Gilts in group housing. Up 3 percent from last year, the breeding herd is the largest it has been since 1999 at 6.33 million head.Photo courtesy of National Pork Board and Pork Checkoff.

Despite growing uncertainty in the market place, U.S. hog producers continue to expand the herd. According to the USDA Quarterly Hogs and Pigs Report, released Sept. 27, total inventory is up 3 percent from one year ago to 75.5 million head as of Sept. 1, 2018.

“At one time, this report, because it concentrates on the supply, was really a price driving factor in the pork market,” said Len Steiner, president of Steiner Consulting Group, during a teleconference call hosted by the National Pork Board and the Pork checkoff. “Today, it's much less so, because this year, it looks like we are going to export about 22.3 percent of all the pork that we produce.”

Steiner adds that in 2019, there is an anticipation to export 22.8 percent of the pork produced and that factor is what is currently driving prices.

The total market hog inventory increased 4 percent from last quarter and 3 percent from last year. Total market hog inventory is 69.2 million head.

“If we go back and look at the nearby futures, whether it's the October or December 2018 futures, they have not recovered everything from where they were in the February to March period, before the tariff issues with China emerged,” said David Miller, director of research and commodity services with Iowa Farm Bureau, during the call.

Looking at the futures for June through August 2019, they are a few dollars higher. It appears, the futures market is expecting recovery from the trade war and increased export markets at least 12 months from now.

“If that doesn't pan out, then we've got a futures market that probably, when compared to the supply, is somewhat overpriced when we go out to say June 2019 out through December of 2019,” said Miller. “There may be some good hedging opportunities out in those deferred contracts.”

Breeding herd inventory numbers definitely suggest the era for expansion will continue for the U.S. swine herd. Up 3 percent from last year, the breeding herd is the largest it has been since 1999 at 6.33 million head.

The average pigs save per litter for the June-August 2018 period also hit a record high at 10.72 pigs per litter.

“Pigs per litter at this 10.72, that is 22 percent higher than where we were back in June of 1999 and if you look at pigs per sow, we are 34 percent higher, so a lot more productivity,” said Scott Brown, associate Extension professor at the University of Missouri. “For 2019, we are going to grow pork production on an annual average somewhere in that 3.5 to maybe pushing 4 percent.”

At a continued growth of 3.5 or 4 percent, pork producers are going to need a strong export market to maintain prices, but at the same time, domestic demand will need to remain strong and will still impact prices.

“I think we have seen frankly quite strong domestic demand across the board for all meats, but pork as well,” said Brown. “If the economy were to turn south or we talked about recession in 2019, I would be worried about just what happens on the domestic use side. That could be troubling to hog prices as we look ahead.”

Steiner explains that the poultry industry is starting to pull back in an effort to increase profitability. They have also seen some difficulties with skinless chicken breasts which will improve pork’s position in the domestic market place.

Beef demand remains strong and consistent, a competitor that as of right now, is not impacting pork prices significantly.

“If we don't export this production, it will tank the market and if our exports pick up, then prices can move higher,” said Steiner.