“The latest inventory numbers reflect a significant upward revision in the pig crop for the September-November time period, and thus more hogs available for marketing this coming spring,” the Steiner Consulting Group said in the Daily Livestock Report on Wednesday this week. “Analysts had projected the pig crop for this period to be up just 1.5%. Instead the USDA survey pegged the September-November at 32.3 MM head, 4.8% larger than last year.
“Why such a dramatic shift? Notice the sharp revision in farrowings from the earlier estimate,” the Steiner Group said. “Instead of farrowings being flat, they actually were up 3.9% for the quarter.”
Based on farrowing intentions and a continued increase in pigs per litter, summer and fall hog supplies in 2017 are likely to be higher compared to 2016 as well.
“Pigs per litter in the September-November 2016 quarter were up 0.9% but the longer term trend is for each quarter to increase at an annualized 1.5% rate,” the Steiner analysts said. “So the pig crop number you derive for the summer and fall will depend in part on what kind of pigs per litter growth rate you want to assume. If we take a conservative +1% growth rate, then the latest USDA report implies +2.4% growth for summer hog supplies and +2% growth rate for next fall.”
With a mild winter and no major health issues, the analysts feel those numbers could easily be another half a percentage point higher given a slightly larger pigs per litter number.
Producers could “handicap” and even larger increase with low grain prices and the ability to lock in a margin on the futures board, even with the tremendous rate of expansion.
One of the important numbers to watch is the breeding herd, says Chris Hurt, professor of agricultural economics at Purdue University. “The rate of improvement has slowed down a bit, but the proof is in the pudding,” he said. “The industry has made advances incrementally, and will continue to use new innovations and technologies to improve production.”
“Market participants and analysts continue to underestimate the strong incentives for continuing to expand pork production,” the Steiner analysts said. “Despite its very bearish undertones, futures so far have shrugged off its implications, instead focusing on the very robust demand picture.”