Pork Commentary: March Hogs and Pigs Report - No Surprises

US - The USDA 1 March quarterly Hogs and Pigs report did not come out with any big surprises.

3 April 2012

5 minute read

North America

0	2011	2012	2012 as percent of 2011
March 1 Inventory (1000) head
All Hogs and Pigs	63,684	64,872	102
Kept for Breeding	5,788	5,820	101
Market Hogs	57,896	59,052	102

0	2011	2012	2012 as a percent of 2011
Market Hogs and Pigs by Weight Groups (1000) head
Under 50 pounds	18,863	19,332	102
50 – 119 pounds	16,060	16,456	102
120 – 179 pounds	12,361	12,569	102
180 pounds and over	10,612	10,695	101

Kept for breeding is up 32,000 sows which is not a significant increase. Our opinion over the last couple of months is that the breeding herd was expanding. In the last quarter (1 December – 1 March) the herd has increased 17,000, not a significant increase but a trend if continued would begin to become a major factor. Our sense is that current corn prices of $6.50 and the drop in lean hog futures by $20 per head will have taken the edge off most enthusiasm for further net expansion. 90 cent lean hogs and $6.50 corn = little if any profit.

Market hog numbers year over year are up 1.150 million. If we use a 25 week birth to market scenario, 1.150 million head would be about 43,000 more head a week over the next 6 months. Couple this with the trend line of heavier carcass weights. There will be obviously more pork to sell. Keep in mind the US people population grows over 1 per cent per year a continual domestic demand enhancer.

The December – February US pig crop was up 3 per cent on less than a ½ of 1 per cent increase in the breeding herd. There were 28,681 million in this year’s pig crop up about 800,000 from a year ago. The productivity trend line that we have had over the last couple of years has been extraordinary. Much of the gain we have been observing has been from the litter size enhancement the swine genetic industry has been achieving. At Genesus we continue to see litter size jump of around .25 per litter per year. A boost of over half a pig per sow per year, year upon year of such trend line pushes productivity gains as we see in the USDA report.

With a 3 per cent jump in the pig crop we could expect a larger increase in market hog numbers. We wonder if the lower market hog numbers are a reflection of the mortality from the major PRRS breaks this winter.

We expect the report will do little to change the market versus expectations. Going forward the extra market hogs in the inventory are not that significant compared to domestic demand, export demand, chicken supply, and beef supply. In the coming weeks as the seasonal supply of hogs decline look for hog prices to go higher. We are still of the opinion $1.00 lean hogs will be reached this summer.

Grains – Oilseeds

Last Friday the USDA released prospective planting acreage for 2012 crop year. Corn was estimated at 95.9 million acres up from last year. 91.92 million Or 4 million acres more, Soybeans 73.90 million acres down one million acres from last year. All wheat 55.91 million acres up from last year’s 54.41; put together more corn, wheat less soybeans. That is a total acreage increase of 4 million acres. The crop is not in the ground but as usual high prices always will lead to increased production. Corn acreage at 95.9 million acres is the highest US corn acreage since 1937.

The big driver on current prices was lower quarterly stocks. Corn was down 8 per cent or 400 million bushels, soybeans are slightly up in inventory, and wheat is down 200 million bushels. The drop in corn inventory coupled with historically high corn plantings are leading to May corn at $6.50 a bushel while December 2012 corn is $5.40 a bushel – a $1.10 a bushel spread. Maybe historically one of the greatest prices spreads in one calendar year ever? The next few months the thing for sure is ongoing wild price swings?