CME: Hog Inventories Expected to be Higher

29 March 2012, at 12:55pm

US - The USDA Quarterly Hogs and Pigs report will be released on Friday at 3 PM EST and analysts expect overall inventories to be higher than the previous year, write Steve Meyer and Len Steiner.

The inventory of Hogs and Pigs as of March 1 is expected to be 1.7% higher than the previous year. If this increase materializes, it would represent an overall inventory of 64.766 million head, some 1.08 million head higher than the previous year but still shy of the all time record for this quarter, 67.2 million head in 2008. The size of the breeding herd is normally a key indicator in the report as market participants pay close attention to any effort by producers to expand operations.

In recent years, much of the increase in US pork production has come through productivity gains (more pigs per litter) and heavier hog carcass weights. Analysts expect the breeding herd to be up by 0.3% compared to the previous year, which calculates to an overall sow inventory of 5.805 million head. This implies only a very modest increase from the December count, which pegged the sow herd at 5.803 million head and 17,000 head larger than a year ago. These are very modest increases despite reports of generally positive producer margins. With corn prices expected to ease from the highs of last year, the expectation is for producers to slowly add a few more sows. Still there is plenty of uncertainty about the state of pork demand, especially export demand. Also, producers will likely wait to get a better sense of how the corn crop develops this year before making any significant commitments. The US pork industry has become increasingly dependent on exports for growth, they account for almost 22% of all pork produced, and with this reliance also comes a much greater degree of risk.

While modest, the higher breeding herd coupled with ongoing productivity improvements should boost the supply of pigs coming to market later this year and in 2013. Q4 supplies remain of particular concern, if not this year more likely in 2013. The survey of analysts indicated that they expect sow farrowings during Mar - May and Jun - Aug to be up 0.2% and 0.3%, respectively, in line with the growth in the sow herd. So far, pigs per litter have been growing at about 2%. The attached chart shows the growing gap between the number of sow farrowings, which have been about steady since late 2009 and the pig crop, which this year is expected to surpass the all time record levels of 2007. Even if we were to assume a pig per litter growth of around 1.6-1.7% in Mar - May and Jun - Aug, it would still translate into a pig crop of 1.8%, or about 29.7 million head, the highest ever.