This week, the livestock industry is poised for its second dose of USDA statistics (the first being cold storage stocks). Because Monday’s cold storage stocks are upstream from live hog futures, they don’t carry quite the weight of this Friday’s hogs and pigs report.
It’s certainly no secret slaughter has been running strong, in the mid-430,000 range many days in recent weeks, adding to expectations that numbers will be up in the report. In the short-term, we’ll we adding some Canadian hogs to our numbers due to a strike at a packing plant there. That won’t affect Friday’s report, which is based on March 1 numbers.
One can go so far as to say it is a foregone conclusion there are more hogs and pigs on U.S. farms this year than March 1 last year. Survey estimates range form increases in the 3%-5% area to as high as 8%-10%. For example, the survey by Urner Barry came in with a 6.8% average increase (range 105-108.5%) in the March 1 inventory, 3.5% (range, 102.4-104.6%) in the breeding herd and 7.2% (range 105-109%) in kept for marketing.
Given recent weeks’ slaughter numbers, the 6.8% average estimate in inventory is reasonable but will require USDA to revise its summer and perhaps fall pig crops upward from its prior estimates.
The 3.5% increase in breeding herd is totally plausible based on expansion in the wake of the profits seen during the first half of 2014. Likewise expectations for December-February farrowings to be up 3.7% on average is not only possible but even conservative. The January Hogs & Pigs report showed a 3% increase in the fall quarter and intentions for a 4% boost during December-May. The number of PEDv accessions rose modestly this winter, but were far below last year’s numbers. As a result, pigs saved per litter should be up even more — analysts say 5.3% on average. These factors suggest the winter pig crop could be some 9% higher than a year ago.
All categories of market hogs are expected to be up by 6-9% and some analysts, such as Steve Meyer of Paragon Economics, believe March-May and June-August farrowings could be even larger than the 3% range being forecast for those months (which were not as depressed by PEDv last year). If that occurs, market hog supplies, especially in the last half of the year, may be a good deal larger than expected.
USDA’s March supply/demand estimate put 2015 pork production up 5.6% over 2014. That’s a little short based on market hog expectations, but lower weights may partially offset the bump in numbers.
It is, of course, difficult to attribute exactly how much feed is used and by which livestock since rations and feed efficiency vary and total amounts are estimated, not measured. But about 35% of the U.S. corn supply - plus DDGS - and 44% of soybeans are fed.
So, given that USDA has already dialed in increased livestock production, if this report comes in much above or below expectations, the impact on feed use probably won’t be very large in the big scheme of things. However, it is the market’s perception that will impact prices, especially immediately after the report. Higher numbers equal more feed use and lower numbers mean less feed use and the corn market, in particular, may face a knee-jerk reaction.