As noted here many times, the USDA’s Hogs and Pigs Report is a significant guide to determining upcoming slaughter. There is a very strong correlation between the US pig crop and slaughter six months later. In addition, the report lists market hog numbers by weight. That provides a guide to slaughter in the current and subsequent quarter.

The December Hogs and Pigs report, released at the end of 2009 indicated that from 1 December to 13 February, US hog slaughter “should” have been two per cent lower than last year. Actual slaughter has been four per cent lower. Those numbers for December alone are: –2.2 per cent predicted versus –2.8 per cent actual. For January 1 to February 13, they are –1.8 per cent predicted versus –5.5 per cent actual. So, the lion’s share of the deviation has been since January. The Daily Livestock Report notes that the lower-than-expected slaughter might have been due to lower quality corn and therefore slower growing pigs. Slaughter might also have been impacted by poor weather in the US during January.

Alternatively, maybe the H&P Report over-counted the hogs. If it is corn or transport, then the pigs are going to show up eventually.

As a rule of thumb, it is usually unwise to second guess the H&P Report. Nevertheless, there are some serious views that the US hog supplies might not be as abundant as originally thought and feared. For my part, I am going to stick with the Hogs and Pigs report at least for another month. If, after March is over and the slaughter numbers are still well below what it indicated, then I will say that supplies are tighter.

In addition to the US inventory, the other major factor that goes into forecasting US slaughter is the volume of imported live hogs from Canada. Figure 1 shows the imports of market hogs and weaner/feeder hogs on an annual basis from 1998 through my forecast for 2010.

For 2010, I am expecting total imports to decline by 15 per cent. The decline in 2010 should be comprised of a 15 to 20 per cent decline in market hogs and a 10 to 15 per cent decline in weaner/feeder shipments. That is on top of a 32 per cent decline in total imports in 2009. That 2009 decline was comprised of a 51 per cent drop in market hog exports and a 26 per cent drop in weaner/feeder exports. Of course, the big decline in 2009 imports was due to COOL and the ongoing rationalisation in the Canadian herd.

With that caution noted regarding the Hogs and Pigs Report, Figure 2 shows quarterly slaughter for this 2008, 2009 and the forecasts for 2010. These forecasts are based on the numbers in the December Hogs and Pigs Report as well as my forecast for US live imports.

All in all, I am expecting that slaughter in 2010 is only going to decline by about two per cent compared to 2009. While slaughter might decline by four per cent in the first quarter, the rest of the year is only likely to see declines of one to two per cent.

That in turn brings us to the demand side of the equation. On the domestic front, US pork demand was just steady in 2009 compared to 2008. Unfortunately, 2008 was a pretty poor year for pork demand so being steady with that is not an accomplishment. Basically, domestic pork demand has not been supportive in the US over the last few years.

On the export front, Figure 3 shows annual US pork exports from 1990 to 2009 on a dollar-value basis.

Exports were down by 12 per cent in 2009 compared to 2008 but 2008 was an outlier on the positive side. Basically, 2009 continued the steady trend of export demand growth that began in earnest in 2003. The export demand growth in turn has been the engine of growth for the US pork industry.

The main reason why the US has become a global export leader is the fact that it is a large-scale and efficient industry. The fact that the US dollar has been in depreciation mode against most major currencies has also been a positive factor. Figure 4 shows the performance of the US dollar index on a monthly basis from 2000 through the first two months of 2010. The broad index is a weighted average of the foreign exchange values of the US dollar against the currencies of a large group of major US trading partners. The index weights, which change over time, are derived from US export shares and from US and foreign import shares.

As can be seen, the US dollar began to depreciate in 2002 and depreciated steadily through the third quarter of 2008. The financial collapse around the world in the fourth quarter of 2008 brought investment back to the dollar and it appreciated dramatically until early 2009. The depreciation continued then through much of 2009 before the financial problems in Europe, and particularly Greece, brought some strength back to the dollar in early 2010.

The significant point for pork is that the dollar’s depreciation pretty much coincided with the timing of the US pork industry’s emergence as a global leader in pork exports.

2010 US Hog Prices

Putting it all together, the following are my pricing forecasts for the remainder of 2010 on a carcass basis in US$/cwt.

As of 1 March, these forecasts were considerably less bullish than the futures markets.

Canadian and Alberta Developments

Figure 5 shows weekly slaughter in Alberta and Manitoba from 2008 through the end of February 2010.

As can be seen, there has been an increasing pattern to slaughter over that time in Manitoba while Alberta slaughter has been steady. To be fair though, in late 2009 and early 2010, Alberta’s slaughter has ratcheted up noticeably with Olymel typically killing in the 40,000’s each week.

Figure 6 shows the trend in the prairie sow herd as well as the three Prairie Provinces on a quarterly basis from 1995 to the beginning of 2010.

The Canadian sow herd declined by four per cent as of 1 January compared to 2009, while the Alberta herd declined by seven per cent and the prairie herd down by six per cent. The Alberta herd has been staying relatively steady at about 27 per cent of the prairie total.

Alberta Price Forecasts

Based on the US prices noted above, the following are my quarterly forecasts for Alberta prices for the remainder of 2010 based on a C$ value of 0.95.

March 2010