CME: Weight Categories for Market Hogs Different

US - USDA issued on Wednesday afternoon the results of its quarterly survey of hog operations and a summary of the results as well as pre-report analyst estimates is presented in the attached table, according to Steve Meyer and Len Steiner.

4 January 2010

3 minute read

North America

On page 2 (please see link below), we have included a more complete summary of the latest report. As was noted in the Monday edition of the report, the weight categories for market hogs are now slightly different with 50 pounds instead of 60 pounds being the dividing line between the two lightest categories. This should help bring the USDA report more in line with the way Statistics Canada accounts for its hog inventories and allow for a better accounting of the North American numbers.

As the table below shows, the headline numbers were generally close to pre-report estimates, indicating a generally neutral report. But, markets may construe the report as somewhat bearish for next summer and fall. Summer and fall hogs have been trading at a notable premium to the current market partly as a result of expectations for a continued reduction in supplies as well as improved seasonal demand. That reduction in supplies may not materialize, at least to the degree expected. The USDA report noted that the September – November pig crop did not decline by 1.2 per cent as expected but was actually slightly higher than a year ago. This was due to higher than expected farrowings as well as continued strong growth in the number of pigs per litter. So while the overall breeding herd is actually down 3.5 per cent, as expected, strong gains in productivity have more than erased the reduction in sow numbers. Farrowing intentions for December – February also were much higher than expected and with 2 per cent increases in pigs per litter, we could see hog numbers at or slightly above year ago levels through much of 2010, no 2-3 per cent slaughter declines as previously estimated.

How much should we make of this? If the report was released in September, we think it would have been construed as much more bearish than today. The fact of the matter is that demand remains a key driver in the current environment, especially export demand. As long as the demand picture remains good, which it currently is, then the extra pigs for next summer and fall should not have much of an impact. To this point, a number of economic indicators continue to point to better growth in 2010, which should also be supportive of domestic demand for pork.