The key data from the report appear in Table 1 below. A few highlights:

• All of the inventory numbers were within 1% of the average of market analysts' pre-report estimates. In fact, the differences were no larger that 0.5%. While there is nothing really magic about the pre-report estimates, they probably do represent a sense of "market expectations" and, thus, comparing the actual data to them gives us a good idea of what might happen for the nearby futures come Monday. My conclusion is, not much, at least where this report is concerned.
• The U.S. breeding herd continues to grow slowly, but it is now at its highest level since March 2002. That should be no surprise since the industry has enjoyed very good profits and has seen little, if any, red ink due to higher corn prices -- yet. More on that later.
• The one set of numbers that might put some downward pressure on Lean Hogs futures is March-May farrowings and pig crop and the June-August farrowing intentions. All of those numbers were about 1% larger than was indicated by the pre-report estimates and that could put some pressure on futures contracts from December through April 2008. Curiously, September-November intentions are much closer to both the year-ago levels and the analysts' predictions. My guess is that these more forward-looking numbers are being tempered by caution regarding feed prices and hog prices this fall.
• Productivity continues to grow with the average litter size reaching a record 9.15 pigs in the March-May quarter (see Figure 1). The litter size growth, when combined with a rather normal seasonal pattern for litters/breeding female pushed annualized pigs/breeding female to a new record high of 17.85, an increase of 1.1% form one year ago. That is also the largest year-over-year growth rate for pigs/breeding female since March 2005.

USDA does not appear to have found a huge impact of porcine circovirus-associated disease (PCVAD) vaccines in this survey. While numbers are up, what I hear of the vaccines' effectiveness and increasing availability would suggest larger increases than what appear in this report. That doesn't surprise me much for the under-60 and 60-119lb. categories, since much of the death loss due to this disease occurred in larger pigs. The real question is whether we will see higher survival and fewer stallouts that leave market hog supplies larger in the weeks to come.

Slaughter Numbers Up

Slaughter was 4.3% higher last week than during the same week one year ago. That's 5.7, 5.7 and 4.3, respectively, the past three weeks. Those are big increases when 180-lb. and over inventories were just 3% higher. June slaughter (adjusted to equalize weekdays and Saturdays in 2007 and 2006) was 3.7% higher this year.

Finally, we have to consider the impact of higher imports of Canadian pigs. Higher feeder pig imports have added 0.4% to U.S. slaughter this year. Those pigs would be counted in these inventories and thus that 0.4% would be part of our forecast based on these numbers through August. But, assuming imports continue above last year at the same pace, we have to add that 0.4% to slaughter forecasts from September through year-end to account for this growth.

More concerning, imports of Canadian market hogs have been 12,000 to 15,000 head/week higher since mid-May. That adds 0.7% to U.S. slaughter, and we would have to begin adding that amount immediately, since those hogs are not included in the U.S. inventories.

My predicted weekly slaughters, shown in Figure 2, are based on the June Hogs and Pigs Report and a continuation of year-to-date (YTD) increases in imports from Canada.

The bottom line is that hog slaughter will be 2 to 2.5% higher through Q3 and 2.5 to 3% higher in Q4, even without a supply-enhancing effect from circovirus vaccines. With hog demand steady with 2006, those increases would put Q3 national net weighted average prices in the mid-$60s/cwt. carcass and Q4 prices in the upper $50s/cwt. carcass.

Good News, Bad News

The good news on Friday was that we have nearly 93 million acres of corn planted. That could push this year's corn crop to nearly 13 billion bushels and push year-end stocks to nearly 1.4 billion bushels. Corn futures prices fell 5 to 10 cents on Friday.

The bad news was over 3 million fewer acres of soybeans were planted than had been estimated in March. That news sent soybean meal markets to near $9/bu., and put $10 to $13/ton on soybean meal.

Still, the grains markets of the past two weeks have been kinder and gentler to livestock producers than they have been for most of the last year. As Figure 3 shows, projected corn-soy costs have fallen by $20 to $30/ton in just the last two weeks. Continued positive news for corn development could push these costs lower, even if the soybean situation is tight. Corn prices affect hog costs at a ratio of about 1:5 -- a $1 change in corn price causes a $5 change in hog costs/cwt., live weight. Soybean meal has a smaller impact with a $10/ton change impacting hog costs by about $0.35/cwt., live.