The December 1 Hogs and Pigs report, released on December 27, came in very close to trade expectations. The trade averages showed the total herd up 1.1 percent, the breeding herd up 1 percent and the market herd up 1.1 percent. USDA estimates showed the total herd up 1.1 percent, the breeding herd up 1.3 percent and the market herd up 1.1 percent.

We had expected the breeding herd to be at the average of the trade estimates based on gilt and sow slaughter, but none of our data systems have less sample error than 0.3 percent.

Demand for pork at the retail level improved in the fall of 2006. For January through November, pork demand at the consumer level was down between 3 and 4 percent; but for September-November, consumer demand in 2006 was at the same level as a year earlier.

Live hog demand for January-November was slightly better in 2006 than in 2005. However, for Sep-tember-November, live hog demand was up nearly three percent at our midpoint estimate from 12 months earlier.

Live hog demand for September-November was up slightly from 2004 even though we lost live hog demand in the last half of 2005 and the first half of 2006 from a year earlier. The summer and fall strength of 2006 appears to have pushed demand for live hogs back to the 2004 high.

Contributing to the live hog demand strength is pork export growth, population growth in the U.S., and increased slaughter capacity in the U.S.

If we can hold the strong live hog demand of the fall of 2006 through 2007, live hog prices for 2007 are likely to average the same as in 2006 to a couple of dollars lower. The challenge to hog producers will be higher corn prices, which may push the breakeven price for average-cost producers to $50-51 per cwt. for 2007. If so, the odds are high for modest losses for the year for the average-cost producer.

The average-cost hog producer had enjoyed 34 consecutive months of profit at the end of November based on Iowa State University data. The probabilities are good that December 2006 was profitable for the average-cost hog producer. However, as we get near $3-plus corn into hogs, the winter hog-price rally will have to be quite strong to outpace production costs and keep the bottom line black.

We set another record high for hog slaughter in the fourth quarter of 2006 with commercial slaughter near 27.8 million head, up nearly 1 percent from the previous record set in 2003 and above the 1998 fourth quarter slaughter that was larger than slaughter capacity at that time. Both slaughter capacity and live hog demand was the reason for much better hog price results in 2006 than in 1998 and 2003.

Cash hog prices for live hogs were $3.50 to $5 higher per cwt. from a week earlier. Weighted average carcass negotiated base prices were up $0.82-2.75 per cwt. compared to seven days earlier.

The live prices for select markets Friday morning were: Peoria $40 per cwt., St. Paul $43 per cwt., and interior Missouri $42.75 per cwt. The weighted average negotiated base carcass prices by geographic areas for Friday morning were: western Corn Belt $59.34 per cwt., eastern Corn Belt $58.60 per cwt., Iowa-Minnesota $59.46 per cwt. and nation $58.94 per cwt.

Slaughter this week under Federal Inspection was estimated at 1,835,000 head, up 2.1 percent from a year earlier.

This farm news was published in the Jan. 3, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.