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September Quarterly Hogs & Pigs Report Analysis

30 September 2011
Ron Plain
Ron Plain

US - USDA's September hogs and pigs report said the hog herd was larger than pre-release trade forecasts, writes Ron Plain.

USDA said the market inventory was up 1.0 per cent and kept for breeding was up 0.6 per cent. USDA's estimate of the total number of hogs and pigs on US farms at the start of September was 1.0 per cent larger than 12 months earlier. (See Table 1 below) The average of the pre-release trade estimates was for a 0.5 per cent increase in both the market hog inventory and total inventory and a 0.1 per cent increase in the swine breeding herd.

USDA made some downward revisions to past inventory estimates to bring them more in line with summer hog slaughter. USDA lowered their previous estimate of the March market hog inventory by 125,000 head (0.2 per cent), lowered their June market hog inventory estimate by 300,000 head (0.5 per cent), decreased the reported number of sows farrowed during December-February 2011 by 0.4 per cent and decreased the December-February pig crop by 117,000 head (0.4 per cent).

The September swine breeding herd is the largest since December 2009, but is 6.9 per cent lower than at the last cycle peak in December 2007. The US swine breeding herd has increased for four consecutive quarters. In 2010, the September breeding herd inventory was 18,000 head smaller than on 1 June. This year it was 3,000 head larger. Thus, USDA says the breeding herd grew by 21,000 head more this summer than last. June-August sow slaughter was up by 33,000 head compared to a year ago. Imports of Canadian sows for slaughter was down by 8,000, leaving 41,000 more US sows slaughtered this summer than last. The USDA data implies 62,000 more gilts were added to the breeding herd this summer than last. This is a bit higher number than implied by our gilt slaughter data.

USDA said summer (June-August) farrowings were down 1.5 per cent and forecast fall farrowings to be down 0.2 per cent and winter farrowings to be up 0.5 per cent compared to 12 months earlier. (See Table 3) Summer farrowings were 0.6 per cent greater than trade expectations. USDA's forecast of fall farrowings is 0.7 per cent higher than expected and winter farrowing intentions are 1.0 per cent above the trade forecast. The herd growth is likely due to record hog prices this summer. If USDA is right, the number of sows farrowed will go above the year-earlier level this winter after having been below year-earlier for 15 consecutive quarters. USDA says the breeding herd is up 0.6 per cent, but the number of litters to be farrowed in the next six months will be up only 0.1 per cent. That seems an unlikely combination. History shows farrowing intentions to be a better predictor of future hog slaughter than is the breeding herd inventory.

The number of pigs per litter during June-August, 10.03 head, was up 2.2 per cent from a year ago and ties the record set in the previous quarter. The trade was expecting a 1.9 per cent increase. The benefit of reduced farrowings is being offset by increases in the number of pigs weaned per litter. Summer farrowings were down 1.5 per cent; but with 2.2 per cent more pigs per litter, the summer pig crop was up 0.7 per cent. The June-August pig crop was the largest of any quarter since June-August 2008.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on 1 September was up 3.4 per cent compared with 12 months earlier. (See Table 2) However, it looks like September barrow and gilt slaughter will be up close to 4 per cent. The 120-179 pound market hog group was up 0.7 per cent from September 2010. The 50-179 pound inventory was up 0.4 per cent; and the inventory of pigs weighing less than 50 pounds also was up 0.4 per cent compared to a year earlier.

Live animal imports from Canada during the June-August quarter showed feeder pigs up 3.5 per cent and slaughter hog imports down 3.6 per cent due to a 6.7 per cent drop in imports of sows for slaughter. Imports of Canadian hogs and pigs for 2010 totaled 5.7 million head. Look for 2011 imports to be slightly lower.

Based on the 50-179 pound market hog inventory and the expectation of little change in live hog imports, our forecast is for an increase of 0.7 per cent in fourth quarter 2011 daily hog slaughter with total slaughter to be down 0.9 per cent due to one fewer slaughter day compared to October-December 2010. With this level of pork production, we expect 51-52 per cent lean hogs to average in the low $60s live and Iowa-Minnesota negotiated sales to average close to $80/cwt on a carcass weight basis.

For the first quarter of 2012 we expect daily hog slaughter to be up 0.4 per cent with 51-52 per cent lean hogs averaging close to $62 live and Iowa hogs averaging in the low $80s/cwt on a carcass basis.

With the number of litters farrowed expected to be down only 0.2 per cent this fall and pigs per litter increasing by 2 per cent or so, the fall pig crop is likely to be well above a year earlier. We are forecasting second quarter 2012 slaughter to be up 1.5 per cent compared to a year ago. Look for carcass prices of barrows and gilts to average in the high $80s/cwt. Slaughter weights are likely to average 0.5-1.0 per cent higher next summer.

The forecast 0.5 per cent increase in winter farrowings should be supplemented by an increase in litter size to yield a winter pig crop 2.5 per cent above a year-earlier causing third quarter 2012 hog slaughter to be up 2.5 per cent on a daily basis but actually 1 per cent higher than during July-September 2011 because of 1 less slaughter day.

We are predicting hog slaughter during the fourth quarter of 2012 to be above 30 million head. That is a level that should put real pressure on slaughter capacity and thus force a sharp drop in hog prices. Our estimates of slaughter and prices for the next four quarters are in Table 4. Our price forecasts are well below what the futures market is predicting.

Table 1.  Hog Inventories September 1, US
______________________________________________________________

                                           2011 as % of 2010
       All hogs and pigs                         101.0
       Kept for breeding                         100.6
       Market hogs                               101.0
______________________________________________________________

Table 2.  Market Hogs on Farms September 1, US
______________________________________________________________

     Weight Category                       2011 as % of 2010
        Under 50 pounds                          100.4
        50 - 119 pounds                          100.4
        120 - 179 pounds                         100.7
        180 pounds and over                      103.4
	Pig Crop
	  June-August			 	 100.7
______________________________________________________________

Table 3.  Sows Farrowed and Farrowing Intentions, US
______________________________________________________________

       					        2010 as % of 2009
       December-February                		  95.4
	 March-May 2010					  97.1
	 June-August 2010				  99.5
	 September-November 2010			  98.8
					        2011 as % of 2010
	 December-February				  99.0
	 March-May 2011					  98.2
	 June-August 2011				  98.5
	 September-November 2011			  99.8
					        2012 as % of 2011
	 December-February				 100.5
______________________________________________________________

Table 4.  Commercial Hog Slaughter and Barrow and Gilt Price by Quarter
______________________________________________________________________________________

           --Comm. Slaughter--   ------Barrows & Gilts, price/cwt------
                     Change        51-52%    Iowa-Minn   Non-packer-sold
Year &     Million    from         Lean         Base            Net
Quarter      Head   Year ago       Live        Carcass        Carcass
_________________________________________________________________________

2006 1       26.208   + 2.6%       $42.63       $56.38         $58.37
     2       24.839   - 0.8         48.45        65.27          65.96
     3       25.810   + 1.1         51.83        68.04          69.13
     4       27.880   + 1.4         46.13        60.53          62.04
     Year   104.737   + 1.1         47.26        62.54          63.86

2007 1       26.684   + 1.8%       $46.04       $59.90         $62.69
     2       25.526   + 2.8         52.55        69.45          71.39
     3       26.566   + 2.9         50.34        66.14          69.17
     4       30.396   + 9.0         39.44        52.08          56.83
     Year   109.172   + 4.2         47.09        61.91          65.04

2008 1       29.601   +10.9%       $39.64       $52.49         $57.41
     2       27.941   + 9.5         52.51        70.43          72.24
     3       28.696   + 8.0         57.27        75.67          78.05
     4       30.214   - 0.6         41.92        55.60          61.38
     Year   116.452   + 6.7         47.83        63.58          67.27

2009 1       28.503   - 3.7%       $42.11       $57.23         $60.43
     2       27.072   - 3.1         42.74        57.32          61.76
     3       28.428   - 0.9         38.90        51.43          56.68
     4       29.615   - 2.0         41.20        54.98          57.64
     Year   113.618   - 2.4         41.24        55.23          59.11

2010 1       27.630   - 3.1%       $50.41       $66.81         $68.32
     2       26.074   - 3.7         59.60        79.04          79.42
     3       26.930   - 5.3         60.13        79.44          80.70
     4       29.626   + 0.1         50.11        65.21          69.26
     Year   110.260   - 3.0         55.06        72.62          74.47

2011 1       27.486   - 0.5        $59.94       $79.28         $80.63
     2       26.113   + 0.2         68.80        91.80          92.39
     3*      27.320   + 1.4         70.50        93.95          95.70
     4**     29.360   - 0.9       59 - 63      77 - 81        79 - 83
     Year** 110.279   + 0.0       64 - 66      85 - 87        87 - 89

2012 1**     27.600   + 0.4      $60 - 64     $80 - 84       $82 - 86
     2**     26.500   + 1.5       65 - 69      87 - 91        89 – 93
     3**     27.600   + 1.0       63 – 67      85 – 89        87 - 91
     4**     30.380   + 3.5       52 – 56      68 – 72        70 - 74
     Year** 112.080   + 1.6       60 – 64      81 – 85        83 - 87
 *estimated
 **forecast
_________________________________________________________________________

ThePigSite News Desk



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