CME: Hogs and Pigs Report "Bearish"

US - CME's Daily Livestock Report for 27^th June, 2008.

30 June 2008

4 minute read

North America

USDA released on Friday afternoon the results of its latest survey of US hogs and pigs operations. A summary of the main points from the report and some related charts are included.

In our view, the report was rather bearish in that most numbers in the report came in on the high side of what the market was expecting and will likely put additional pressure on hog futures when they open on Monday. However, the action in the futures may be limited somewhat by the fact that we have had two consecutive down days on Thursday and Friday. Also, the market will likely be impacted by the results of the Acreage report and Grain Stocks report, which will be released on Monday morning.

E-Livestock Volume	27-Jun	26-Jun	20-Jun
LE (E-Live Cattle):	8,824	8,286	10,763
GF (E-Feeder Cattle):	414	586	426
HE (E-Lean Hogs):	11,598	17,926	15,199

The latest USDA Hogs and Pigs Report showed that the number of feeder pigs was 3.7% higher than a year ago while sow farrowings for the period Mar - May were up 1.9%. This implies hog slaughter for the fourth quarter of the year that will be near 2.5% higher than the all time record levels of a year ago. Actual slaughter numbers may likely be a bit smaller given expectations for less imports from Canada in Q4 than a year ago. Nevertheless, the fact of the matter is that we will again see record pork supplies, which will require significant export demand in order to keep markets current. We continue to believe that the export market remains a significant driver in the pork market at this time. There is some talk that Chinese demand may slow down after the Olympics but we think that currently US pork holds a significant cost advantage vs. EU and even Brazilian pork. China is in the process of rebuilding their herd but that will likely take until the middle of next year. Also, with feed costs significantly higher, we think China will remain a significant buyer of US pork.

Bottom line: The latest USDA hogs and pigs inventory update will help contain pork prices later this year. However, the expectation is that pork supplies next year will contract significantly, as evidenced by the 4% decline in farrowing intentions for the Sep - Nov period. The decline in Canadian numbers also will limit availability of slaughter animals and feeder pigs from that country. Depending on how the corn harvest this year shapes up, those farrowing intentions may get even smaller as we go forward.