Friday's USDA Hogs and Pigs Report certainly looks bearish. All major categories, except December-February pigs per litter came in higher than trade expectations.
From producer surveys, USDA estimated the December-February pig crop at 27.318 million, down 2.8% from a year earlier. On average traders expected the report to show the pig crop down 3.6%, with a range from down 9.2% to up 1.4%. Normally a smaller than expected drop in the pig crop would be perceived as bearish to prices.
However, the unusually wide range of pre-report guesses indicates considerable disagreement among analysts as to the actual magnitude of death losses due to porcine epidemic diarrhea virus.
Trade chatter hints that some analysts were trying to guess what numbers USDA would report. Those guesses may have been different than what they really believed was going on in the industry.
Suppose the trade had been pricing in a 7% drop in the pig crop into the market. A pig crop anywhere between down 3.6% and down 7% would be perceived as bearish on the surface. But the pig crop would have to be down more than 7% to actually be bearish.
Futures price action this week reflects the uncertainty. A Rabobank research report released Tuesday predicted baby pig losses due to PEDV will trim 2014 pork production by 6% to 7% this year. That rattled hog traders, contributing to a $3 daily limit futures plunge. A 6% to 7% production cut would be smaller than some traders had been factoring into the market. But that's still a larger cut that average trade guesses in advance of the report.
Wednesday and Thursday hogs surged back from Tuesday's hit. Volatility suggests traders are on edge because they have yet to zero in on winter PEDV losses and therefore summer slaughter and therefore how to price hogs.
Current price advances may not be sustainable. Summer hog futures advanced 30% since January. Spillover demand from pricy beef is supporting hog prices. Still, speculation that baby pig death losses in the December-February pig crop due to PEDV will significantly cut May-July slaughter hog marketings is a key market driver.