The September report came in a little more positive than the trade estimates. USDA’s estimate of the total number of hogs and pigs on farms was down 2.3%. The average of the trade estimates was for a 1.8% decline. Kept for breeding was down 3.1% according to USDA; the trade estimate was for a 2.6% decline. The market inventory was down 2.2% and the trade estimate was for a 1.7% decline. (See Table 1) On the Monday after the report was released, the futures market opened with gains of $0.22 to $0.70 per cwt.

USDA revised upward their estimate of the number of litters farrowed during December-February 2009 by 1.5% and the pig crop during those months by 1.6%. This brought the June market hog inventory more in line with summer hog slaughter. USDA revised upward the 60-179 pound market inventories in June by 0.7% in the September report. The 180 pound inventory on September 1 was consistent with September marketings.

In recent reports the USDA has estimated numbers a little below the trade estimates but actual marketings on average have been above the trade estimates. We must remember the USDA estimates are based on a sample and the trade estimates are based on other statistics and opinions. Therefore, both estimates are subject to error. We certainly hope the USDA’s September estimates are the more correct ones.

Our domestic demand index for pork for January-August was up 3.9% at the consumer level but live hog demand was down 4.7% for these 8 months compared to a year ago. The weaker live hog demand than consumer demand was due to 20% smaller exports in 2009 than 2008.

There is some chance that both consumer demand and live hog demand this winter and into 2010 will be positive, especially live hog demand compared to the first 7 months of 2009. This hope is based on a stronger general economy and a weaker U.S. dollar which is positive for exports. There are also some potential storm clouds. What will be the reaction of consumers and importers if we get some swine herds developing H1N1 flu this fall and winter?

The retail price of pork in August was down 0.8% from July and down 2.8% from August 2008. However, for the first 8 months of 2009, retail pork prices were 1.8% above last year.

Only the processor-retailer benefitted from these higher retail pork prices. The retailer-processor margin was up 12.4% for January-August 2009 compared to the same period in 2008. The packer margin was down 6.1% for these 8 months and live hog prices were down 15.5% compared to a year ago.

Pork exports for January-July were down 19.3% from 12-months earlier. The good news is that July exports were above June and down only about 10% from last year. Net pork exports as a percent of production at 14.2% was down from 17.9% for January-July 2009 compared to 2008.

The value of pork exports and variety meats per hog slaughtered for January-July at $39.08 per hog was down over about 5% from the same period of 2008. The value of variety meat exports per hog for January-July of this year was $6.70 compared to $5.40 last year.

Our slaughter estimates for October-December based on the 60-179 pound market inventories is for a decline of 1.9% from last year. With this level of production, we expect 51-52% lean hogs, live, to average in the low to mid-$30s and non-packer-sold hogs to average in the upper $40s in the carcass.

For the first quarter of 2010 we expect slaughter to be down 3.7% from a year earlier, 51-52% lean hogs to average the upper $30s live, and non-packer-sold carcass hogs to average in the low $50s.

Our sow and gilt data indicated a speed-up in the decline in the breeding herd in mid-August. If this is occurring and continues, there is a possibility that production will be down more in the last half of 2010 than in the first half.

USDA said pigs per litter were up 2.0% in June-August, the smallest quarterly increase since the spring of 2008. Farrowing intentions point to a reduction of about 3.2% for this fall and winter.

Productivity growth in pig numbers should nearly offset reduced hog imports, therefore marketings in the second and third quarters of 2010 will likely be down about as much as the reduced farrowings.

Our estimates of slaughter and prices for the next four quarters are in Table 4.

Table 1.  Hog Inventories September 1, U.S.
______________________________________________________________

                                           2009 as % of 2008
       Market                                     97.8
       Kept for breeding                          96.9
       All hogs and pigs                          97.7
______________________________________________________________


Table 2.  Market Hogs on Farms September 1, U.S.
______________________________________________________________

     Weight Category                       2009 as % of 2008
        Under 60 pounds                           96.3
        60 - 119 pounds                           97.9
        120 - 179 pounds                          98.6
        180 pounds and over                       99.7
______________________________________________________________


Table 3.  Sows Farrowing and Intentions, U.S.
______________________________________________________________

                                            2009 as % of 2008
       March-May                                   97.3
       June-August                                 96.5
       September-November                          96.9
       December-February                           96.9
______________________________________________________________


Table 4.  Estimated Commercial Hog Slaughter by Quarter and Live Hog Prices
______________________________________________________________________________________

                  Commercial  Terminal Mkt. 51-52% Lean  Non packer sold
                  Slaughter  Barrow & Gilt    Hogs       Hogs (avg. net
Period           (mil. hd.)  (price/cwt)   (price/cwt) carcass price/cwt)
_________________________________________________________________________

2003 1              24.654      $33.32       $35.38         $50.40
     2              23.922       39.86        42.64          58.92
     3              24.747       38.66        42.90          59.27
     4              27.608       34.15        36.89          52.36
     Year          100.931       36.50        39.45          55.25

2004 1              25.717      $40.82       $44.18         $60.56
     2              24.737       51.56        54.91          72.74
     3              25.817       53.72        56.58          74.73
     4              27.192       50.58        54.35          71.58
     Year          103.463       49.17        52.51          69.90

2005 1              25.538      $48.46       $51.92         $69.33
     2              25.030       49.08        52.09          70.25
     3              25.528       46.72        50.51          68.37
     4              27.486       42.20        45.54          61.68
     Year          103.582       46.62        50.02          67.43

2006 1              26.208      $39.23       $42.63         $58.37
     2              24.839       45.81        48.45          65.96
     3              25.810       46.92        51.83          69.13
     4              27.880       41.56        46.13          62.04
     Year          104.737       43.38        47.26          63.86

2007 1              26.684      $41.49       $46.04         $62.69
     2              25.526       48.14        52.55          71.39
     3              26.566       45.07        50.34          69.17
     4              30,396       33.61        39.44          56.83
     Year          109.172       42.08        47.09          65.04

2008 1              29.601      $33.86       $39.64         $57.41
     2              27.941       46.68        52.51          72.24
     3              28.696       51.76        57.27          78.05
     4              30.214       37.82        41.92          61.38
     Year          116.452       42.53        47.83          67.27

2009 1              28.488      $36.92       $42.11         $60.43
     2              27.063       37.21        42.74          61.76
     3 (part. est.) 28.400       32.70        39.10          56.70
     4 (projected)  29.670      26 - 29      32 - 35        46 - 51
     Year (proj.)  113.621      33 - 34      39 - 40        56 - 57

2010 1 (projected)  27.435     $29 - 32     $35 - 38       $50 - 55
     2 (projected)  26.200      34 - 37      40 - 43        57 - 62
     3 (projected)  27.500      33 - 36      39 - 42        55 - 60