Ron Plain: Quarterly Hogs & Pigs Report Analysis

There has rarely been as much uncertainty in the hog markets as there has been this year. The Porcine Epidemic Diarrhea virus (PED) has caused an increase in baby pig death loss pushing hog prices to record levels. Analysts have been looking to USDA's March Hogs and Pigs Report for clarification as to just how many pigs have died.

USDA's March inventory report said the number of pigs per litter during December-February, 9.53 head, was down 5.5% from a year ago. The decline is likely due to the PED virus. On a historical basis, this is a huge drop, but is it enough? This is the only decline of more than 1.7% in pigs per litter during the last 30 years. But, it doesn't appear to be big enough to justify the record prices that hog futures have traded at this year.

Some insight into the accuracy of the 9.53 pigs per litter number may come from looking at state data. USDA reports quarterly pigs per litter for 16 individual states. The National Animal Health Laboratory Network (NAHLN) reports state data on farms with PED. The NAHLN data implies that there are six major hog producing states where more than 10% of the hog farms had PED by the end of February. Listed in order of highest to lowest PED rates, these states are Iowa, North Carolina, Minnesota, Kansas, Oklahoma and Illinois. The March hogs and pigs report said pigs per litter during December-February were down 11.6% in North Carolina, down 10.3% in Oklahoma, and 6.6% in Kansas. But, USDA says pigs per litter were down only 4.3% in Iowa, the state with the most farms infected with PED; down only 0.5% in Minnesota the state with the third highest incidence of PED, and down 1.0% in Illinois. It is my opinion that the pigs per litter data for all major hog states will eventually look like the USDA numbers for North Carolina and Oklahoma. I expect PED losses to continue to expand.

USDA's March Hogs and Pigs Report said the total inventory of hogs on U.S. farms at the start of March was down 3.3% from 12 months earlier. (See Table 1 below) USDA said the market hog inventory was 3.7% smaller than a year ago and the number of hogs kept for breeding was up 0.3%. The averages of the pre-release trade estimates were for a 0.6% decrease in the swine breeding herd, a 5.9% decrease in the market hog inventory, and a 5.4% decrease in the total swine herd.

USDA made some downward revisions to past estimates to bring them in line with hog slaughter. USDA reduced by 0.8% their estimates of both the number of sows farrowed during June-August 2013 and the size of the pig crop for June-August 2013. These changes led to a 320,000 head (0.5%) reduction in their previous estimate of the September 2013 market hog inventory.

Perhaps the biggest surprise in the March report was the number of litters farrowed this winter. In December, USDA predicted December-February 2014 farrowings would be up 1.3%. They now say winter farrowings were up 2.8%. In December they predicted spring farrowings would be up 1.4%. They now say farrowing intentions for spring are up 2.4% compared with a year ago. Summer farrowings are predicted to be up 2.0% compared to 12 months earlier. (See Table 3) Winter farrowings were 2.8% higher than trade expectations. USDA's forecast of spring farrowing intentions is 1.9% more than the pre-release expectations. Summer farrowing intentions are 1.1% above the trade forecast.

Winter farrowings were up 2.8% but with 5.5% fewer pigs per litter, the winter pig crop was down 2.8%, which is a 0.8% smaller decline than the pre-release trade forecast.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on March 1 was down 4.8% compared with 12 months earlier. (See Table 2) It looks like daily barrow and gilt slaughter in March was down 6.7% compared to a year ago. The 120-179 pound market hog inventory was down 2.9% from a year ago. The 50-119 pound inventory group was down 3.3% from a year earlier. The inventory of pigs weighing less than 50 pounds was down 4.0% compared to a year earlier.

Feeder/weaner pig imports from Canada during December-February were down 12.2% and slaughter hog imports were down 13.8%. Based on the market hog inventory and the expectation of a slow decline in live hog imports, USDA's numbers imply a decrease of 3.3% in second quarter 2014 hog slaughter.

The light weight market hog inventory numbers imply third quarter hog slaughter to be down 3.8%.

With the number of litters farrowed expected to be up 2.4% this spring and pigs per litter down perhaps 5% due to PED virus, the spring pig crop is likely to be 2.6% smaller than a year earlier. This implies fourth quarter 2014 daily slaughter will be down 1.8% from a year ago.

I believe USDA has not yet captured the full impact of PED. I expect 2014 hog slaughter to come in 2% below that implied by the March survey numbers. Look for second and third quarter 51-52% lean hogs to average around $90/cwt live and Iowa-Minnesota negotiated sales to average close to $120/cwt on a carcass weight basis. For the fourth quarter, look for 51-52% lean hogs to average in the low $70s/cwt live and Iowa hogs averaging around $92/cwt on a carcass basis.

Source: AGEBB