Market volatility expected

Affects of PED | Analysts cast doubt on USDA herd size estimate

Hog markets could be volatile for months as the mystery deepens around the impact of porcine epidemic diarrhea virus, analysts say.


The U.S. Department of Agriculture’s quarterly hogs and pigs report released March 28 did little to clear the fog around how many pigs will go to market in the next year, they say.


The report found the U.S. hog herd declined less than what most analysts expected, but reports of PED infections are so widespread that most doubt the March report truly captures herd losses.


Steve Meyer of Paragon Economics noted the USDA found that hogs weighing more than 180 pounds had declined 4.8 percent from previous year levels, but the September to November pig crop was down only 0.1 percent.


“It is this kind of inconsistency that will likely cause market participants to be very cautious when they use the pig crop numbers (for following months),” Meyer said in his March 31 Daily Livestock Report.


The USDA said the total U.S. herd was down 3.3 percent from a year ago at this time, while the market hog inventory was down 3.7 percent.


Hogs weighing 120 to 179 lb., which will come to market over the spring and summer, are down only 2.9 percent, while 50 to 119 lb. pigs are down 3.3 percent. It is less than what almost all hog market analysts expected, with hundreds of new PED outbreaks reported every week. 


Weekly reported slaughter numbers for the four weeks before the report was released were down almost seven percent, so the more moderate estimates in the report surprised many.


“The big question before market participants is whether the current survey properly captures the dynamic created by the spread of PEDv and the shortfall in market hogs in the spot market,” Meyer said.


The next report will try to connect slaughter numbers with the estimates. Until then, hog markets will have to rely on numbers that they don’t trust and that will likely cause sharp shifts in sentiment and prices, said Tyler Fulton of Hams Marketing.


“I wouldn’t rule out big choppy markets and big changes in the market hog supply in coming months,” said Fulton. 


The hog market was already lurching up and down in the days before the report as analysts, traders and pork users attempted to assess how many hogs would be marketed in the crucial summer months, when demand is highest.


“Nobody knows. Nobody really knows the size of the hole,” said Fulton.


He estimated that the market had recently increased prices anticipating a summer market hog decline of 14 percent but reduced the premium when slaughter numbers weren’t trending that way.


The USDA report now throws all market hog guesses into doubt.


“There is a huge amount of psychology in the market right now that has built the premium into the summer months to represent something like 11 to 12 percent deficit, but there may be only half of that,” said Fulton.