CME: Impact of Disease on Pig Crop

US - On average, analysts expect the total inventory of hogs and pigs as of 1 September to be down 3.4 per cent compared to the previous year, largely due to the impact that the PEDv virus had on the US pig crop in late spring and summer, write Steve Meyer and Len Steiner.
calendar icon 25 September 2014
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USDA will release its Quarterly Hogs and Pigs report on Friday 26 September, 3PM ET.

While the disease appears to declined below epidemic thresholds at this point, producers continue to deal with the impact of the disease several months ago. The baby pigs that were lost then have created a marketing hole that has contributed to a decline of a little over 7 per cent to weekly hog slaughter in September, which helps explain the analyst estimate of 6.4 per cent decline in the 180 pound and over category.

Analysts expect supplies in the other marketing categories to also be lower, reflecting the expected decline in the pig crop during June-August. On average, analysts think that the pig crop during the summer months was down 2.4 per cent compared to the previous year.

While farrowings are seen as slightly ahead of last year’s levels, lingering impacts likely affected the pigs saved per litter and hence the overall pig crop numbers. It remains to be seen, however, how big the impact was during the summer months since some reports have shown a dramatic decline in the number of PEDv cases.

This could prove to be on the surprises in the report and, if that happens, it will tend to skew some of the market hog estimates as well. The size of the breeding herd as of 1 September is one of the key factors to watch. USDA surprised analysts in June when it showed that 1 June breeding herd declined from the previous year. But there were reasons that helped explain the decline, with PEDv still a concern and grain prices actually rallying in late April and early May.

Holding back gilts back then maybe was not a priority. Cleaning house likely was. We are in a very different place today. Corn prices are approaching $3 per bushel, levels not seen since 2008. Profit margins for producers have been some of the best in decades and overall demand for meat protein shows improvement.

The impetus to grow is quite significant. Analysts on average expect the breeding herd to increase 1.4 per cent but there is a big gap among analysts. Some expect the breeding herd to be about steady compared to a year ago (four out of nine surveyed). Others expect the herd to increase over 2 per cent, with one analyst going as far as pegging the herd up 4.7 per cent.

That may be a stretch. The main challenge for producers looking to retain gilts over the summer was the decline in the pig crop and the fact that product markets were willing to pay such a premium for hogs. Holding sows for one more round likely was a sound strategy and lower sow slaughter numbers tell the story. Retaining enough gilts to push the breeding herd up 2 per cent or more was likely a bit more challenging.

But low grain prices were an incentive to do so, hence the disparity among analyst views. It is interesting to note that implied gilt retention during the June-August period last year was particularly low, in part because of producers struggling to deal with the emerging disease. It is likely, this year we will return to a more normal flow.

Analysts project farowings to be up 3.2 per cent during September-November, which is in line with the 1 June intentions. If the breeding herd is up 2 per cent, as some analysts suggest, farrowing numbers could be a bit higher. The pig crop for September-November is a major wild card but we would think industry will be at least near year ago levels, which would imply the pig crop up some 3 per cent or so during September-November.

Analysts also pegged the farrowing intentions for December-Febuary at 1.5 per cent over year ago. Using the recent ratios of farrowings to breeding stock, this would imply a breeding herd as of 1 December of about 5.93 million head, 3 per cent higher than a year ago and robustly in expansion territory.

Charlotte Rowney

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