We simply lifted this headline from this morning's USDA's Livestock, Dairy and Poultry Outlook: "Hog Producers Appear to Be Holding Onto Their Sows." The article states that despite record-high feed prices, sow slaughter data suggests that hog producers are not "sprinting towards the exits."
If USDA is accurate and the worst is not yet behind in terms of sow slaughter, then there is more near-term downside risk for lean hog futures, the pork cutout and cash hog markets.
USDA states: "Monthly hog slaughter depicted below indicates that sow slaughter for June -- the month where drought conditions became apparent -- was more than 9% below slaughter in June 2011, 8.7% below the 3-year average, and 11.3% below the 5-year average. For July, while sow slaughter was 5.75 above the July 2011 level, it was 3.25 below the 3-year average July sow slaughter and 8.4% below the 5-year July average."
Weekly sow slaughter for the weeks ending August 4 through September 1 shows slaughter to be less than 5% above comparable weeks a year ago, says USDA. "It is possible, however, that higher sow prices induced larger August slaughter numbers. After moving lower through July, sow prices in August appear to have bottomed out and to be turning upward, averaging $41.78 per cwt. Higher sow prices in August suggest that pressure from large supplies of sows may have eased," it says.
"If a large-scale liquidation was underway, it is unlikely that prices would have bottomed out as they did in August. Moderate summer sow slaughter suggests a scenario in which, despite record-high prices for corn and soybean meal, the current price environment will persist through only the 2012-2013 crop year -- a belief shared by most producers. Preserving productive capital stocks (i.e., sow inventory) during difficult market conditions would leave hog producers prepared to accelerate production as an improved feed grains production outlook and a depleted animal protein supply restore prospects for positive producer returns," says USDA.