The first quarter Hogs & Pigs Report from USDA showed both the breeding herd inventory and market hog inventory down from the previous quarter, but analysts felt most of the numbers were in-line with estimates. Here’s a quick summary of the report, released on Friday, March 25:
Total Hog Inventory Up Slightly
- Inventory of all U.S. hogs and pigs on March 1, 2016 was 67.6 million head, up slightly from March 2015, but down 1 percent from December 2015
- Breeding inventory, at 5.98 million head, was down slightly from last year and down slightly from the previous quarter
- Market hog inventory was up slightly from last year at 61.7 million head, but down 1 percent from last quarter.
- December 2015-February 2016 pig crop, at 29.6 million head, was down slightly from 2015; average pigs saved per litter was 10.30 for the December-February period, compared to 10.23 last year
- Intended farrowings for June-August 2016, at 2.91 million sows, are down 3 percent from 2015, and down 3 percent from 2014.
What Does It Mean?
Economists helped put the numbers in perspective during a teleconference on Friday hosted by the National Pork Board.
“We’ve had three consecutive quarters where USDA has done revisions to pig crop data,” said Dr. Scott Brown, extension livestock economist at the University of Missouri. “Some numbers were lower than expected but the intended farrowing estimates continue to get my attention. Perhaps we’ll have more pigs coming to market than we thought.”
Dr. Lee Schulz, livestock economist at Iowa State University, followed up on Brown’s comment, agreeing the industry could see more pigs than anticipated.
“Looking at the report as it is, and taking March-May farrowing intentions along with a pigs-per-litter increase of 1%, we could be close to a record. If we look at the June-August pig crop and add another 1% increase, this number could be close to a record. We saw this record in 2015, and we could see larger pig supplies later in 2016,” Schulz said.
The sow herd remained virtually the same size, which means expansion is minimal, said Altin Kalo, senior analyst at Steiner Consulting Group, Merrimack, N.H.
“When producers were dealing with Porcine Epidemic Diarrhea virus (PEDv), they hedged against it by increasing the breeding herd, so it increased steadily over four quarters in 2015,” he said. “The fact that the breeding herd did not increase implies to me that producers significantly reduced the number of gilts they retained. By my numbers, gilt retention is down about 7% from a year ago. It’s a number that makes sense, since we haven’t had a PEDv issue for a couple of years.”
Brown believes producers are being more cautious about expansion. He said, “Profitability is at break-even if not a little above breakeven. Late in the year we’ll have to see, but I don’t anticipate a big downward revision in the next couple of quarters.”
“We’re normalizing the size of the breeding herd without PEDv,” said Kalo. “Grain prices and exports will drive the size of the breeding herd this year: If we have vibrant export markets and no disruption in trade, then the breeding herd is probably where it needs to be.”
Grain prices and the export market are unknowns at this point, he added, noting analysts will have a better idea on these variables in the next few months.
Enough Slaughter Capacity?
“Any numbers that have a ‘plus sign’ in front of them raise questions about slaughter capacity,” said Dr. Steve Meyer, vice president of pork analysis for Express Markets Inc. Analytics, Ft. Wayne, Ind.
“When we get to June-August, will the number be bigger? We could certainly end up with more pigs. We’re going to be up 2% to 3% in the fourth quarter based on my numbers. I’m still concerned about it,” Meyer said.
When asked about the impact of the Veterinary Feed Directive on antibiotics usage, which goes into effect in January 2017, the analysts believe the industry has already begun to adapt.
Kalo said, “The impact will affect the 2017 numbers, but we don’t feel it will have as major an impact as a lot of people think. It doesn’t change our forecast at this point because the numbers are already in the pipeline.”
Projections Going Forward
Here are the analysts’ projections for the rest of 2016 and the first quarter of 2017:
Brown (using 51-52% lean price):
Q1 2017: $43.00
Schulz (using Iowa/So. Minn. lean hog negotiated base):
Q1 2017: $61-65
Kalo (using Iowa/So. Minn. lean hog negotiated base):
Q3: $79 (predicated on continued firm exports)
Q1 2017: $64