Our Observations

• No question the breeding herd is expanding. June 1st breeding inventory was 5.855 million, on September 1st 5.920 million. Up 65 thousand in 13 weeks or up 5 thousand a week. Year over year the breeding herd is up about 100 thousand. About 2% more sows certainly no doubt gives 2% more production going forward. Our sense is if we gained 5,000 sows a week through the summer, the same pace will be maintained currently. Take home message – Despite PED issues, recorded profits are leading to more sows in production. We expect much of expansion has been facilities moving to maximum capacity.
• 3% less market hogs average for the next 6 months will be positive for hog prices. We expect lean hog prices to run 5% plus average over last year in the same time frame.
• Despite 2% more breeding sows in inventory, the June – August Pig Crop was 1% smaller than last year. We expect a big part of that is PED mortality issues that were greater this summer than last.
• Expected farrowings projected in September - November 4% higher than last year with 2% more sows? We believe the 4% number is producer wishful thinking.
• Where has expansion of the breeding herd been over the last year?

As you can see, the expansion of the breeding herd was in many States but with Missouri and Iowa leading the way with 70,000 combined. At one point North Carolina had over one million sows, they are now down to 870,000.

Summary

Breeding herd is expanding, by next summer we will have more hogs unless PED hits harder than last year, which we doubt. Feed prices and profit margins will encourage further sow herd expansion and continued heavy carcass weights. We expect hog prices to stay strong due to the continued support from historically low beef supplies. We believe that the wildcard is the four million sow liquidation that happened in China over the last year. We expect by the first of 2015 China’s hog prices will explode higher and this will lead to significant pork exports from North America. When we look at the US expansion of 100,000 sows over the last year that pales to the 4 million plus liquidation in China. 2015 will be quite profitable for US producers.