Pork Commentary: How many ways can we say "No more market hogs?"

CANADA - Months ago we projected stronger hog prices than the futures and most analysts’s projected. Our premise included no increase in continental hog production while packers had increased shackle space to chase the same number of hogs. It wasn’t a complicated scenario.

5 July 2006

4 minute read

North America

On Friday the USDA released its June 1st hogs and pigs inventory report. It was no surprise to us, with the market inventories the same as a year ago with breeding herd up 1%. Despite 28 consecutive months of profit the market inventory has yet to expand.

US Market Inventory June 1st 1000 head
2005	2006
54,754	54,867

One hundred and thirteen thousand more market hogs June 1st this year compared to last, with 25 week’s to get from birth to market an extra 4500 pigs a week. Considering there are 20,000 extra pigs per week coming from Canada as little pigs this year compared to last you could make the argument that the USDA is projecting lower US originated marketing’s.

Breeding Herd

The USDA has the breeding herd for June 1st up 35,000 from March 1st; an increase of about 3000 a week in the last quarter.

US Breeding Herd June 1st 1000 head
June 1, 2006	6,060
March 1, 2006	6,025
June 1, 2005	5,977
June 1, 2004	5,937

In the last year US breeding herd has grown 83,000. In the last two years 123,000. The US breeding herd is growing. At some point there will be more US origin pigs. The good news, the US population continues to grow. Pork exports remain strong and we expect no breeding herd growth in Canada which in turn impacts continental pork supply.

Pig Crop

The USDA pig’s crop for March-May was 26,301 million; 315,000 more than last years March-May 25,986 million (+1%). Litter size in 2006 March-May was 9.08; up .6 from 2005’s 9.02.

If the USDA pig crop and the March-May market inventory are correct. A pig crop increase of 315,000 does not translate into only 113,000 more market hogs on June1st. There should be more. We believe the difference could be the effect of PWMS (circovirus). If 1-2% of pigs are dying nationally more than normal it explains the difference. We believe the market inventory on June 1st accurately reflects reality. More pigs born-more pigs dying.

Where’s the Breeding Herd Expansion?

The states that have significantly expanded in the last year
	2005	2006	%
Colorado	140	150	107
Indiana	300	320	107
Missouri	340	350	103
Nebraska	355	356	103
South Dakota	145	160	110

Greatest breeding herd increase was 20,000 in Indiana; which from what we can observe is the only jurisdiction in North America that is actively soliciting increased swine production.

Market Expectations

With no more hogs in inventory and domestic demand steady or stronger. The US dollar remaining low relative to most world currencies enhancing export demand. 2006 hog prices will have the added benefit of increased packer capacity which further supports the market.

Consequently we expect market prices through the third and fourth quarter of 2006 to be similar to 2005 with upside potential.