CME: Decline in US Breeding Herd Expected
US - USDA will release on Friday, 26 March the results of its quarterly survey of US hog producers, write Steve Meyer and Len Steiner.Some (including
us) like to quibble now and then with the USDA survey and how
well it represents hog supplies on the ground. The reality is, however,
that this report is one of the best tools the industry has to
gauge future supply trends and it is well followed by many market
participants The table to the right provides a summary of the
USDA pre-report estimates based on a poll of 8 analysts conducted
by Thomson Reuters.
The US breeding herd is currently expected to be down
2.6 per cent compared to the previous year. If that decline materialises
(and if the data for the previous year remains unchanged), it
would represent a sow inventory of about 5.836 million head, the
smallest sow inventory since the survey began back in the early
1970s. The reduction in the breeding herd that we saw in the past
12 months clearly has had an impact on reducing overall output.
However, it is important to keep in mind that the productivity
gains remain strong and they will blunt some of the impact from
lower sow numbers. The total hog inventory is currently expected
to be around 65.160 million head, 1 per cent lower than the previous year
but still the third largest inventory on record. The inventory of
market hogs is expected to be down 0.9 per cent, with much of the reduction
taking place in the front end. The supply of hogs under 50
pounds is currently expected to be down just 0.4 per cent, with some analysts
actually expecting a modest increase in this category.
As we mentioned earlier, productivity gains have limited
the reduction in supply that a record low sow inventory would imply.
Farrowings (births to a litter of pigs) during the December - February
quarter are expected to be down 2.3 per cent but the industry continues to make steady gains in the number of pigs per litter. As a
result, the pig crop during the October - February quarter is expected to be down just 0.9 per cent compared to the previous year, with some analysts
actually expecting about the same pig crop as the year before. The analysts surveyed indicate that the USDA report will
point to modest reductions in US hog slaughter during the second half of 2010. There is a wide range of estimates as to how
producers will respond to the recent run-up in hog prices. With summer hog futures hovering above $80, producers clearly have
an incentive to save every piglet they can and try to maximise the number of farrowings. However, it will take time to replace
the sows liquidated in late 2008 and 2009 and there is plenty of uncertainty about hog profitability long term. At the moment,
there is also some disagreement among analysts about the farrowing rate in March - May and June - August quarter. Overall
the expectation is for lower pork supplies to extend at least into early 2011.