Pork production likely rose about 6 percent from a year earlier in fourth-quarter 1997 due to a 5-percent increase in hog slaughter and heavier weights. The larger production and reduced export prospects dropped the quarterly average hog price to around $45 per cwt, about $10 lower than a year ago. Although production costs are below last year, the sharp price reduction puts producers' returns near break-even for the quarter, compared to about a $4 margin over cash costs a year ago. With pork production expected to increase about 7 percent above a year ago in first-quarter 1998, hog prices are likely to average in the low- to mid-$40's per cwt. The Hogs and Pigs report to be released on December 29 will provide additional information about prospective pork production in 1998.

Pork exports are below earlier expectations due to weakening economic conditions in Asia, particularly the important export markets of Japan and Korea, and strong competition in those markets from Canada. The strength of the dollar against the yen and won are partially offsetting the sharp reduction in U.S. pork prices. The economic problems are expected to continue in 1998, dampening U.S. pork export prospects.

Composite retail pork prices in November continued to drop as they have since reaching a record high $2.36 per pound in August. Although retail prices declined, the farm-retail spread continues to be near record wide as the farm value has dropped more than retail prices. Retail prices are expected to decline further in the coming months as the farm-retail spread narrows. With expectations of plentiful supplies of pork and competing meats through at least next year, pork features should increase and bring lower retail prices.

Total female slaughter, heifers and cows, during 1997 has been the largest since the sharpest break in cattle numbers in history, the mid-1970's. Although cow slaughter is down from the very large 1996 levels, heifer slaughter has remained at nearly unprecedented levels. The large slaughter has occurred although the 1997 cattle inventory was only 101.2 million head, down sharply from the record 132 million head in 1975. Commercial cow slaughter, while down about 12 percent from a year earlier, remains among the largest since the mid-1980s, but still 3 to 5 million head below the record highs of the mid-1970's. Similarly beef cow slaughter, while down 14 percent from 1996, is the largest since the mid-1980's.

Steer slaughter is already the lowest since 1993, as feeder cattle supplies decline. Heifer slaughter has been extremely large as replacement heifers were sold, swelling feedlot inventories. Heifer slaughter was record large in the second quarter and near record levels in the other three quarters. Total 1997 heifer slaughter will be around the 11.5 million head recorded in 1977 and 1978, and only slightly below the 1976 record of 12.16 million head. Heifer slaughter will remain relatively large in first-quarter 1998 as large numbers of heifers already in feedlots are marketed.

This sharp increase in female slaughter will cause the break in cattle numbers to accelerate over the next several years. This scenario will begin to come into better focus in late January when the Cattle report is released, showing inventory numbers as of January 1, 1998. Feeder cattle supplies are already declining and feedlot placements are moving down. Although on-feed inventories are large, reduced placements and large fed cattle marketings through late winter will lead to falling inventories and higher fed cattle prices beginning this spring and continuing through much of 2000. As U.S. and international beef end users begin to realize they will have to compete for reduced fed beef supplies, they will begin to build up stocks even as supplies remain relatively adequate. Fed beef supplies beyond mid-1998 will be further reduced as larger numbers of heifers from the already declining 1997 calf crop are retained for the breeding herd.

Hay and forage supplies to get through the winter of 1997-98 remain of great concern to most producers. This year's all hay crop was estimated to be nearly 2 percent larger than a year earlier due to the other hay production estimate being up nearly 6 percent, but the other hay estimate was lowered by 2 million tons in October and carryover hay stocks from last year were pulled down this past summer due to drought in many areas. Hay prices remain at record highs in November and $4 to $11 a ton above a year earlier. Hay stocks remain very tight. The early blizzard that went through much of the central plains in late October, increased concern of possible weather extremes this winter.

Tight hay stocks and reduced financial bases on many farms and ranches after the poor returns of the last couple of years may well have led to additional female slaughter and more heifers placed on feed. While stocker-feeder cattle prices have strengthened this year, large discounts continue for heifers, strongly suggesting little interest in heifer retention. This scenario will change dramatically over the next couple of years. Premium quality heifers, particularly of the better grading breeds, will become extremely sought after, at rapidly rising prices. Improved forage supplies in 1998 will only add to price strength. Stocker operators will largely reach the stage of the cycle where they have to raise rather than purchase their own stocker cattle for growout, which will strengthen prices for female stock.

December 17, 1997 Economic Research Service

USDA, Washington, D.C.

LIVESTOCK MONTHLY Rising Pork Production Dampens Prices
COTTON OUTLOOK U.S. Cotton Crop Forecast Unchanged
OIL CROPS OUTLOOK World Snatches Up U.S. Soybeans And Soybean Products
WHEAT OUTLOOK U.S. Wheat Forecasts Mostly Unchanged For 1997/98
FEED OUTLOOK Weaker Export Outlook Leads To Small Increase In Feed Grain Stocks

Consensus National Futures and Financial On Line Index

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