Monday's hog futures will likely open lower in the mid months. The key reason is Friday's USDA Hogs and Pigs Report failed to turn up evidence that out breaks of Porcine Reproductive & Respiratory Syndrome and Porcine Epidemic Diarrhea Virus earlier this year trimmed number of pigs coming in the pipeline.
Friday's report pegged the June-August pig crop at 20.210 million head, up 2% from 29.654 last year. Further, the June-August litter rate came in at a record-high 10.33 pigs per litter. Traders expected the June-August pig crop to be a bit lower than last year, with the litter rate even with last year.
Uptick in June-August pigs per litter from 10.13 last year to 10.33 this year suggests PEDV has had minimal impact on hog supply. One could argue extreme summer 2012 heat trimmed last year's litter rates. Making that argument hold water is challenging when last year's 10.13 pigs per litter was up from 10.03 pigs in the 2011 June-August pig crop.
Hog slaughter conundrum. Hog slaughter in the first three weeks of September totaled 6.322 million head, down 574,000 head or 8.3% from the same period a year ago. This week's 2.190 million slaughter is up 10,000 from last week, but down 151,000 or 6.5% from last year.
Granted, stratospheric feed costs a year ago prompted producers to accelerate September 2012 marketings to trim feed bills. Still, recent slaughter runs have been below projections made from USDA's June hog inventory tallies. That's what fuels so much discussion on magnitude of late winter death losses due to diseases.
Analysts will still be trying to sort those figures out on Monday.
Looking at the numbers. From producer surveys USDA estimated the Sept. 1, 2013 inventory of all hogs and pigs at 68.36 million head. This was up slightly from Sept. 1, 2012, and up 3% from June 1, 2013 and a tad above trade expectations.
The breeding inventory, at 5.814 million head, was up slightly from last year, but down 1% from the previous quarter and a tab below trade expectations. That signals a slower than expected expansion pace, which could be friendly to deep deferred futures.
Market hog inventory, at 62.546 million head, was up slightly from last year, and up 3% from last quarter.
The June-August 2013 pig crop, at 30.210 million head, was up 2% from 2012. Sows farrowing during this period totaled 2.925 million head, down slightly from 2012.
USDA projects September-November farrowing intentions up half a percent. December-February farrowings are projected to rise about a percent. Those increases are a tab below the average trade guess.
However, add a 1% to 1.5% rise in pigs farrowed per litter. Pig crops over the next six months could easily be up 2% to 3% from last year. Factor in a pound or two more on carcass weights and you have another half to 1% rise in production.
Even with next year's beef production projected down 5.7%, a 2% to 3% expansion in pork output is about as much as the market can absorb without facing pressure on hog and pork prices. One reason is broilers are positioning to up production 2.5% next year. The broiler expansion pace could accelerate fairly rapidly once 2014 harvests are known and feed costs become more stable.