Editor’s note: The following was written by Jason Franken, Western Illinois University School of Agriculture, for the University of Illinois farmdoc daily website Jan. 6.

The USDA’s December Hogs and Pigs report indicates producers continue to expand, with the Dec. 1 inventory of all hogs and pigs coming in at 77.338 million head, a record for this quarter and up 3% from a year ago.

The U.S. hog industry has been expanding since mid-2014, with the annual breeding herd growth rate peaking around 3.5% in early 2018. Unprofitable margins and uncertainties from trade tariffs have slowed breeding herd expansion, as the USDA’s December report has the breeding and market herds, respectively, up 2 and 3% from this time last year. These numbers are fairly in-line with pre-report expectations.

The number of pigs weighing less than 180 pounds was 2.25% larger than the inventory at this time a year ago, and these will be the market hogs arriving at processing plants from January to May 2020.

The change reflects that the September- November pig crop was up 2% from 2018, despite 1% fewer sows farrowed during the period. The 2% larger fall pig crop also implies roughly 2% more slaughter next spring. The larger pig crop is due to a record high of 11.09 pigs saved per litter, on average, or a little better than one pig per litter more than last year’s 10.76 for the September- November period.

The 2019 average was 10.97 pigs per litter compared to 10.68 in 2018, continuing the upward trend with an average rate of annual increase of 1.3% over the last decade.

A continuation of the upward trend in pigs per litter, combined with reported farrowing intentions, suggests more hogs going to market in 2020. Winter farrowing intentions are up 1% from actual farrowings last year and 5% from two years ago, and spring farrowing intentions are also up slightly from last year and up 3% from two years back.

All of these numbers point to a somewhat higher supply of hogs and pork in 2020. With higher production, one might expect lower prices, but there are additional items to consider on the demand side.

While pork production is expected to be 3.5% higher in 2020, consumption is expected to decline by 0.1 pound per American, but we still have exports to consider.

On the world market, all eyes are on Asia, and China in particular, due to its production losses from African swine fever. Although held back by China’s retaliatory duties, U.S. pork exports to China increased throughout 2019. In September and October, China surpassed Japan to become our second largest foreign customer after Mexico.

Late last May, Mexico ceased a 20% retaliatory duty on U.S. pork that restrained exports through April. The House of Representatives passed the U.S.-Mexico- Canada Agreement in December, and the Senate is expected to ratify it soon, which will help to ensure long-term duty-free access to this key market.

The USDA is forecasting U.S. pork exports in the first three quarters of 2020 to be, respectively, 21%, 7.5%, and 8.8% greater than the same time last year. These forecasts are premised on the assumption that China and other Asian countries will continue to face significant domestic pork supply deficits, and that the preliminary trade agreement with China will eventually be finalized.

By quarter, the national net price is expected to average around $66 in the first quarter, $77 in the second and the third quarters, and $67 in the final quarter of 2020. Hence, given costs of production in the low to mid $60s, hog prices should be profitable, on average, throughout 2020.

These projections are based on a scenario where growth in domestic and export pork demand more than offsets growth in U.S. hog production, as previously described. Since domestic production and consumption tend to be relatively easier to get a handle on, export demand from China in particular appears to be the wildcard. If the expected growth in U.S. pork exports to China doesn’t materialize, then U.S. hog prices would likely fall short of these projections.