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Pork Commentary: USDA Hogs and Pig Report Not Good News

by 5m Editor
1 July 2008, at 8:03am

CANADA - This weeks North American Pork Commentary from Jim Long.

The USDA June 1st Hogs and Pigs Report was released last Friday. It was far from good news for hog producers. Some observations:

Breeding Herd
1,000 Head
June 1, 2008 6,069
March 1, 2008 6,138
December 1, 2007 6,161
  • In the last six months the American breeding herd has declined 92,000. In the last three months 69,000 or about 6,000/week. No doubt we have taken the same number (6,000/week) out in June as the number continues to decline. The June Hogs and Pigs Report in all likelihood will encourage faster liquidation, good news for those who make sausage.
  • If there is any silver lining it is that we are in a continental market. Canada’s breeding herd has been declining. The Canadian Government sow buyout has registered just over 100,000 sows. We expect that Canada’s July 1st swine inventory report will indicate over 200,000 fewer sows than Canada’s peak breeding inventory. Currently Canada’s export of market hogs, feeder pigs, and Canada slaughter indicate total production decline of about 5%.

Market

The USDA’s June Hogs and Pigs Report Market Inventory indicate 7% more than a year ago.

MARKET 2007 1000 head 2008 1000 head 2008 as % of 2007
Under 60 lbs 21,782 22,587 104
60 - 119 lbs 14,339 15,167 106
120 - 179 lbs 11,790 12,907 109
180 lbs and over 9,920 10,931 110
TOTAL 57,831 61,592 107

We do not expect slaughter numbers will be as high as report indicates. Why?

  • Report indicates 10% over 180 pounds. We have been marketing these since June 1st and marketing have been about 8%, not 10%. Weights have been pulled down in same time frame at a quicker rate than last year with little warm weather. We believe marketing if anything is ahead compared to a year ago.
  • American slaughter will be lower due to fewer hogs brought from Canada. Freight costs are keeping more hogs in Canada. Canadian marketed hogs to America are currently 50% less than a year ago or about 30,000 less a week. This cuts American slaughter by at least 1%.
  • To have these numbers we had to have had a pig crop from March to May that was 4% higher than a year ago as the Pig Report indicates. To get 4% we have to have had a 5% increase in productivity. The breeding herd was down by 1%. We have a hard time believing that when corners are being cut in all aspects of production; that a 5% productivity gain is possible especially when historic gains are less than 2%. Also, we believe lots of poor pigs are not going on feed, but being hit over the head. This leads to fewer pigs on feed and in inventory.

Time will tell but we expect American slaughter percentages will be at least 2% lower than the report would indicate year over year.

Productivity

The American breeding inventory on March 1st was 6.138 million. The pig crop for the 12 month period (from June to May) according to the USDA was 115,958 million. Some simple arithmetic: 115,958 million total crop ÷ 6,138 million breeding head = 18.89 pigs/breeding animal per year.

Demand

We better hope for continued export demand. For what it is worth we think it will remain strong. World meat protein prices are rising. The United States has a huge advantage in cost of production and exchange rate. The lunacy of corn ethanol is pushing feed prices to unprecedented levels throughout the world. The good news is some corn ethanol plants are closing and there losses are reaching 50¢ a gallon. Stock values have corn ethanol publically traded companies 15% of what they were. Good luck finding investors for new ones. It’s over but we have to play through the charade. If they can’t make it with $140 barrel oil, tariffs and subsidies, they have no hope. Put a fork into it.

  • We expect lean hog futures will continue to bounce around. The market to watch is cash. American pork cut-outs were almost 80¢ at the end of last week. A great price with 8% year over greater sup pork supply. This is a true indication of demand. My late friend Doug Maus used to say Chicago mercantile was Las Vegas with no rules. Certainly the speculative market is getting large congressional attention looking at the role of speculators in the energy and agriculture markets. See where it goes but it makes you wonder sometimes how our lives are being turned and twisted by people with little long term commitment in our industry.

5m Editor