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March Quarterly Hogs & Pigs Report Summary

by 5m Editor
3 April 2008, at 8:07am

USDA’s March Hogs and Pigs inventory report was substantially more bearish than the average of the trade estimates, write Glenn Grimes and Ron Plain.

The total number of hogs and pigs on farms March 1 was up 6.5% over a year ago (Table 1) while the trade estimates averaged a 4.6% gain. The breeding herd was up 0.5% according to USDA and the trade estimates were up 0.2%. The market herd was up 7.2% according to USDA and the trade estimates were for a 5.3% increase.

Weekly slaughter in March was up 7% over a year ago, which fits the 180 lb. and heavier inventories quite well (Table 2). However, some market observers believe producers may have pulled marketings forward during March. Barrow and gilt slaughter weights in Iowa-Minnesota have been below a year earlier for the 6 weeks ending March 22, and for the week ending March 22 were 2.1 lbs. below the same week in 2007.

The March 1 breeding herd was larger according to USDA than indicated by our gilt and sow slaughter data. One possibility is that the breeding herd was larger a year ago than estimated by USDA. According to USDA, the March-May 2007 pig crop was up 5% with a breeding herd up only 1.4%. The June-August 2007 pig crop was up 8.9% with a breeding herd up only 1%, and the September-November 2007 pig crop was up 6.8% with a breeding herd up only 1.2% from a year earlier. The bottom line, we hope, is that the current breeding herd is somewhat smaller than a year earlier and marketings will not be as large in the fourth quarter of 2008 and the first quarter of 2009 as is indicated by USDA’s report.

Our demand index for pork at the consumer level in December, January, and February this year was up 5% from a year earlier. We adjusted pork supply for the one extra weekday in February because of leap year. Our demand index for live hogs during the above 3-month period was up a whopping 8.2%. Again, production was adjusted for the extra day in this year. The larger growth in live hog demand than consumer demand was probably due mostly to larger exports of pork.

Pork exports in January were up 26.6% from a year earlier and were the largest monthly total on record. Net pork export as a percent of production was at 13% in January. This compares with a net export of product of 10.9% in January 2007. The countries that increased their purchases of pork from the U.S. in January over a year earlier were: Canada, up 37.6%; Russia, up 128.7%; mainland China and Hong Kong, up 296%, and other countries, up 84.1%. The countries that decreased their purchases from the U.S. during January were: Japan, down 10.4%; Mexico, down 7.1%; South Korea, down 15.2%, and Taiwan, down 14.8%.

Cold storage stocks of pork at the end of February increased 6% from January and were up 25% from a year earlier. In the previous 5 years, cold storage stocks increased only 1% from the end of January to the end of February. Belly stocks were up 70% on February 29 compared to last year. The record high hog slaughter was not totally consumed during February even with the strong consumer demand and believed large pork exports.

USDA revised the September 1 market hog inventory up 2.4% and the December 1 market hog inventory up 3.8% from their estimates in the December report. We believe the primary reason for the discrepancy between actual hog slaughter during the past six months and what was forecast by the September and December hog inventory reports is the impact of circo-virus. We think that increasing death losses due to circo disguised herd growth in 2006 and 2007. Once the very effective circo vaccine became widely available last fall, on-farm death losses dropped and the full impact of a large herd showed up in hog slaughter data.

First quarter 2008 slaughter at about 29.61 million head was the second largest quarterly slaughter on record, exceeded only by the fourth quarter of 2007.

We estimate second quarter 2008 slaughter, based on the heavier weight of market hogs, at 27.3 million head, up 6.9% from a year earlier (Table 4). We are assuming demand will continue to grow by 3% for this period. If so, we expect 51-52% lean hogs, live weight basis, will average in the upper $40 during the second quarter.

We expect third quarter slaughter will be up over 9% from a year earlier based on the lightweight market hog inventories and one extra slaughter day. With this level of slaughter and continued growth in demand of 3%, we expect third quarter prices to average in the low to mid $40s for 52-52% lean hogs, live weight.

Farrowing intentions for the second quarter of 2008 indicate slaughter in the fourth quarter of 2008 will set a new quarterly record at near 31 million head. This level of slaughter may test slaughter capacity. If so, prices are likely to be lower than the mid-$30s forecast in Table 4.

Farrowing intentions for the June-August 2008 quarter indicate slaughter in the first quarter of 2009 will likely be down a little from the first quarter of 2008. If so, and we maintain or have some growth in demand in the first quarter of 2009, prices are likely to be in the low $40s for 51-52% lean hogs, live weight.

If our forecast for 2008 is correct, hog prices this year will be the lowest since 2003. Unfortunately, because of high feed costs, 2008 losses could set a record.


Further Reading

More information - You can view the full USDA Quarterly Pigs and Hogs Report - March 2008 clicking here.

5m Editor