Despite producers seeing red ink for most of the second half of 2012, the US hog herd is not seeing any significant liquidation.
According to the USDA's last Hogs and Pigs Report, there has been no reaction to reduce herd size.
"Almost all the major categories came back as showing no change at all from the same report last year," says Tyler Fulton, director of risk management with Hams Marketing Services (formerly Manitoba Pork Marketing). "That means as far as hog supply or slaughter, we can't expect to see any adjustment in those numbers over the next two months, and even over the next six months."
Fulton says it's not good news for producers who were hoping to see reduced hog supplies later in 2013.
"There seemed to be consensus among analysts that we could see some reduction based on the fact that profitability has been quite poor," he explains. "So this was no doubt a blow, an unforeseen blow."
With high feed costs stemming from the US drought, American producers have lost an estimated $15 per pig over the last four months.
The lack of response to the losses is likely due to a growing proportion of hogs being packer-owned, says Fulton.
"The degree to which the US slaughter is covered by large operations, in particular operations that have ownership of packing assets, is a fundamental change from five or ten years ago," he says. "They don't have a lot of incentive to get out of the hog production business because it has impacts on their processing facilities, and they are able to mitigate that market risk throughout the whole sector."
He says for example, Smithfield - the world's largest pork producer and processor - owns about half of its slaughter requirements.
"They're also able to do things like increase exports in a temporary fashion in order to mitigate some of that hurt. They have large strategic assets, such as a grain port that allows them to import cheaper Brazilian corn, that keeps a cap on their production costs," says Fulton. "So overall, we're going to see less variability from the big packers or producers when the perception is that profitability is only temporarily impacted."
Source: PortageOnline