Wallaces Farmer

Livestock Outlook: Spot cash feeder pig prices anticipate changes in the hog market and can serve as a pulse of the industry.

Lee Schulz

January 21, 2021

6 Min Read
Feeder pigs
CAPACITY SUFFICES: Finishing facilities appear adequate to handle feeder pig supplies coming in the production pipeline. Courtesy of NPB

USDA’s December quarterly Hogs and Pigs report indicates the U.S. hog industry was smaller and less productive in 2020 than in 2019. Whether the production slowdown continues remains to be seen. Have you ever heard the saying, “Two data points do not a trend make?”

From producer surveys, USDA’s National Agricultural Statistics Service tallied the Dec. 1 U.S. breeding herd inventory 3% lower than a year earlier. That’s was the third year-to-year quarterly contraction in 2020. Before that March 1, 2016, was the last decline compared to a year earlier, and it was minute. The most recent sustained contraction occurred between June 2008 and December 2010. While smaller, the U.S. breeding herd at 6.276 million head remains the third-largest Dec. 1 breeding herd in 22 years.

Many factors may be pushing some producers to tap the brakes. Other producers may be setting the cruise button. The list of drivers is long. Efforts to control COVID-19 fuel market volatility. Macroeconomic uncertainties persist in the U.S. and global economies. Feed costs are up. Currency exchange rates and trade policy are in flux. These forces might reverse breeding herd growth since 2011. But potential also exists for stability in 2021 and for long-run growth.

Growth in litter rate slows

Breeding herd productivity, as measured by pigs saved per litter, dipped in the fall quarter. While causal factors are difficult to precisely pinpoint, lower litter rates could have come from higher disease incidence, labor challenges and the makeup of the breeding herd. Litter size is usually smallest in the first litter, rises to a maximum between the third and fifth litter, and then remains constant or declines slightly with older parities.

Despite factors working against productivity, the litter rate for the 2020 marketing year (December 2019 to November 2020) was still record high, at 11.03 pigs. This was up 0.5% from 2019, and the first time the annual litter rate eclipsed 11 pigs nationally. This, however, was the smallest annual increase since 2003.

An obvious question is will litter rates shrink? Given continually improving genetics, technology and management practices, it is probably safe to say that litter rates have not topped out.

Changes in litter rates vary among states. Culling under-producing females could explain, in part, the less-than-expected decrease in productivity or increase in productivity in some states. Producers idled some older operations that had health challenges before COVID-19. They may or may not be repopulated.

Some producers permanently closed other sow farms to create efficiencies and maximize productivity within a production system. Some producers first stocked new sow units, capturing high health status on superior genetics in state-of-the-art facilities. Higher state-level litter rates will translate into higher national averages.

Canadian litter rates show room for growth in U.S. rates. The 2015-20 U.S. average litter rate was 10.69 pigs. Canada averaged 11.58 pigs per litter. Part of the difference may be due to more favorable climatic conditions and the ability to space operations at greater distances than in the United States. Labor markets, work rules and management practices may contribute. The gap in productivity has been decreasing as genetics, technology and management are generally transferrable throughout North America.

Top managers excel in tough times

The sampling universe for USDA hog reports is hog owners and contractors with capacity to raise breeding or market hogs. USDA surveys large producers more heavily than small operations. But survey procedures ensure that all producers, regardless of size, have a chance to be included in the survey.

Until December 2017, USDA reported pigs per litter by size of operation. Unfortunately, this data series was discontinued. Those data showed the positive influence of large operations on the U.S. litter rate. For example, in 2017 the average pigs saved per litter on all operations was 10.59. The average on operations with 5,000 or more head was 10.65.

Industry benchmark data show opportunities for further gains in productivity. PigChamp is one of many excellent swine production record software programs. PigChamp’s website provides publicly accessible benchmark summaries.

Between 2015 and the third quarter of 2020, the mean litter rate in PigChamp data was 11.25 pigs, compared to 10.69 in USDA’s Hogs and Pigs Reports for the same period. The median in the PigChamp data was 11.31. The upper 10th percentile turned out 12.17 pigs per litter. The bottom 10th percentile averaged 10.33 pigs per litter over the last almost six years. That 1.84 pig spread says room exists for improvement.

Looking only at 2020, the median and mean litter rates in PigChamp data slowed compared to 2019. Interestingly, the upper 10th percentile surged year over year, while the lower 10th percentile fell. In difficult times, the most productive got more productive.

Litter rates will continue to be a key factor driving U.S. pork production in 2021 and beyond. Biological and economic factors will help dictate productivity levels. As 2020 illustrated, it is important to understand that optimal financial efficiency can mean a slowdown in productivity.

Farrowings give mixed signals

2020 sows farrowing September through November were 3.164 million head, 1% lower than a year ago. Producers saved 0.4% fewer pigs per litter than in 2019, trimming the quarterly pig crop 1.4%. That suggests lower slaughter-ready supplies in 2021. But don’t count on it.

December’s second farrowing intentions for the quarter from December through this February were 1.6% above 2019 and up slightly from what producers told USDA back in September. Follow-through could boost slaughter.

If producers do follow through on these intentions, the ratio of December-to-February sows farrowing to the Dec. 1 breeding herd will be 50.8%, which would be the highest ratio ever for the quarter. This could indicate that the breeding herd estimate is too low, or the sows farrowing expectation too high. Historically, actual sows farrowing have been higher than earlier estimates. Another explanation is the high ratio could be more a function of the revisions that USDA made to December-to-February estimates to reflect the number of hogs that came to slaughter during last summer.

The first set of farrowing intentions for 2021’s March-through-May quarter was 0.8% lower than the same period in 2020. Follow-through could trim slaughter supplies.

Overall, the farrowing intentions do not imply any significant supply reductions. But remember these are intentions. Even in stable times, intentions are just educated guesses.

Price signals mixed, too

COVID-19 really hurt farms that sell feeder pigs (40 pounds) or weaned pigs (10 to 12 pounds). Disruptions weighed on these markets longest. Fourth-quarter 2020 market hog prices averaged 9% higher than the same period in 2019. Feeder pig prices were 3% higher. Weaned pig prices advanced only 0.5%.

Fourth-quarter 2020 formula weaned pig prices were 11% lower than in the same period in 2019. Formula prices are often linked to the lean hog futures contract five months out. Differences in attitude at the two year-ends were a huge factor. At the end of 2019, optimism for continued strong global and domestic pork demand hiked futures, which bolstered formula feeder pig prices. Such optimism did not exist in 2020’s fourth quarter, which let formula prices sag.

However, optimism persists in the cash market. Compared with October through December 2019, fourth-quarter 2020 cash weaned pig prices were up 11%, versus down 11% for formula pigs. In December 2020, the spot cash market for weaned pigs was almost $6 per pig higher than the average formula price.

Markets can be fickle, especially the spot cash market. Futures prices and spot cash prices often respond first to changes in the hog market and therefore can serve as a pulse of the industry. For example, is finishing capacity adequate to support hog supplies? It currently appears to be. Should issues reoccur, pig prices may serve as a first signal of upcoming problems.

Schulz is an Iowa State University Extension livestock economist.


About the Author(s)

Lee Schulz

Lee Schulz is the Iowa State University Extension livestock economist.

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