CME: Rapid Shift from Expansion to Contraction in US Swine Sector

1 October 2012, at 1:04pm

US - USDA’s Quarterly Hogs and Pigs Report contained few surprises relative to pre-report expectations and indicates a rapid (and perhaps TOO rapid) shift from expansion to contraction for the US swine sector, write Steve Meyer and Len Steiner.

The key national data appear in the chart below. Some implications of the key numbers are:

The 5.788 million head breeding herd was 0.3% lower than on year ago. That is a slightly larger reduction than the surveyed analysts, on average, expected but the number does not fit well with what we know of sow slaughter and gilt retention since June. The Sep 1 inventory is pegged by USDA to be 74,000 head lower than on June 1. Last year the sow herd increased by 3,000 head during the June-Aug quarter. That is a year-on-year difference in sow herd change of 77,000. But net slaughter of U.S. sows this year was actually 1,779 head LOWER for the 13 weeks ended August 28 this year while total gilt slaughter, according the University of Missouri survey data, was 54,690 head higher. While many EXPECTED the breeding herd to be sharply lower, it looks to us that the only way it could be this much lower was for sow death loss to be unusually high. That is possible given this summer’s heat but we still think the larger liquidation is yet to come.

The market herd continued to be larger than last year, primarily on the strength of a 180-lb. and over inventory that was 4.5% higher on September 1. That figure fits reasonably well with September slaughter which has been 5.5% higher than last year but it doesn’t fit well with the other inventories in this report or the Mar-May pig crop (29.441 million head, +0.6% yr/yr) in the June report. We don’t think this many pigs actually weighed over 180 at the beginning of the month even though they got slaughtered during the month. But they are indeed gone and that should help the supply situation in the future.

Farrowing intentions — especially those for the Sep-Nov quarter— look to be low relative to the breeding herd. This has been the case with several recent reports and the pattern is for actual farrowings to be higher than the intentions. This summer’s heat and the difficulty it likely caused for breeding efficiency would certainly be supportive, however, to the lower Sep-Nov intentions number.

Pigs saved per litter hit another record of 10.13 in the June-August quarter. The annual growth rate of 1% is larger than last quarter’s 0.6% but still well below the 2008-2011 trend of 2%. Economic hard times and liquidation will very likely increase the rate of growth again by eliminating poorer performing sows.

The report still implies lower supplies in each of the next four quarters. Our computations show numbers down only 0.4% for Q4- 2012 and that number could be too negative if sow slaughter picks up in November and December. The report data imply year-onyear slaughter declines of 0.7%, 1.5% and 0.5% for the first three quarters of 2012. Those numbers could be slightly more negative if Canada’s herd shrinks at a faster pace than does the U.S. herd.

USDA’s bombshell of the day was Friday morning’s estimate of September 1 — ie. year-end — corn stocks of only 988 million bushels. The trade had, on average, expected that number to be comfortably above the 1 billion mark, an expectation fueled in no small part by USDA’s increasing the estimated year-end stocks from 1.021 billon in August to 1.181 billion in September. June-August disappearance of 2.16 billion bushels was sharply lower than last year’s 2.54 billion bushels. Corn future were limit up for December and March on Friday while May and July gained 39.5 and 38.0, respectively.

Those contracts were another 5-6 cents higher this morning. Soybean stocks came in sharply higher than the September estimate and expectations but bean and meal prices rose in sympathy with corn on Friday.

Further Reading

You can view the full USDA report by clicking here.