial banks Farm Credit System Life insurance companies December 31 December 31 December 31 17.2 29.4 10.8 - 0.6** - 0.1** 1.4** 3 -3 12 11 -9 12 Nonreal estate farm debt outstanding ($ billions) Commercial banks Farm Credit System December 31 December 31 32.9 10.7 - 0.9** -2.8** 7 7 10 15 April 1 April 1 July 11.40 10.56 6.25 -3.6** -3.6** 2.0 -4 -5 -23 -9 -10 -28 Agricultural exports ($ millions) Corn (mil. bu.) Soybeans (mil. bu.) Wheat (mil. bu.) April April April April 3,146 144 43 92 -13.5 -23.7 -35.2 -22.2 -4 -26 -2 2 -5 -19 5 -25 Farm machinery sales" (units) Tractors, over 40 HP 40 to 100 HP 100 HP or more Combines May May May May 6,781 4,172 2,609 1,308 7.4 20.2 -8.3 103.1 10 4 22 61 29 24 37 197 Interest rates on farm loans (percent) 7th District agricultural banks Operating loans Real estate loans Commodity Credit Corporation • • *Includes net CCC loans. **Prior period is three months earlier. "Preliminary 1111111111111111111111111111i till lilt' ... 4,z-- --.7....c}.,,,-,,,-... -:--- ------- :- -r.c.., 2\ ,..„:: ,.. ,74._ -4cr es„...*-7—.4 /glib s posTrt ,f-, • . . u ' 6- . 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