Surprise Supply Shock in USDA H&P Report Sets Stage for Improved Hog Prices
Scott Brown Hogs and Pigs Report Analysis
The latest Hogs and Pigs report from USDA painted a more bullish supply picture for prices this year. In the report USDA released March 25, it showed a surprise shock to supplies, with USDA issuing some key reductions.
Highlights of the H&P report show
- U.S. inventory at 74.8 million head, down 2% from March 2020;
- Breeding inventory at 6.21 million head, down 3% from 2020;
- Hog producers intending to have just over 3 million sows farrow from now until May, down 3% from same period in 2020.
“I think the big surprise out of the report was number one fewer sows,” says Scott Brown, a livestock economist for University of Missouri. “The fact that we actually have talked about roughly 165,000 fewer sows than where we were a year ago, at this time, puts us in a much better situation on the supply side. It's always hard to get us to reduce sows when we have such a large capital outlay in this industry. That coupled with less market hog inventory, to me makes things more bullish in terms of where we go as we move forward here in 2021.”
Breaking Down the Supply Shock
The surprise reduction in sows could be due to a number of things. But Brown thinks the reduction is largely derived from the lingering impacts of COVID-19 on the supply chain; a herd reduction many expected to see show up in the reports last year.
“It's a combination of some of the things that were happening back in 2020 in the worst of the COVID-19 outbreak in making sure we slow down hogs and making sure we didn't farrow as many sows. We might have aborted some sows for a period of time. I think all those things are maybe coming to bear in this report, if you believe what we got out of the report yesterday. So supply is in much better shape,” adds Brown.
USDA also revealed another possible issue: PRRS. More cases of Porcine reproductive and respiratory syndrome (PRRS) are popping up in states like Iowa, a factor that could be reflected in the pigs per litter.
“If you look at pigs per litter that we're beginning to get out, and you've seen at least the first couple of months of this year were below year-ago levels, we don't see that very often,” says Brown. “I think we are seeing some of those disease issues come up. And again, it's all about what the weather was like that tends to make PRRS be more difficult for us than other years. This is certainly one where even as we see those pigs per litter going down, all of that adding to what's a tighter hog supply situation.”
Better Outlook for 2021
Brown says the surprise reduction in overall numbers does paint a better picture for hog prices during the first half of 2021, but he cautions the price momentum may see resistance the second half of the year.
“I think we're going to see stronger hog prices,” adds Brown. “Lean hog futures sitting above $100 in a few cases now, to me points to much more positive news than we would have thought. Now let's be careful about first half versus second half of 2021. I can get more bullish here in the first half of 2021 given what we're seeing out of Hogs and Pigs coupled with pork exports remaining strong, coupled with domestic demand remaining strong. The second half of the year, I'm not going to be quite so bullish because we can see some recovery pretty quickly in terms of the supply side of this industry.”
Brown says his outlook for pork producers also hinges on feed costs. While those costs are high today, he says a good corn crop in 2021 could put pressure on feed prices during the fall months.
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