The March 1st U.S. Hogs and Pigs Report indicates fewer Breeding Pigs and Market Hogs.

Our observations:

Breeding Herd

The U.S. breeding stock peaked at 6,471,000 on the Dec 1, 2019 inventory. Since then the USDA report indicates a decline of 256,000 (-4%). In the last three months a decrease of 61,000. We calculate a decline of 256,000 will have taken out 5 million-plus of annual market hog production (100,000 a week).

March 1 Market

Less hogs for sure. We expect the report has continued the trend of overstating inventory. Last week the U.S. slaughtered 8.2% fewer hogs than the same week a year ago. Last year 2,778,000, last week 2,551,000. Unless you decided to start keeping them as pets in the highest hog price since October 2014 there is a real good chance there are significantly fewer hogs than the March 1 report indicates. Year to date slaughter is down 4.7%.

We are now marketing hogs that were bred first part of May last year. 115-day gestation, 180-200 days to market = 295-315 days. We all can remember then, it was chaos with plants backed up, hog price plummeting, stories of sows being aborted, euthanized pigs, etc. Any wonder there are fewer market hogs? If you read this commentary regularly you know we have continually written of our expectation of fewer hogs coming at a degree much greater than the Chicken Littles have expounded. Some of them were still predicting more hogs in 2021 than 2020 this past week. It’s what happens when you don’t own hogs, never owned hogs, and don’t understand how fast the money was disappearing.

We are now selling hogs bred in May 2020. From May sow herd declined and we have been hammered by PRRS and PED at a level greater than normal. The sow herd continued to decline last quarter. Pork demand appears strong. If exports stay at levels, we are at 40,000 tons a week and we have less hog production, we will continue to see ever stronger hog prices.

We expect the market will be driven by Pork cut-outs. Last Friday U.S. Pork cut-outs closed at 107.53. Many lean hog future months set record highs last week. With months April-August well over $1.00.

We believe that fall futures are undervalued relative to where the hog market will be at that time. Why?

• Breeding herd continued to decline. Less sows equals less pigs.
• China ASF second wave will lead to continued large China imports of pork – other importing countries will keep up their demand.
• U.S. economy rebounding that is helping demand now and will through fall.
• All pigs that go to market in 2021 are bred – no way to increase production until 2022.
• High feed prices and increased construction costs will slow many expansion thoughts.

Summary

March 1 report was bullish. We aren’t surprised by numbers but we believe both the breeding herd and market inventory overstated. The next few months we expect hog prices to reach or surpass 2014 levels. Producers have had the crap kicked out of them. Many have borrowed heavily to keep going. Some of the unfortunate have taken market position fueled by the Chicken Littles wrong predictions that will lead to them not getting close to the cash benefit of the new market price reality.

It’s the farmers' turn to make some money. It’s here and it's real. For all who struggled through the hell of 2020 we understand, we lived it too. It took capital and courage. There was no alternative. Today’s prices make us a lot smarter than we were in June 2020. Two quotes from a real leader.

“Never, Never, Never, Never Give up.”

“If you’re going through hell, keep going.”

- Winston Churchill