CME: Overall Hog Inventories Expected to be Down

by 5m Editor
24 September 2009, at 8:47am

US - On Friday, 25 September, USDA will issue its quarterly update of the inventory of hogs and pigs in US operations, write Steve Meyer and Len Steiner in their DLR for 23 September.

The report will provide a gauge not only of current hog supplies but also estimates of hog and pork production in 2010. Based on a survey of analysts conducted by Reuters, the expectation is for overall hog inventories to be down 1.7 per cent from a year ago, with market hogs down by a similar amount and the breeding herd also down 2.7 per cent.

On the latter, there continues to be plenty of disagreement and this is reflected in the wide divergence of opinions. The current average of estimates indicates that the breeding stock as of 1 September is expected to e down by a similar amount as in the June survey (-2.7 per cent).

Those that hold a more bearish view of the market likely will point out that despite much talk, US producers continue to be reluctant to sharply cut back the production base, be this because of large sunk in investments, hopes for a rebound or lower grain prices in July and August. They also point to the fact that a significant number of sows during the recent increase in sow slaughter are Canadian animals rather than US stock. More bullish analysts, on the other hand, note that many producers had little choice but to liquidate, following a prolonged period (20 of 22 months) of losses.

One item that will also likely get much attention is the estimate for the pig crop in the June - August period. That estimate will be a function of both farrowings and pigs per litter. The average of analysts’ estimates indicates that the pig crop will be down 1.8 per cent from the previous year, a much needed reduction but likely smaller than those calling for a significant reduction had hoped for.

As we have noted many times before, the steady gains in productivity have offset much of the decline in sow numbers. Indeed, the pig crop may end up being even larger as pigs per litter in recent quarters have increased by more than 1.4 per cent (the current estimate for June - August). Overall, the estimates do not paint a very bullish picture for pork going forward.

Please refer to page 2 of the link to view a special CME notice regarding the daily price limit for bellies in Q4. The price limit for the upcoming quarter will be determined on the basis of the closing futures price on 30 September.