Friday's quarterly Hogs and Pigs report from USDA contained no real surprises and will be viewed as neutral by today's trade. The U.S. data appear in Figure 1.
Most of the actual numbers were slightly larger than was expected by analysts' in pre-report estimates compiled by DowJones Newswires. Figure 1 shows these averages as well as the difference between actual and estimated year-on-year changes.
The only substantial difference between actual and expected inventories was the 120-179-lb. category of market hogs. USDA estimated that number at 12.424 million head, 3.3% larger than last year; analysts expected the number to be 1% larger than last year. The change for this weight category does not fit well with the changes for other weight categories, making it a bit suspicious. The increase suggests higher slaughter numbers from early-July through mid-August, so it will not be long before we see whether the USDA inventory estimate for that weight range was accurate.
Breeding Herd Size vs. Farrowing Intentions
The report continues a pattern of curiously-low farrowing and farrowing intention numbers relative to the breeding herd. Friday's report showed a U.S. breeding herd of 5.803 million head, 15,000 head or 0.3% larger than both one year ago and the March herd which, coincidentally, was equal at 5.788 million head. But from this slightly larger herd (and a March 1 herd that was 0.5% larger), USDA indicates that March-May farrowings were 1.8% lower than last year and June-August farrowings will be 2.6% lower than last year. That last number agrees with USDA’s prediction for June-August farrowings in the March report.
The only reason I can think of that would cause this relationship is that the herd is being rolled and producers may be having trouble getting replacements gilts bred. Many producers are taking advantage of strong cull sow prices to sell older sows and buy genetically-superior gilts or, perhaps, to put some cash in their pockets. If they are encountering any difficulties in getting gilts bred, the solution may be to breed more gilts, which may increase the total "kept for breeding" number without pushing farrowings upward.
As Figure 2 shows, periods of relatively low litters per breeding female are usually fleeting and the U.S. herd has farrowed over 50% of the herd during six of the past 14 quarters. To have four straight quarters below that level seems overly pessimistic to me. To have no seasonal increase in Q3 and Q4 does not fit with the pattern of recent years.
The report suggests quarterly slaughter totals very close to last year's levels. As you can see in Figure 3, I think some weekly totals could be significantly different from those of 2010, however, due to the impacts that poor quality 2009 corn had on growth rates and consequent weekly slaughter totals in Q3 and Q4 of 2010. My computations show Q3 2011 slaughter 1% higher than last year, Q4 slaughter even with last year, and Q1 and Q2 2012 slaughter down 1% and up 1%, respectively, relative to one year ago. In short – not much change.
The slight growth seen in the U.S. sow herd since December will not show up as larger slaughter totals until the second half of 2012. The questions now are whether USDA's farrowings per breeding animal data are correct and whether litter sizes will overcome any shortfall in farrowings.
Average Litter Size Highest Ever
U.S. producers set another record for pigs saved per litter at 10.03, the first time that the quarterly average for all operations has eclipsed 10. That figure is 2.2% higher than last year and brings the average for the past four years back above 2% per year. Better health, tighter management in the face of higher costs, and improved genetics are driving the improvement, but I think necessity is still a major factor. This new world of $6-plus corn and $300-plus soybean meal means producers must do better if they are to generate profits.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.