Heads Turn at a Bullish September Hogs and Pigs Report

USDA’s Sept. 1 Quarterly Hogs and Pigs Report contained a very bullish surprise, economists said on Friday during a teleconference funded by the Pork Checkoff. 

“I think we all agree that you should expect December, February and April hog futures limit up on Monday morning,” said Len Steiner, president of Steiner Consulting in Merrimack, N.H., during a teleconference funded by the Pork Checkoff on Friday. “It's probably going to be a one-click deal, because of this report.”

First, a Look at the Numbers
The total inventory for all hogs and pigs on Sept. 1 was 75.4 million head, reported economist Steve Meyer of Partners for Production Agriculture. That’s down 4% from a year ago, but up 1% from June 1. 

The market hog inventory on Sept. 1 was 69.2 million, down 4% from 2020, but up 1% from the previous quarter.
The breeding inventory numbers came in at 6.19 million head, down 2% from a year ago and down slightly from June 1. The June through August pig crop, at 33.9 million head, was down 6% from 2020. The number of sows that farrowed during this three-month period was down 7% from 2020 at 3.05 million head, which represents 49% of the breeding herd. The average pigs saved per litter was 11.13 for the June through August period, compared with 11.06 last year. 

U.S. hog producers intend to farrow 3 million sows during the September through November 2021 quarter, down 4% from the actual farrowing during the same period in 2020 and down 6% from the same period in 2019. Intended farrowings for December 2021 through February 2022, at 2.96 million sows, are up 1% from the same period in 2020 and down 3% from the same period in 2019.

Pork Exports in 2021
“A lot of things influence these markets, but one of the things you want to take into consideration is that in 2021, we will export the largest tonnage of pork in history,” Steiner said. “30 years ago, this report was really important because it told us what the supply was and all we had to do is figure out what the American public was going to do for consumption. Now we've got to figure out what the world's going to do.”

Before today, Steiner said everyone assumed that with China's hog prices coming down and their herd being rebuilt after African swine fever, that the American public would get less pork to consume in 2022.

“At this point in time, we think we've flipped that. We are now going to give the American public less pork in 2022 than they consumed in 2021,” Steiner said. “And when you give somebody less, quite often that has bullish implications.”

Revisions and Disease Challenges
Meyer noted there were significant revisions in this report. 

“I felt very strongly that USDA was going to have to make a significant revision to the Dec-Feb pig crop because of how short slaughter had been relative to our expectations this summer,” Meyer said. “And in fact, they did. They took 1.292 million pigs out of that Dec-Feb pig crop estimate and dropped it down to 31.978 million. That is a huge reduction. A net revision of 3.9% was made to the Dec-Feb pig crop. That translated to a big reduction in the June 1 inventories that were in the last report.”

Disease certainly had an impact on those numbers, said John Nalivka, president of Sterling Marketing in Vale, Ore. 

“It's pretty hard to go through a year and not have a disease issue or something that's going to have an impact on these numbers. To what extent might be a little difficult to tell, but it's certainly reasonable to say that would be part of the reason on some of those revisions,” Nalivka said.

Scott Brown, an economist at the University of Missouri, said it’s nice to see June, July and August pigs per litter back above year-ago levels.

“I don't know if three months makes a trend and gets us beyond some of the PRRS of earlier this year, but maybe that doesn't continue. Maybe the help we got this year from PRRS pulling down pigs per litter in terms of overall supplies doesn't feed through to 2022,” Brown said. “Hopefully the lower breeding inventory numbers we've got kind of offsets some of those effects.”

Breeding Numbers to Note
Brown said there were several numbers that caught his attention in the Sept. 1 report. 

“Looking at the breeding inventory numbers a little bit closer, that 6.19 million head breeding inventory that we got for September came in below a lot of folk’s expectations,” Brown said. “When you look at it relative to June, we're actually down relative to the June numbers that we had. Normally we're going to talk about a September number that traditionally is up half a percent relative to where we were in June. In fact, we're out the other side down half a percent. So, certainly some good news there in terms of breeding inventories.”

He pointed out it’s a mixed bag, however, when you start looking state by state. Iowa is down 80,000 head, North Carolina is down 60,000 head, Missouri is down 50,000 head, Ohio is down 30,000 head and Illinois is up 80,000 head, to name a few. 

“It's not the same everywhere we go around the U.S. Most of those are predictable in terms of where we're seeing declines and growth, but not a common ‘everybody down’ in terms of the overall breeding inventory for September 1,” Brown said. 

The June through August farrowings at 93.4% of a year ago sets the U.S. pork industry up for a more positive 2022, he added. The Dec-Feb 2022 farrowing intentions tells Brown that people are looking ahead in 2022 with some increases in farrowing numbers. 

“Higher feed costs, perhaps issues even with labor, as well as costs for many materials being much higher, may have kept us from growing the breeding herd as much as we would have thought. We'll have to wait and see where markets react next week, but it certainly looks to me like we're going to see some positives as we look ahead.”

Where Does That Leave Margins?
Although it’s been a good year for producers, Nalivka said you can’t deny it’s been a challenge with regard to feed costs. 

“In light of the producer margins being very attractive as we came into late spring and summer, the processing margins went negative. That negative margin is probably the worst margin pork packers have seen in at least a decade, if not 15 years,” Nalivka said. 

Going forward, he estimates producer margins hovering in that $40 to $80 per head for the better part of next year, except the fourth quarter of 2022. He said that leaves the producer with an average margin of about $45 per head in 2022 – about equal to where the industry will end 2021.

He expects packers to end the year with $20-per-head margins. If demand stays close to where it is now, he believes packers will be able to get back on track in 2022 with where they've been historically, which would be making $35 to $40 per head margins over the entire year. 

Read the full report here.

More from Farm Journal's PORK:

USDA's June Hogs and Pigs Report Could Send More Supply Shocks to the Market

Economists Forecast Hog Prices Following June USDA Quarterly Report