Hog market recovering from COVID-19 shock

Sep 29, 2020

Inventory trends indicate slaughter backlog still exists, and producers are adjusting to protect futures

By Jackie Clark
Staff Writer
Farms.com

The United States Department of Agriculture recently released its Quarterly Hogs and Pigs report, which shows that the industry is still working to clear the backlog of pigs caused by slaughter slowdowns during the COVID-19 pandemic. Other trends indicate support for the future of the swine market.

U.S. hog inventory numbers were down 1 per cent from last quarter, but still up 1 per cent from last year, with the majority in heavier weight categories.

“For hogs 120 to 180 pounds (54 to 81 kilograms) and hogs over 180 lb. (81 kg), those numbers are 6 per cent and 10 per cent higher year on year, which shows that is still some backlog of hogs,” explained Abhinesh Gopal, head of commodity research at Farms.com Risk Management.

Some year-over-year decreases in inventories of pigs in lower weight categories exist, likely a result of producers attempting to control the increase in hogs, he added.

“We still have a bit of catching up to do as far as slaughter is concerned,” Gopal said. “Last year as of October-November, weekly slaughter averaged about 2.72 million head per week. Current slaughter rates will have to be much higher than that to catch up.”

The current rate of slaughter is around 2.64 million head per week, with restrictions preventing the spread of COVID-19 not allowing for slaughter to continue at 100 per cent capacity, he explained.

The timing of backlog clearing is still uncertain.

“Initially there were estimates which said we might get caught up by late September or October, but evidently we are not yet caught up,” Gopal said. It’s possible that the backlog could extend into next year.

Conversely, the breeding herd has dropped 2 per cent since last year.

“That is supportive for avoiding overexpansion,” Gopal explained. “When you have a breeding herd which is lower, the implications you know intuitively are that there could be a decline in production for next year. So, it is supportive of futures prices for next year.”

The uncertain global situation has caused farmers to control breeding numbers to help prevent overproduction and dropping prices.

The Quarterly Hogs and Pigs report may indicate a slightly bearish market trend “but it seems that futures have already factored in the numbers of the Hogs and Pigs report because of what is happening currently with demand. Demand seems to be strong,” Gopal added.

That strong demand seems to have discounted some of the bearish supply numbers in terms of futures, indicating possible positive prospects for the market.

Somrerk Kosolwitthayanant\iStock\Getty Images Plus photo

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