It did not change my expectations for this market much. I still have cash hogs in the mid- to upper-$70s on a carcass basis this summer and in the high-$50s this fall. I did lower my fourth quarter price forecast to $56-$59 (national negotiated net weighted average price) this fall but the others are pretty much the same as in December.

The report itself, though, appears more friendly to deferred hog prices as a number of inventory and production categories were below what analysts expected before the report was released. I am troubled by most of those.

Meyer table 1_0

First, the breeding herd was estimated to number 5.98 million, virtually the same as one year ago but 22,000 smaller than on Dec. 1. If that is true, it would be the first time since 2010 in which the herd has fallen from December to March and that decline was at the end of a cost-driven two-year consolidation of the herd that saw it shrink by 7.6% from its December 2007 recent peak. Corn prices had hit $7 in 2008 and the ethanol industry was still expanding rapidly to meet federally mandated usage levels. But where there was a good economic driver of that December to March 2010 herd reduction, I can see little for this one. This year looks to be a profitable year. A number of major players have packing capacity that will need to be filled next year. Why would the herd be reduced this winter?

Further, the state breeding herd data were, at first blush, very hard to understand. Iowa cut 50,000 sows since last March — and since Dec. 1? Minnesota’s herd shrank by 10,000 since last year? Missouri by 15,000 since last March — and 10,000 since December? Indiana by 20,000 from last year and 10,000 since December? I know of expansions in all of those states and would be surprised if enough sows left the industry after recent profitable years to offset the expansions by that much. It is possible (and maybe likely) that the sale of sow farms by Christensen Farms to Seaboard Foods was not accurately reflected in the Iowa inventory. If so, it explains much of the big reduction in the report but it would mean the reduction is still wrong and the Iowa herd is still understated. No size was announced for the Christensen-Seaboard transaction but we understand that it was about half of the 50,000 change. That still leaves a 25,000 reduction in Iowa since December and that still sounds very large to me. If the sows did not get reflected well, what about the market hog inventories, most of which are in finishing barns in Iowa?

But wait, there’s more…

The December-to-February average pigs saved per litter, 10.30, represents the largest decline from September-to-November (-.232 pigs per litter) since 1979 except, of course, for 2014 when porcine epidemic diarrhea virus wreaked its havoc. While porcine reproductive and respiratory syndrome virus has been more of a problem this year, PEDV has been less of an issue than expected and I can see no reason that litter sizes would have fallen this sharply.

That means the December-February pig crop is — like most others recently — understated and that means the under-50 pound inventory is also understated. The “normal” litter size change from September-to-November to December-to-February over the period 2007-13 (i.e. the most recent impressive uptrend and before PEDV) would put the December-to-February figure at 10.48, the December-to-February pig crop at 30.1 million (assuming USDA’s December-to-February farrowings are accurate). That would be 1.6% larger than last year, not 0.2% smaller.