Doane Expects USDA’s H&P Report to Reflect Modest Expansion

The following table summarizes Doane’s pre-report estimates for Friday’s USDA Hogs & Pigs Report, to be released at 2:00 p.m. CT. Doane looks for the report to indicate modest expansion.

We at Doane expect USDA to state the June 1, 2016, U.S. hog and pig population around 67.60 million head, up 1% from last year. The following chart puts these figures in context.

The March hog report stated most swine numbers even with early-2015 levels, but the size of late-spring slaughter totals, which averaged between 1% and 2% over those from May and early June 2015, suggests summer supplies are likely to slightly exceed those seen last year. Moreover, spring 2015 sow farrowings seemed very low when compared to the winter total, which is a major reason we suspect the report will state the spring 2016 farrowing result at least even with year-ago levels.

The chart above places our spring farrowings estimate at 2.85 million sows in perspective, showing it essentially matched the year-ago result. The main reason we do not anticipate a significantly larger result (say 2% to 3%) over year-ago levels was the 2.839 million-head farrowing intentions figure stated on the March report. Given the fact the vast majority of the sows giving birth during the spring quarter would already have been bred when the March survey was taken, the farrowings intentions figure is probably relatively accurate. Still, history strongly indicates a tendency for spring sow farrowings to rise substantially above the winter total (which was stated at 2.873 million in March). That tendency causes us to think the spring farrowings result to be announced Friday will at least modestly exceed the intentions figure.

Another big factor in determining the size of the spring pig crop and the overall hog population is the number of pigs saved per litter. As the third chart below indicates, that figure has clearly been trending higher, and at times strongly higher, in recent years. The negative impact of the 2013-14 PEDv outbreak, as well as the subsequent recovery, is obvious. Last winter’s downward blip in the trend due to some PEDv recurrence and to relatively severe PRRS problems last winter is also evident. However, we tend to expect the spring results to show a general resumption of the upward trend, with litter sizes likely averaging around 10.45 pigs per litter. That would mark an annual increase of 0.8%, which is at the low end of the long-term upward trend. Indeed, it doesn’t look all that impressive when compared to the fall 2015 peak at 10.53 pigs per litter, but it would actually be the second highest of all time.

The product of the farrowing and litter size results would be a spring pig crop of 29.78 million head, which would mark an approximate 1% annual increase. We combine that figure with a slight upward revision to the March results to arrive at the June 1 market hog estimate of 61.65 million; that also rounds up to a 1% annual gain.

As with the spring farrowings figure, the June 1 breeding herd population tends to top the March result by several thousand head, whereas the farrowing intentions figure pointed in the opposite direction. We compromised by penciling in a modest quarterly reduction that kept the June estimate slightly above the year-ago total.

One consequence of these numbers was also a 1% increase in the summer intentions figure from 97% to 98% of year-ago levels. In fact, we probably shouldn’t be shocked by a USDA result even closer to the mid-2016 result. We also boosted our fall farrowing intentions forecast to 101% of the late-2015 total. The recent surge in hog futures, talk of surging Chinese export business and anticipation of increased U.S. packing industry capacity over the next two years seem likely to encourage producers.

What do the various numbers suggest about forthcoming hog supplies? As indicated above, the fact that late-spring hog slaughter tended to run slightly above year-ago levels essentially demanded a similar increase in the number of heavy hogs (those weighing 180 lbs. or more) change accordingly, so we estimated that figure about 1% over year-ago levels. Conversely, we suspect that there was a point last winter when disease pressure took a significant toll on piglet numbers. As a result, we estimate the number of pigs in the 120- to 179-lbs. weight category dipped to 99% of year-ago levels. This implies early-summer hog slaughter will also fall somewhat short of mid-2015 totals.

The industry probably got back on track in late winter and spring, the latter also being indicated by the spring pig crop estimate. Thus, we think the two lighter-weight categories will come in about 1% over those from June 2015. Those suggest similarly modest increases in hog slaughter during late summer and autumn.

When the farrowing intentions figures are combined with the long-term upward trend in litter sizes, they suggest winter hog supplies could come up about 1% short of year-ago levels, or in a better litter-size scenario, match those seen last winter. Spring 2017 supplies seem likely to mark another modest annul increase. Ultimately, if there are to be any significant surprised on Friday’s report, we suspect they will tend to be bearish in nature.