WASHINGTON – With larger anticipated fall-quarter hog numbers close at hand, US hog prices have tailed-off steadily since reaching a record-high of $79.33 per cwt in early August, according to the US Department of Agriculture’s Economic Research Service. Simultaneously, cash prices of corn in Iowa, the largest hog producing state in the US, have traded in the high $6 to low $7 per bushel range since mid-July.

Concurrent with increasing costs of major feed inputs, declining output prices spell narrower spreads between the cost of feed and the selling price of finished hogs. While producers’ estimated quarterly feed cost spreads remain positive through 2012—calculated with USDA forecast prices of corn, soybean meal and hogs—spreads will narrow for the fourth quarter of 2011, and spreads for the first three quarters of 2012 are below those of 2011.

US hog producers are likely to respond to lower feeding spreads by reducing the weights at which they market hogs for slaughter. However, packer discounts for underweight animals are likely to limit producer incentives to reduce slaughter weights too sharply. USDA is reflecting expectations for narrowing feed spreads in lower year-over-year estimated average dressed weights for the second half of 2011 and into 2012.

Third-quarter commercial pork production is expected to be almost 5.5 billion lbs., approximately 1 percent higher than a year ago. Fourth-quarter pork production is anticipated to be 6.1 billion lbs., about 1 percent below the same period last year. Prices for live equivalent 51-52 percent hogs are expected to average $70-$71 per cwt in the third quarter, about 17 percent above a year ago. Fourth-quarter prices are expected to be $60-$64 per cwt, almost 24 percent above the same period last year.

In July US pork exports were up sharply, propelled primarily by shipments to Asia—China and South Korea, in particular. July exports totaled 386 million lbs., almost 18 percent higher than a year ago. Evidence of China’s rumored purchases of US pork products finally was reflected in US export statistics: China purchased about 44 million lbs. of U.S. pork products in July, more than double the July 2010 volume. US pork product imports appear to be part of an effort by the Government of China to supplement domestic pork supplies in order to reduce food price inflation.

Lower-than-expected pork production this year, due to disease outbreaks in 2010 and continued industry exit by small backyard producers, comes at a time when strong economic growth and increasing disposable income have increased pork demand and pork prices. US exports to China are likely to remain year-over-year higher for the balance of 2011.

Third-quarter US pork exports are expected to be 1.2 billion lbs., more than 26 percent above a year ago. Fourth-quarter exports are forecast at 1.3 billion lbs., an increase of more than 13 percent over fourth quarter 2010. Total exports this year are expected to reach 4.95 billion lbs.

In 2012, total exports are forecast at 5.135 billion lbs., an increase of almost 4 percent. The growth rate of 2012 exports is expected to be moderate compared with 2011 as Asian pork supplies rebound from production declines due to disease problems.