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Rich Nelson: Hog numbers drop, no surprise

Agriculture.com Staff 06/27/2009 @ 9:22am

Hogs: This week has been a tough one for the hog complex. August lost $4.10 while December lost a similar $4.07. The trade has feared this afternoon's Hogs and Pigs report would show a bigger than needed breeding herd. Officially the breeding herd, at 2.7% lower than last year, is not that bad. It would imply we need to do a second moderate liquidation this summer to get prices back to profits in 2010. The problem is productivity growth. The first quarter pigs per litter numbers were up 2.6%. The second quarter numbers, which were just farrowed, were up 2.4%. Essentially, the growth in pigs per little has negated almost all of the previous year's work in reducing the breeding herd. That means we still need to do another moderate, not light, breeding herd liquidation this summer. The reason for that need is to match the lower demand level we have since H1N1. On the H1N1 issue we must reiterate, this is an export problem and not a domestic demand problem. Believe it or not, but US consumers have done better than expected in handling the extra pork left on their plate that world buyers do not want.

Hogs and Pigs: This afternoon's quarterly Hogs and Pigs report brought no surprises to the table. Every quarter USDA surveys hog producers, both large and small, on the number of hogs on their farms as of June 1, and their intentions for expansion or contraction. A quick refresher on hog supply history reminds us 2007 saw a pork production increase of 4.2% over the previous year and 2008 was up 6.4%. High grain costs made producers start a liquidation of the breeding herd from April through August. The first half of this year saw the benefit of those efforts with a drop in pork production. The total number of hogs on farms as of June 1 was estimated to be 2.0% smaller than last year. That is no surprise as the average estimate was to see a 1.9% smaller herd. We liquidated last year and are now starting to see those fewer numbers show up. Of the hogs currently alive, the breeding herd was estimated to be 2.7% smaller than last year. Of the remainder of the hogs currently alive, the marketing herd was found to be 1.8% smaller than last year. So, what does this mean to slaughter levels over the next six months? We estimate that after figuring up US born hogs, pigs per litter growth, Canadian imports, and marketed weights that second half production will average 1.8% smaller than last year. The bad news is those numbers are already on the ground right now. Second half 2009 slaughter numbers are already set. If the severe reductions in US pork exports continue, we still have too much pork to expect any rebound in prices.

We also noted USDA surveys producers on their intentions for future production. Producers told USDA they intend to farrow (sows giving birth to a litter of piglets) 3.3% fewer numbers from June through August and 2.2% fewer numbers from September through November. Those numbers are what will be marketed in the first two quarters of 2010. After including other factors into those numbers we estimate first half 2010 will see 1.2% lower pork production. The good news is these intended farrowings have not happened yet. The gilts and sows that farrow from June through August are already pregnant. Producers can bring down farrowings for that period by bringing in pregnant sows. In most liquidations, they generally do not do that. However, we have heard of some sow plants suggesting it is happening. If there is a farrowing period which could be changed it is the September through November numbers. We certainly need to see something smaller than a 2.2% reduction and hope after this summer it is revised down to a 4.0% decline. With the production forecast complete, next week will go into a full price outlook for 12 months out.

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