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.
calendar icon 25 March 2010
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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.

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