A record-large inventory of hogs on June 1 doesn’t bode well for prices, analysts said on Thursday during a teleconference of the Quarterly Hogs and Pigs Report, funded by the Pork Checkoff. The outlook contains many uncertainties, including the backlog of hogs, future slaughter capacity and the ever-present elephant in the room: COVID-19.
The wild card? Demand.
The strength of demand will dictate how fast hogs can be pulled through the system and the prices that producers will see, said Lee Schulz, associate professor at Iowa State University.
“Overall demand has been pretty strong coming into this situation,” Schulz added. “Looking at futures prices further out, there is a bit of optimism there.”
A Look at the Numbers
In the June USDA report, the total inventory for all hogs and pigs on June 1 was a record-large 79.6 million head, reported economist Steve Meyer of Kerns & Associates, up 5% from a year ago and up 3% from March 1.
The market hog inventory on June 1 was 73.3 million, up 6% from 2019 and up 3% from the previous quarter.
The breeding inventory numbers came in at 6.33 million head, down 1% from a year ago and down 1% from March 1. The March to May 2020 pig crop, at 34.9 million head, was up 1% from 2019. The number of sows that farrowed during this three-month period was up 1% from 2019 at 3.17 million head, which represents 50% of the breeding herd. The average pigs saved per litter was a record high of 11.01, compared with 11.00 last year.
U.S. hog producers intend to farrow 3.12 million sows during the June to August 2020 quarter, down 5% from the actual farrowing during the same period in 2019, and down 2% from the same period in 2018. Intended farrowings for September to November 2020, at 3.09 million sows, are down 5% from the same period in 2019 and down 4% from the same period in 2018.
A Bearish Report
“It’s hard to find too many things on the positive side out of this report by and large,” said Scott Brown, associate Extension professor at the University of Missouri-Columbia. “A lot of news we got out of this report is bearish. It reminds me to keep saying that the aggregate supply of hogs is very inelastic to low returns.”
The numbers varied wildly in the heaviest two weight categories of the June 1 market hog inventory. The 120-179 pounds category was at 16.09 million head, up 11.8% from last year, compared to analysts’ pre-report expectations of 5.2%. The over 180-pound category was at 14.687 million head, up 12.8% from last year compared to analysts’ expectations of 16.86%.
Brown said the 120-179 weight category indicates there are a lot of hogs to come to market in the remainder of 2020, which will continue to create a lot of challenges for the industry. Even though the over 180-pound category estimates came in below analyst expectations, Brown said when you look at that group as a percentage of total market inventory, it’s still up 1.3% relative to a year ago.
“I’m a little more bearish that the general economy turndown will be worse than I thought earlier on,” Brown said. “As I think about the report today, it’s a bad combination of more hogs than we would have anticipated and not as much adjustment to breeding inventory relative to what we would have thought. It looks to be a softer demand picture as we go through remainder of 2020.”
Larger Pig Crops
The number that stood out to Schulz was the March-May farrowing number that came in 2.4 percentage points higher than pre-report expectations and 1.2% higher than a year ago.
“Really the biggest increase came in April and May with sows farrowing up 2.8% and 1.3% respectively,” he said. “You can see that larger sow farrowing did give us that that much bigger pig crop. To give you an idea, when you look at farrowing intention, they added 53,000 sows farrowing from the second intentions for that March to May as to what we've seen at the actual sows farrowing and so that was about 1.7% from that first intentions number.”
Farrowing intentions for June to August and September to November are well below 2019 levels. But given that trend and the size of the breeding herd, Schulz believes those numbers could come in higher than what this report suggests, which will lead to larger pig crops and more supply on market.
How many hogs have really disappeared? David Miller, chief economist at Decision Innovation Solutions, said that’s one of the questions on his mind.
Based upon a weekly model and reconciled with June inventory numbers, Miller predicts 2.1 million head were either euthanized or disappeared through direct sales.
“There is no way to break out how many hogs were euthanized versus direct sales,” he said. ”My numbers suggest we had close to 3.4 million hogs backed up awaiting slaughter and this would suggest that’s probably closer to 1.2 million head backed up – so that’s 2.2 million head that have disappeared.”
Depending on what’s ahead for slaughter capacity, Miller expects a back-up of hogs to begin after Labor Day to the tune of 100,000 to 200,000 a week. “If there’s a concern I have, it’s that we will run well above 2.7 million head of market ready hogs coming at the market almost every week during October and November,” he added.
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