There were no big surprises in the June Hogs & Pigs report. It came in very close to trade expectations. The breeding herd was a little smaller than we expected but well within the sampling error.

All hogs and pigs came in at 98% of a year ago, compared to the average of the trade estimates of 98.1%. The breeding herd came in at 97.3%, compared to the trade estimates at 97.6%. The market herd came in at 98.1%, compared to the trade estimates of 98%.

The current problem with low prices is caused by weak demand at the export level and the large supply of pork. Domestic demand at the consumer level was up 1.5% in January-May compared to last year based on our demand index. However, demand for live hogs was down 5% compared to this period last year.

The major problem in the hog industry is not the supply of pork, it is production costs. Corn price near $4 per bushel and soybean meal comparably high have increased the cost of producing pork $12 to $13 per hundredweight compared to 5 years ago. High priced crude oil resulted in high priced gasoline and high ethanol prices resulted in high corn prices relative to the 35 years prior to 2008. In fact, the profit per hog in the second quarter would have been $7 to $12 per head with $2 corn.

Pork exports for the month of April were 21.5% below a year earlier. In April our net export of pork as a percent of total U.S. pork production was 3.9 percentage points less than a year ago. In other words, there was nearly 4% more pork available for U.S. consumers in April 2009 compared to 2008 because of reduced exports. U.S. consumers probably had 5% or more pork available to purchase in May and June 2009 than a year earlier. In July, the supply of pork for U.S. consumption will probably be 3-4% larger than last year because of smaller exports.

Pork exports for the January-April period were down 10.8% this year compared to last year. Pork imports for the first 4 months of 2009 were down 5% from 12 months earlier. Net exports as a percent of production were down nearly 1.4%. Exports to Japan were up 8.5%, to Mexico up 54%, to Canada down 6.8%, to South Korea down 3.9%, to Russia down 47.2%, to China and Hong Kong down 64.2%, to Australia up 40%, to Taiwan up 69.8%, and to other countries down 8.8%.

Imports of live hogs from Canada were down 21.8% in April 2009 compared to 2008. For January through April imports from Canada were down 36%. This indicates the reduction in live hog imports from Canada is slowing.

In the June Hogs and Pigs report, the inventory of 180 lb. and heavier market weight hogs was relatively close to the June slaughter. However, slaughter in the second quarter has been larger than indicated by the March 1 market inventory when one considers the smaller live hog import from Canada. Hog weights indicate marketings were not kept current in the second quarter with a year earlier by at least 2 days and possibly 3 days. Barrow and gilt carcass weights for the most recent week in June were 4 lbs. heavier than last year.

Based on the heavy weight market inventories, slaughter in the third quarter will be about 3% below last year if the inflow of hogs from Canada continues to decline. Even if slaughter is close to expectations based on these inventories, the domestic supply of pork will be equal to last year because of heavier market weights and reduced exports. With the current demand situation, slaughter prices are likely to be in the low to mid-$40s live for 51-52% lean hogs.

Slaughter in the fourth quarter is likely to be down between 3 and 4% from 2008 based on the light weight inventories and fewer Canadian hogs. With smaller exports and heavier weights, we look for 51-52% lean hogs live to average in the low $40's.

The number of pigs per litter for March-May was a record 9.61 head. Pigs per litter have increased by an annual rate of 2.4% for the last 4 quarters.

The report shows farrowing intentions are down 3.3% for June-August. With productivity growth, slaughter is not likely to be down 3.3%. Also a 3.3% decline in farrowings for June-August looks low with the breeding herd down only 2.7%. Farrowing intentions for September-November show a decline of 2.2% from 2008. Again, considering productivity growth, the supply of pork available will likely be close to last year.

The bottom line is that the June Hogs and Pigs report confirms our belief that producers need to reduce the breeding herd another 5% or more to get the industry profitable.

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

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

                                           2009 as % of 2008
       Market                                     98.1
       Kept for breeding                          97.3
       All hogs and pigs                          98.0
______________________________________________________________


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

     Weight Category                       2009 as % of 2008
        Under 60 pounds                           97.6
        60 - 119 pounds                           98.0
        120 - 179 pounds                          97.6
        180 pounds and over                       99.9
______________________________________________________________


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

                                            2009 as % of 2008
       December-February                           97.0
       March-May                                   97.3
       June-August                                 96.7
       September-November                          97.8
______________________________________________________________


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 (part. est.) 27.042       37.80        43.25          61.78
     3 (projected)  27.775      36 - 40      43 - 47        60 - 65
     4 (projected)  29.195      32 - 36      40 - 44        56 - 61
     Year (proj.)  112.500      36 - 38      42 - 44        60 - 62

2010 1 (projected)  27.625     $35 - 39     $41 - 45       $58 - 63 
     2 (projected)  26.250      39 - 44      45 - 49        64 - 69