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USDA Hogs and Pigs Inventory up a Tad from Trade Expectations

USDA Hogs and Pigs Inventory up a Tad from Trade Expectations
Market could construe USDA hogs and pigs report as a bit bearish. Still pork supplies are on the rise.

Update: See the March 27, 2015, USDA Hogs and Pigs report recap

Tuesday's Quarterly USDA hogs and pigs report pegged the Dec. 1 all hogs and pigs inventory 66.1 million head, up just short of 2% from Dec. 1, 2013, and up 1% from Sept. 1, 2014. 

The breeding inventory, at 5.97 million head, was up 3.7% from last year, and up 1% from the previous quarter.

Market hog inventory, at 60.1 million head, was up 1.8% from last year, and up 1% from last quarter.

Those numbers were all a fraction of a percent higher than traders generally expected.

Market could construe USDA hogs and pigs report as a bit bearish. Still pork supplies are on the rise.

The September-November 2014 pig crop, at 29.4 million head, was up just short of 4% from 2013. Sows farrowing during this period totaled 2.87 million head, up 3% from 2013. The sows farrowed during this quarter represented 48% of the breeding herd. The average pigs saved per litter was a record high 10.23 for the September-November period, compared to 10.16 last year.

September-November sow farrowings were smaller than traders expected. Pigs per litter were considerably higher than trade expectations, which pushed the pig crop above trade expectations. Those sizable deviations from expectations are sure to trigger more trade chatter about how well USDA is tracking PEDV death losses. From a bit of a different angle, numbers in the report are no more reliable than the data pork producers provide to USDA.

Pigs saved per litter by size of operation ranged from 8.10 for operations with 1-99 hogs and pigs to 10.30 for operations with more than 5,000 hogs and pigs.

December-February farrowing intentions came in almost right on with trade expectations. March-May farrowing plans came in a bit lower than the trade expected. Could be sharply lower hog prices since mid-October pushed pork producers to rethink expansion plans.

Significant expansion is underway. Still, the 3.7% increase in the U.S. swine breeding herd on Dec. 1 says producers are significantly ramping up pork production. The hike reflects the biggest year-over-year rise in the breeding herd since the late 1990s.

"Gilt retention has been a hot discussion topic in the industry and anecdotal evidence suggests that producers are indeed holding back more gilts," says Steve Meyer, Paragon Economics, Adel, Iowa. The previous survey implied a notable improvement in gilt retention (calculated as a residual). The data suggest that trend continues.

"A lower sow slaughter during September-November and a modest 4% rise in gilt retention could easily boost the breeding herd 3% compared to a year ago," notes Meyer.

USDA Hogs and Pigs Inventory up a Tad from Trade Expectations

Analysts generally agree that porcine epidemic diarrhea virus outbreaks may not be as severe as a year ago. Producers certainly have become more skilled in managing PEDV than they were a year ago.

"Combining lower baby pig death losses due to PEDV with a 3% larger breeding herd could push the December-February and March-May pig crops sharply higher," says Meyer. Such a development could push hog numbers up significantly, possibly bumping against slaughter capacity constraints. Lack of shackle space may not sound like much of a concern. That is unless you're old enough to remember the 1998 debacle that torpedoed cash hog prices into the lower teens.

Consumers have more meat coming. Earlier USDA's World Ag Outlook Board pegged:

• 2014 pork production at 22.792 billion pounds, down 395 million from 2013
• 2015 pork production at 23.620 billion pounds, up 828 million from 2014
• 2014 broiler production at 38.486 billion pounds, up 656 million from 2013
• 2015 broiler production at 39.630 billion pounds, up 1.144 billion from 2014

Meanwhile, USDA projects the decline in beef production will continue with:

• 2014 beef production at 24.254 billion pounds, down 1.466 billion from 2013
• 2015 beef production at 23.670 billion pounds, down 584 million from 2014

Projected 2015 combined pork and broiler production is up 1.972 billion pounds from this year. That hike is more than 3.3 times the 584 million pound projected reduction in beef output.

With hog prices already down to year-earlier levels and production on the rise, expecting 2015 hog prices to match 2014's power performance is a sizable stretch. However, hog producers should still have lower feed costs helping preserve margins, at least through 2015's first half.

Pork and poultry can gear up faster so beef will face more competition. Beef fundamentals remain constructive for prices. But expansion cannot put more beef in the system before 2017. Beef will likely stay pricy compared to pork and chicken. Beef may also end up giving up a bit of market share along the way.

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