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USDA March 1 Hog Inventories Come In Above Trade Guesses

USDA March 1 Hog Inventories Come In Above Trade Guesses
Hog futures contracts through October surge on expectations of cheaper feed. Deferreds slip on thoughts pork supply will rise.

Friday’s much awaited, but generally well-anticipated, USDA Hogs and Pigs Report took second billing on Friday to USDA’s crop reports, particularly the Grain Stocks Report. It showed a considerably larger March 1 corn inventory than expected. The Prospective Plantings Report pegged 2013 corn plantings very near trade expectations.

Those reports point to larger feed supplies and lower costs, which should improve livestock margins. However, consistent pork profits could still be three or four months down the road, with the big wild card being corn prices.

ABOVE THE TRADE: Hog futures contracts through October surge on expectations of cheaper feed. Deferreds slip on thoughts pork supply will rise.

Most hog numbers came in within 1% of average trade guesses in advance of the report. However, most of the deviations that did occur were on the high side of trade guesses. More hogs will be coming. That’s why analysts construe the report as a bit bearish.

Deep deferred lean hogs slipped on thoughts that by autumn pork producers can position to put more pork on the market.

Price impacts were even more dramatic in cattle. Stronger cash cattle trade Friday sparked gains in fed cattle futures, amid market sentiment that packers can offer higher prices for slaughter-ready cattle due to rising retail demand for beef. Feeder cattle futures locked their $3 daily limit higher when USDA’s grain stocks report pointed to larger than expected grain stockpiles. Tumbling feed grain prices, which trim cattle feeding costs, leave feedlots with more dollars to pay for feeder cattle.

The all hog and pig inventory in Friday’s USDA Hogs and Pigs report at 101.5% of the March 1, 2012 value came in a tad bit larger than the average trade guess in advance of the report of 100.7%. The breeding herd inventory, at 100.24% of a year ago come in a tad smaller than the average trade guess of 100.3%.

Hogs to still face price pressure

The hog market needs good news on two fronts to mount much of a rally. One is the persistent perception that pork export demand is soft. Old-man winter keeps refusing to let go his grip on a fair amount of the country north of the Mason-Dixon Line.

A few warm, sunny days, particularly on a weekend could ignite grilling season, and therefore spark more demand for meat. Grillers will think burgers and steaks. But relatively lower priced pork could well get the bulk of the business, especially in the second wave of grilling season.

Firm evidence of pork export improvement will take longer to surface. Meanwhile, large stocks of pork in cold storage remain a supply damper.

But a couple other supply developments improve intermediate term fundamentals.

First quarter 2013 hog imports from Canada were notably slower compared to the year before. That trims hog and pork supply.

Weekly data from USDA show December through February total hogs and pig imports from Canada down about 9.5% from a year earlier. This will help offset about a third of the gains in the larger December-February pig crop.

The 28.019 million head December-February slaughter was down 1.8% from a year ago, which points to a tighter first quarter supply. One caution is that lower hog slaughter could mean some hogs that might otherwise already be in the cooler or on the dinner plate are still on farms. That’s potential damper.

Female slaughter so far this year has been running below year ago levels. The latest data from University of Missouri, show year-to-date sow slaughter down 1%, while gilt slaughter is down 3.5% from a year ago. Sharply higher sow prices in recent weeks are another indication that producers are gearing up for lower feed prices and higher production in 2014.

Fewer females going to slaughter tightens intermediate pork supply. That can help buoy immediate hog prices. More production from breeding herd expansion in late 2013 and into next year will pressure prices later.

Looking at the numbers

The U.S. inventory of all hogs and pigs on March 1, 2013 was 65.911 million head. This was up 1% from March 1, 2012, but down 1% from December 1, 2012. Breeding inventory, at 5.834 million head, was up slightly from last year, and up slightly from the previous quarter. The market hog inventory, at 60.077 million head, was up 2% from last year, but down 1% from last quarter.

The December 2012 - February 2013 pig crop, at 29.019 million head, was up 2% from 2012. Sows farrowing during this period totaled 2.879 million head, up 1% from 2012. The sows farrowed during this quarter represented 49% of the breeding herd. The average pigs saved per litter was a record high 10.08 for the December - February period, compared to 9.97 last year. Pigs saved per litter by size of operation ranged from 7.50 for operations with 1 to 99 hogs and pigs to 10.10 for operations with more than 5,000 hogs and pigs.

Producers indicate they intend to farrow 2.955 million sows during March-May down 27,000 sows or 1% from 2012. Early intentions for June-August farrowings are 2.905 million sows, vs. 2.928 million last year, down 1%.

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