June Quarterly Hogs & Pigs Report Analysis

US - USDA's June hogs and pigs report was a bit more bullish short term and more bearish long term than the pre-release trade forecasts, writes Ron Plain.
calendar icon 29 June 2010
clock icon 5 minute read

USDA said the market inventory was down 3.7 per cent. The average of the pre-release trade estimates was for a 3.0 per cent decline. Kept for breeding was down 3.0 per cent according to USDA; the trade estimate was for a 3.5 per cent decline. USDA's estimate of the total number of hogs and pigs on US farms at the start of June was down 3.6 per cent compared to 12 months earlier. The average of the trade estimates was for a 3.1 per cent decline. (See Table 1 below)

USDA made some downward revisions to past inventory estimates to bring them more in line with spring hog slaughter. USDA lowered their previous estimate of the March market hog inventory by 0.3 per cent, decreased the reported number of sows farrowed during September-November 2009 by 2.0 per cent and decreased the September-November pig crop by 2.0 per cent.

The June swine breeding herd was 7.1 per cent lower than at the last cycle peak in December 2007, but it was 0.5 per cent larger than the previous quarter. This is a bit worrisome. On average, the breeding herd is a few thousand head smaller on June 1 than on March 1. This year it increased by 28 thousand head. Hog producers lost $6 billion in the last market downturn. It would be very helpful for producers' balance sheets if rebuilding the sow herd occurs slowly.

USDA said spring (March-May) farrowings were down 4.7 per cent and forecast summer farrowings to be down 2.3 per cent with fall 2010 farrowings down 0.5 per cent compared to 12 months earlier. (See Table 3) Spring farrowings were lower than expected and the forecast of fall farrowings is higher than expected.

USDA said pigs per litter averaged a record 9.81 head during the March-May quarter, up 2.1 per cent from the previous quarter and 2.1 per cent more than the same months last year. Much of the benefit of reduced farrowings was offset by increases in the number of pigs weaned per litter. Spring farrowings were down 4.7 per cent; but with 2.1 per cent more pigs per litter, the spring pig crop was down only 2.8 per cent.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on 1 June was down 2.5 per cent compared to 12 months earlier. (See Table 2) The 120-179 pound group was down 2.6 per cent; the 50-179 pound inventory was down 5.4 per cent; and the inventory of pigs weighing less than 50 pounds was down 3.5 per cent compared to a year earlier.

Canadian hog imports during the March-May quarter showed feeder pigs down nearly 20 per cent and slaughter hogs unchanged. In 2007, 10.0 million live hogs were imported from Canada. Last year, 6.4 million head came south. We are expecting 5-6 million live hogs to be imported in 2010.

Based on the 50-179 pound market hog inventory, our forecast is for a decline of 3.8 per cent in third quarter 2010 hog slaughter compared to July-September 2009. With this level of pork production, we expect 51-52 per cent lean hogs to average in the upper $50s live and Iowa-Minnesota negotiated sales to average in the upper $70s on a carcass weight basis.

For the fourth quarter of 2010 we expect slaughter to be down 3.2 per cent from October-December 2009 with 51-52 per cent lean hogs averaging in the mid $50s live, and Iowa hogs averaging close to $70/cwt on a carcass basis.

With the number of litters farrowed expected to be down 2.3 per cent this summer and pigs per litter increasing by 1-2 per cent in recent quarters, the summer pig crop is likely to be 1 per cent smaller than a year earlier. We are forecasting first quarter 2011 slaughter to be down 1 per cent on a daily basis but actually up 0.6 per cent because of one extra slaughter day. Look for carcass prices of barrows and gilts to be mostly in the high $60s.

The forecast 0.5 per cent drop in fall farrowings should be offset by an increase in litter size and yield a fall pig crop 0.5 per cent or so larger than a year-earlier. Therefore second quarter 2011 hog slaughter is likely to be up about 0.5 per cent compared to this past spring.

Although live hog demand has been strong this year, retail pork demand is still weak. For the first 5 months of 2010, retail pork prices were 0.7 per cent below last year, but hog prices were nearly 30 per cent above year-ago levels.

Our estimates of slaughter and prices for the next six quarters are in Table 4.

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