CME: Hog Slaughter Slowly Approaches Last Year's Levels

4 December 2013, at 9:36am

US - Weekly federally-inspected (FI) hog slaughter continues to slowly approach the levels of one year ago but the convergence of the two years’ patterns may be about to end, write Steve Meyer and Len Steiner.

The mismatch of weeks for the Thanksgiving holiday makes comparisons a bit more difficult but comparing the totals of the past two weeks to the same totals one year ago indicates that total FI slaughter this year numbered 4.413 million head, just 1.2% lower than last year’s two week total of 4.464 million head. As can be seen at right, these weekly totals have been slowly closing the sizable year-on-year gap that existed back in September. But a few pieces of information suggest that the convergence of weekly slaughter totals may be coming to an end.

Barrow and gilt weights appear to be making their seasonal top with the last three week’s average weights being roughly equal. Now those weekly figures are all HUGE at 211 pounds plus but the point is that weights normally peak at this time of year with perhaps one higher observation the last week of the year when marketings are slowed by the Christmas holiday. Even that “last week of the year” surge may be muted this year with Christmas falling on a Wednesday which means that we will not lose two full operational days and will be able to substantially catch up for lost time on Saturday, December 28.

The plunge in the average weight of barrows and gilts sold through negotiated trades last week suggests that producers are much more current in their marketings. These animals are “free agents” in that they, at least to a greater degree than do contracted and formula-priced animals, may move to different packers from week to week. W/hen packers are full of contracted pigs, these hogs may have a tough time finding a home, pushing weights higher. But when supplies of contracted pigs wane, packers will pursue these animals sometimes driving producers to dip deeper into finishing barns to get numbers and thus pushing weights down. Last week’s nearly 5 pounds plunge in the average weight of negotiated pigs is thus noteworthy.

Finally, we are near the beginning of the time period in which we expected to see slaughter impacts of porcine epidemic diarrhea virus (PEDv). Recall that pig losses reached what we believe was a significant level in mid-June, a time that corresponds to marketings beginning in December. Actual FI slaughter has fallen short of the levels predicted by the September Hogs and Pigs report by 3% through last week. That shortfall implies that USDA overestimated the March-May pig crop most likely due to underestimating the size of the breeding herd liquidation in Q3 of 2012 when feed costs were exploding. It remains to be seen whether USDA’s June-Aug pig crop estimate (+1.9%, yr/yr) accurately includes the PEDv losses or misses them. Most analysts do not believe USDA’s numbers could account for observed losses of 2-4% of total pigs and still show 1.9% yr/yr growth in the pig crop. But it could happen if litter sizes grew by a record 3.5%, yr/yr. Unlikely? Yes. Impossible? No.