Ron Plain: December Quarterly Hogs & Pigs Report Analysis

USDA's December Hogs and Pigs Report said both the market hog inventory and the breeding herd inventory are larger than pre-release trade forecasts. USDA said the market inventory was down a tiny 0.04% and hogs kept for breeding were up 0.2%. USDA's estimate of the total number of hogs and pigs on U.S. farms at the start of December was 0.02% smaller than 12 months earlier. (See Table 1 below) The average of the pre-release trade estimates was for a 0.9% decrease in the market hog inventory, a 0.7% decrease in the swine breeding herd, and a 0.9% decrease in the total inventory.

USDA made some upward revisions to past inventory estimates to bring them in line with fall hog slaughter. USDA raised their previous estimate of the June market hog inventory by 900,000 head (1.5%) and raised their estimate of the September market hog inventory by 230,000 head (0.4%). They increased the reported number of sows farrowed during March-May by 63,000 (2.2%) and also increased the March-May pig crop by 636,000 head (2.2%).

The December swine breeding herd is 29,000 head larger than on September 1. In 2011, the December breeding herd inventory was 3,000 head smaller than on September 1. Thus, USDA says the breeding herd grew by 32,000 head this fall compared to last. September-November sow slaughter was the same as a year ago. Imports of Canadian sows for slaughter was up by 3,100, leaving 3,100 fewer U.S. sows slaughtered this fall than last. The USDA data implies 28,900 more gilts were added to the breeding herd this fall than last. Given the economic situation for hog producers, the breeding herd growth appears quite high.

USDA said fall (September-November) farrowings were down 1.0% from a year ago. They forecast winter farrowing intentions to be even with a year ago and spring farrowings to be down 1.9% compared to 12 months earlier. (See Table 3) Fall farrowings were 1.1% higher than trade expectations and 1.7% higher than forecast made by the September inventory survey. USDA's forecast of winter farrowing intentions is 0.9% higher than expected and 1.5% higher than the September report predicted. Spring farrowing intentions are 1.0% below the trade forecast. USDA says the breeding herd is up 0.2%, but the number of litters to be farrowed in the next six months will be down 0.9%. History shows farrowing intentions to be a better predictor of future hog slaughter than is the breeding herd inventory.

The number of pigs per litter during September-November, 10.15 head, was up 1.3% from a year ago. The trade was expecting a 0.8% increase. The 10.15 pigs per litter was a new record. Fall farrowings were down 1.0%, but with 1.3% more pigs per litter, the fall pig crop was up 0.3%.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on December 1 was up 0.4% compared with 12 months earlier. (See Table 2) It looks like daily barrow and gilt slaughter in December was very close to year ago. The 120-179 pound market hog inventory was within 0.05% of a year ago. The 50-179 pound inventory group was the same size as a year earlier. The inventory of pigs weighing less than 50 pounds was down 0.4% compared to a year earlier.

Live animal imports from Canada during the September-November quarter showed feeder pigs down 3.3% and slaughter hog imports down 12.4%. Based on the market hog inventory and the expectation of a slow decline in live hog imports, our forecast is for an increase of 0.2% in first quarter 2013 daily hog slaughter. With this level of pork production, we expect 51-52% lean hogs to average in the low $60s live and Iowa-Minnesota negotiated sales to average close to $81/cwt on a carcass weight basis.

For the second quarter of 2013 we expect hog slaughter to be up 0.6% on a daily basis with 51-52% lean hogs averaging close to $67/cwt live and Iowa hogs averaging around $90/cwt on a carcass basis.

With the number of litters farrowed expected to be unchanged this winter and pigs per litter increasing by 1.0% or so, the winter pig crop is likely to be 1% above a year earlier. We are forecasting third quarter 2013 daily slaughter to be up 0.3% compared to a year ago. Look for carcass prices of barrows and gilts to average in the high $80s/cwt.

The forecast 1.9% decrease in spring farrowings should be offset by an increase in litter size to yield a spring pig crop that is down about 0.7% compared to a year-earlier. We are forecasting fourth quarter 2013 hog slaughter to be down 0.2% on a daily basis.

Our estimates of slaughter and prices for the next four quarters are in Table 4. We anticipate a tight supply of competing meats in 2013 will allow for slightly higher hog prices despite a slight increase in hog slaughter.

Source: AGEBB