USDA hog report shocks analysts

Numbers puzzling | More hogs heading to slaughter, few sows added to replenish herd numbers

Was it all a dream, a phantasm of profitability, to be replaced by another nightmare of losses?

That’s what some hog farmers are probably wondering after seeing the U.S. Department of Agriculture’s Sept. 27 quarterly Hogs and Pigs report.

But analysts say that while the report bodes ill for the always-scary fourth quarter hog market, when seasonal oversupply can crash prices, it suggests farmers will make more money over the longer term.

“It looks like plans for herd expansion are very modest,” said Ron Plain of the University of Missouri.

“If we can keep the numbers down, that should keep prices strong.”

But the next few weeks are likely to see lower prices for fall slaughter and a lot of reassessment of the status of the U.S. hog herd. The hogs and pigs report defied most analyst expectations on many issues.

  • Instead of finding fewer hogs approaching slaughter weight on U.S. farms, USDA found more.
  • Instead of finding fewer small feeder hogs, USDA found more.
  • Instead of fewer or equal numbers of pigs being born in June, July and August, USDA found a two percent increase.
  • Instead of finding U.S. farmers boosting sow numbers to reap the benefits of strong prices, USDA found farmers only marginally added to herds.

Steve Meyer of Paragon Economics agreed with Plain about the positive outlook for hog prices in 2014 if USDA is right about the sow herd barely expanding.

“At this point, the farrowing numbers and implied pig crop is supportive of current valuations of hog prices for next summer,” wrote Meyer in his Daily Livestock Report for CME Group shortly after the report was released.

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But nearby futures prices are likely to be hit by USDA’s belief that the September dearth of market hogs going to slaughter will be reversed to an excess.

“This level of hog slaughter coupled with 1.5 percent to two percent heavier weights would dramatically contradict the price premiums built in the December futures contract.”

Tyler Fulton of Hams Marketing said the next few weeks could be ugly for slaughter prices.

“If the USDA is right, we can expect a serious run-up in hog supplies,” said Fulton, who called the report a “shocker.”

In September, hog prices did what they almost never do: rallied sharply into the fall, rising above the usual summer highs. That surge was based on low numbers of hogs being shipped to packers. That low number fit well with analysts’ views that the porcine epidemic diarrhea virus was wreaking destruction on the U.S. herd.

But USDA’s expectation of large market hog numbers for the coming months suggests the September decline was due solely to hot weather in August that slowed weight gain and only delayed the hog flow.

Now the pigs will flow again and prices and hog farmers’ profitability will likely slump.

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“If this flushes out the way it is now expected, I don’t think you can expect any profitability (in the next three months),” said Fulton.

“A lot of guys were probably getting lulled into a fairly optimistic view of what the fourth quarter would bring this year.”

Analysts are virtually unanimous in expressing confusion over where, if anywhere, the pig and productivity losses due to PEDv are appearing in the U.S. herd.

There should be fewer feeder pigs on U.S. farms now than a year ago if PEDv is killing piglets, but U.S. herd growth is continuing with no interruption.

“It reveals no impact over PED, or if there is an impact then it’s evidence that hog producers in the U.S. were attempting to expand by a margin of five or six percent, which we haven’t seen for 10 years,” said Fulton.

Early Sept. 30, hog futures were down, but not disastrously so. Fulton said analysts are so puzzled by the Hogs and Pigs report that they’ll probably need to see increased slaughter flow before they accept the report is on the money.

“It’s a head-scratcher,” said Fulton.

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“It just doesn’t jive with where the market was on this.”

  • Instead of finding fewer hogs approaching slaughter weight on U.S. farms, USDA found more.
  • Instead of finding fewer small feeder hogs, USDA found more.
  • Instead of fewer or equal numbers of pigs being born in June, July and August, USDA found a two percent increase.
  • Instead of finding U.S. farmers boosting sow numbers to reap the benefits of strong prices, USDA found farmers only marginally added to herds.