CME: Hog Inventories Expected to Rise 0.5 Per Cent

by 5m Editor
28 September 2011, at 8:58am

US - Hot July temperatures took their toll on a late planted corn crop. Ever since, there has been plenty of debate how livestock producers responded to the outlook for sharply higher feed costs, write Steve Meyer and Len Steiner.

USDA will give us some idea on pork supplies for later this year and in 2012 when it issues its quarterly Hogs and Pigs report on Wednesday, 28 September.

Below is a brief recap of analyst estimates ahead of the report and what to look for when the survey results are released.

The total US inventory of hogs and pigs on 1 September is expected to be only modestly higher compared to a year ago.

On average analysts expect hog inventories to show a 0.5 per cent increase from a year ago. Of the seven analysts surveyed, one expected the total inventory to decline compared to last year while two expected inventories to increase by more than one per cent.

Given hog slaughter rates so far this month (remember this is a 1 September inventory), analysts expect the supply of hogs over 180 pounds to be up two per cent from a year ago.

The supply of lighter weight hogs, however, is expected to be less than 0.5 per cent higher than a year ago, implying only a very modest increase in hog slaughter for Q4. Much of that expectation is predicated on the fact that the pig crop during Jun - Aug is expected to be the same as last year (see chart).

The pig crop during Jun - Aug is a function of the number of sows available during the period as well as the timing of the breeding cycle.

In the previous hogs and pigs report, producers indicated that they expected farrowings for Jun - Aug to be down 2.6 per cent from the previous year and this expectation is also reflected in the numbers provided by the analysts surveyed ahead of the 1 September count.

Despite the reduction in the number of farrowings, productivity gains will likely allow producers to bring to market the same number of pigs as a year ago. On average analysts expect pigs per little to increase 1.9 per cent from the previous year.

Farrowings and pigs per litter are two areas that could yield surprises big enough to affect the overall inventory numbers. The sharp decline in hog prices in late May, a time when corn futures were hitting $7/bu. may have discouraged many producers and negatively impacted the farrowing side of the equation.

As for the gains in pigs per litter, some analysts think that eventually the growth curve with start to bend. They have been saying that for some time and with high feed costs, producers continue to have an incentive to try and save as many pigs as they can.

It is a much better strategy than investing in new sow barns. On the topic of sow barns, there have been speculations that despite high feed costs, some producers may have added some sows, expecting strong pork demand in the coming years.

There is no question that in order for US producers to support the growing export demand, more sows and a bigger industry will be needed.

However, in order for that to happen, the cost structure needs to change. At the moment, feed markets are too volatile, and too high priced, to allow for anything but zero to one per cent growth in pork output.

This far outpaces normal domestic population growth and the rapid increase in export demand. Hog and pork prices are expected to stay high in 2012.

As with the cattle feedlot report, market participants remain wary of any big surprises in the inventory numbers, particularly with regard to the sow inventory. Another item to watch is the Dec - Feb farrowing intentions, an early indication as to the supply of hogs coming to market next summer. Current analyst estimate peg December - February farrowings at 99.5 per cent