However, the smaller herd was expected as analysts, on average, had estimated it at 97.2 per cent of a year ago.

USDA’s breeding herd was 5.77 million head, or 98.2 per cent of last year, and its market hog supply was 59.221 million head, or 97.3 per cent of last year.

“I would call the report totally neutral – very close to estimates,” said Jim Clarkson, livestock analyst at A&A Trading Inc.

The report showed the liquidation phase may be ending. But any growth in the herd may be slow in coming.

“It is an indication that we have stopped cutting back,” said Ron Plain, agricultural economist at the University of Missouri. “We really haven’t got around to growing yet.”

There were mild hints of expansion in the report as the December- February farrowing intentions were up .5 per cent. But higher corn prices since USDA surveyed producers for the report could cancel that increase, analysts said.

Corn prices recently topped $5 per bushel for the first time in two years.

“There is a hint of expansion but we’ll see with those corn values,” said Don Roose, president of U. S. Commodities Inc. “The expansion is slow and this strong corn market helps keep that in check.”

Profits on hogs should continue for the remainder of the year. But higher corn prices may narrow those profits in 2011.

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China is a potential major customer for U. S. pork in the future and producers are looking for exports to resume after being halted last year due to H1N1 concerns.

“There is a tremendous effort by the U. S. government to work with the Chinese – we’re looking for the Chinese market to open up very soon,” Phil Seng, president and chief executive officer of the U. S. Meat Export Federation, told Reuters on the sidelines of the National Pork Forum being held here.

There has been only partial progress in resuming pork exports to China after they halted imports in April from all H1N1-infected countries.

In early December, China reopened its market to pork from the United States, Canada and Mexico. But problems finalizing export certificate language has kept pork exports from flowing and so far only Canada has met China’s certification requirements.

Seng noted that the Chinese look at the market as being basically open to U. S. pork, but there is language on the certificate they are asking the United States to provide and that has been problematic.

He said the main problem in starting exports has been their continued concern over H1N1 and their requirements that containers used to ship pork there be sanitized. All sectors of the U. S. industry are working with the government to get the language in the certificates to a point that is acceptable to the Chinese and also acceptable to the United States.

“We expect for us fully to get back in that market very soon,” Seng added.

HUGE POTENTIAL

Pork producers know that China represents a huge potential to increase U. S. pork exports. If the China market was fully opened they could take up to 50 per cent of U. S. production.

“If China really let markets work and gave us five to 10 years we could be exporting 50 per cent of what the U. S. produces just to that one country,” Dermot Hayes, professor of economics at Iowa State, told Reuters before speaking to pork producers here. “Their industry is four times bigger than ours and if they just imported a quarter of what they buy and bought half of that from us it would be a big deal.”

He noted that short term, imports are dependent on the whim of the government and China is using H1N1 and concern over unwanted additives to keep imports from other countries down.

“Long term, China is land scarce and Asian countries that are land scarce traditionally import a lot of pork, as much as 25 per cent of what they consume. Japan is up at 50 per cent,” Hayes said.

“They have a lot of inefficient pork production – very labour intensive – and they have a better use for those individuals in the cities at construction sites. So as they leave the countryside, there is a huge potential for pork to replace the backyard production that will quit,” Hayes added.

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Low-quality feed, a harsh winter, and fewer hogs from Canada have reduced hog numbers. But analysts and producers at the National Pork Forum said those issues do not fully explain the discrepancy with the U. S. Agriculture Department’s count.

“Since Dec. 1, using weekly data, the slaughter has been about two per cent lower than the (USDA) December Hogs and Pigs report has said,” Steve Meyer, president of Paragon Economics, told Reuters. “It’s been about 3.8 or 3.9 per cent lower than last year, but that is about two per cent lower than the report suggested.”

Producers attending the Pork Forum from Iowa and Minnesota, where a large portion of the U. S. hogs are raised, said they have noticed fewer-than-expected hogs.

Craig Rowles, an Iowa producer with an 8,000-sow operation that markets 150,000 hogs per year, has seen his hog numbers down a bit due to the corn quality problems, disease, and reduced numbers of hogs coming from Canada.

“We have a corn crop this year that isn’t quite as good as in years past,” Rowles said. “We have seen higher instances of problems with mycotoxins and quality issues that could have an impact on performance and growth and certainly that would decrease market weights to a certain degree.”

Producers said certain diseases pop up in the winter that can reduce the output of pigs.

“In our operation we have experienced disease issues that have reduced our production,” Rowles said.

Porcine Respiratory and Reproductive Syndrome virus, PRRS, commonly shows up in hog herds during the winter and annually costs U. S. pork producers about $530 million, or more than $5 per U. S. hog sold each year, according to industry records.

“It’s a typical winter that we do see some evidence of disease outbreaks, be it PRRS, that would also reduce totals,” said Randy Spronk with Spronk Brothers, a Minnesota hog producer with a 3,600-sow operation that markets 120,000 head of hogs per year.

Spronk said he has been lucky this year because he has not seen the disease as he had in previous years.

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“Lower stocks across the board for all categories compared to last year shows that we are going to have a tighter supply situation and we should have higher prices continuing in 2010,” said Rich Nelson, livestock analyst with Allendale Inc.

Lower pork production, better domestic demand, and improvement in exports compared to last year reduced the pork supply.

The Feb. 22 U. S. Agriculture Department’s monthly meat supply report showed pork stocks at 495.61 million lbs., up 5.2 per cent from December, but down 18.4 percent from 606.9 million lbs. a year ago.

“Between a drawdown in the (pork) bellies, loins, and ribs you had a smaller total pork than expected. You had a slight drawdown in the bellies, which is extremely rare,” said Dennis Smith, broker with Archer Financial.

Beef stocks were 432.8 million lbs., up 0.6 per cent from December but down 6.5 per cent from last year, while poultry stocks were down 19 per cent from last year.

Improvement in world economies likely increased domestic and export demand for pork, despite Russia, an important export market, banning pork from several U. S. plants.

Pork exports during December, the latest month reported by the USDA, were 363.7 million lbs., up from 312.2 million lbs. last year while beef exports were at 169.4 million, up from 135.5 million lbs. a year earlier.

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The number of cattle placed at these feedlots in December fell to an 11-year low due to winter storms, fewer available feeder cattle and high feed costs.

“Placements during December were at an 11-year low and that helped on-feed (supply) drop to a seven-year low,” said Rich Nelson, livestock analyst with Allendale Inc.

“There were smaller supplies available of calves and feeders after we placed a good chunk of them (at feedlots) between July and October. “And secondly, corn costs were rallying through much of the month,” Nelson said.

Poor weather conditions would raise the cost of feeding cattle. With the economy weak, some feedlots were unable to obtain financial backing, while high U.S. unemployment kept beef demand down.

“We had two significant storms going on during December and we have not seen better beef demand show up yet,” Nelson said.

The U.S. Department of Agriculture reported the on-feed cattle supplies at major feedlots as of Jan. 1 at about 11 million head, 98 per cent of last year’s supplies. Traders expectations averaged 98.4 per cent, in a range of 97 to 99.3 per cent.

The on-feed number was the lowest Jan. 1 number since supplies were at 10.658 million head in 2003.

PLACEMENTS BELOW ESTIMATES

Placements of cattle onto feed during December, one of the most watched parts of any Cattle on Feed Report, showed numbers at 94 per cent of last year. This compared with an average trade estimate of 95 per cent.

December placements were at their lowest level for the month since 1998 when placements totaled 1.512 million head.

Another part of the report that analysts liked was the marketing number, which exceeded last year’s level. This showed feedlots were willing to move cattle to market even though the prices were not as high as needed to bring profits.

“We had a report that is fundamentally positive to the front part of the market because marketings were more aggressive than we thought,” said Don Roose, president of U.S. Commodities Inc.

But slow demand for beef will still limit any gain in futures. Beef prices have started to slip again after rising to a seven-month high early in the week.

“The beef market is going to continue to weaken regardless of what this report shows, and that is the No. 1 factor on the board right now,” said Dennis Smith, broker with Archer Financial in Chicago. “There is nothing extremely fancy in this report to drive the market sharply higher.”

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The herd is in the third year of reduction amid the recession, high grain prices and lingering concerns over the first case of BSE in the United States in 2003.

“Cattlemen have lost money on the cow-calf side. Last year, 2008, in our estimated series, is the first year many cattlemen did not cover their cash cost of production,” said Jim Robb of the Livestock Marketings Information Center.

The financial strain from high feed and fuel costs was compounded by a parched pasture, especially in the southern Plains, a key cattle producing and feeding region.

“It’s mostly economics continuing the liquidation, supplemented by drought in recent years. Input costs have really pressured lots of agricultural producers, including ranchers,” Robb said.

“We just started to see some relief on the cost side the last couple of months and these inventory numbers are reflecting what’s happened in the last two years,” he added.

USDA put the July 1 cattle on feed supply at 9.752 million head, down five per cent from last year and the lowest July number in 10 years.

The low pace of placements continued in June with the number of cattle placed at feedlots that month down eight per cent from last year to 1.391 million head, the second lowest since the USDA began issuing mid-year data from 1973.

USDA put the July 1 total U. S. cattle herd at 101.8 million head, down from 103.3 million last year. But the estimated 2009 calf crop was in line with expectations and shows cattle numbers in the United States will likely be tight for years.

“The supply side increasingly looks supportive of prices. We’re still liquidating the size of the beef cow herd. The number of replacement heifers held back on the beef cow side does not indicate any herd expansion at all,” Robb said.

“We might see our first signs of herd expansion, in terms of replacement heifers in 2010, but you won’t see any fundamental increase in beef production until probably 2012,” Robb added.

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Producers at the annual Pork Industry Forum were discussing the documentary, “Death on a Factory Farm,” which the network plans to premier on March 16 and show 20 times by April 1.

The documentary, based on a video taken by the Humane Farming Association, an animal rights group, “takes a harrowing look at animal cruelty in an Ohio factory farm as chronicled through undercover footage,” the HBO website said.

Owners of the Ohio farm were charged with animal cruelty and following six weeks of secret filming of events there.

The video also contains footage of the trial where representatives of the pork industry gave testimony detailing acceptable hog care practices, Tom Simon, co-producer of the documentary, told Reuters.

Steve Weaver, president of the National Pork Board, told the forum on Thursday that “our detractors and special interest groups have begun to focus on specific production practices and to challenge our industry on our commitment to animal care.”

Weaver conceded that some producers do not adhere to the best industry practices, “and sometimes we shoot ourselves in the foot.”

But Cindy Cunningham of the National Pork Board said “there are 75,000 hog farms across the country and what happened on this farm is not common practice.”

Animal rights groups have forced changes to how animals are treated or handled in some states.

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“Cattle on feed numbers grew seasonally from November to December, but the number of cattle on feed will be one of the lowest levels since 1996,” Bob Price, president of North America Risk Management Services Inc, said in a report.

“Cattle feeders are reluctant to place cattle (at feedlots) in the current uncertain economic environment and with the large equity losses in the cattle feeding business over the past two years.

“The supply side of the cattle market should remain below the five-year average for the next several months. However, feeder cattle supplies outside of feed yards are above last year, and the drop in feeder cattle and corn prices is providing some potentially profitable feeding opportunities,” Price said.

Corn futures at the Chicago Board of Trade have slumped 50 per cent from a record high of $7.65 per bushel in June amid a sell-off in commodities and financial turmoil in the United States.

Analysts agreed that a sharp decline in wheat prices led to a large number of cattle being grazed on pastures.

“We believe feedlot operators pushed comparatively large numbers of calves and yearlings back to pastures,’ said Dan Vaught, livestock analyst with Wachovia Securities in a report. “Again, wheat prices far below those seen last autumn and the autumn breakdown in deferred live cattle futures probably caused this shift.”

Marketings during November also saw a large decline, but this was due to two less marketing days this year. Estimates ranged from 87.2 to 92.6 per cent of a year ago.

“The huge reduction (in marketings) was largely caused by the two-day calendar shift associated with 2008’s status as a leap year, since last month had two fewer workdays than did its year-ago counterpart. As pointed out in the past, annual shifts in the number of workday’s tend to cause a 4 to 5 per cent per day change in the monthly marketings total,” Vaught said.

Analysts also noted there were fewer cattle placed at feedlots previously that would be due to be marketed in November. Some of this can show up in the number of cattle on-feed for 120 days or more.

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