Hogs and Pigs Report: Opportunity Ahead to Recapture 2020’s Losses

A shocker. A game-changer. A surprise. In USDA’s March 1 Quarterly Hogs & Pigs Report, analysts agree this very bullish report changes the outlook perspective. These numbers put the industry back closer to 2019’s slaughter volumes and provide a stronger price outlook. 

“I don't see this as just a mildly bullish report. This is the reprieve pork producers have been looking for, for quite some time,” said Joe Kerns, president of Partners for Production Agriculture, during a teleconference funded by the Pork Checkoff on Thursday.

Analysts agreed the March 2021 report signals opportunity ahead for the industry to recapture some of the losses from a very difficult 2020. 

First, a Look at the Numbers
The total inventory for all hogs and pigs on March 1 was 74.8 million head, reported economist Steve Meyer of Partners for Production Agriculture. That’s down 2% from a year ago and down 3% from Dec. 1. 

The market hog inventory on March 1 was 68.6 million, down 2% from 2020 and down 3% from the previous quarter.

The breeding inventory numbers came in at 6.21 million head, down 3% from a year ago and down 1% from Dec. 1. The December 2020 through February 2021 pig crop, at 33.3 million head, was down 1% from 2020. The number of sows that farrowed during this three-month period was down 1% from 2020 at 3.04 million head, which represents 48% of the breeding herd. The average pigs saved per litter was 10.94 for the December 2020 through February 2021 period, compared with 11 last year. 

U.S. hog producers intend to farrow 3.07 million sows during the March to May 2021 quarter, down 3% from the actual farrowing during the same period in 2020 and down 2% from the same period in 2019. Intended farrowings for June to August 2021, at 3.12 million sows, are down 4% from the same period in 2020 and down 5% from the same period in 2019.

A Little Pullback
What’s missing from the numbers is the magnitude, Kerns explained. All the values except one came in below the entire range of estimates. 

“This marks the first reduction in March over March we've had since 2014,” Kerns said. “After seven straight years of growth, we finally see a little bit of a pullback here. The markets have been feeling this one a little bit.”

The anecdotal quantity of spaces available and the value of weaned pigs traded into the marketplace indicate something wasn't quite up to par as far as expectations, he explains. 

“Keep in mind, too, this is the first clean look. The last three reports we've had have been in the throes of COVID-19 of some form or another. So, once we finally get everything to kind of stand still long enough, if you will, I think it gives us a pretty good look.”

After reviewing quarterly reports going back to December 2019, Daniel Bluntzer, director of research for NFC Markets, pointed out the U.S. sow herd has been reduced about 250,000 sows. The industry hasn’t seen that kind of reduction since 2008-09, he said.

“It’s very interesting that we didn't really know how the market was going to react, we didn't know how production was going to react over the last year of COVID-19. And then on top of that, when we start to get recovery, we saw a pretty sharp rise in grain prices,” Bluntzer said. “In my estimation, it's one of those 1-out-of-6, 1-out-of-8 type of market reports – kind of a shocker, kind of gets the market thinking in a much larger direction.”

A Couple Wildcards
Dr. James Mintert, director of the Center for Commercial Agriculture at Purdue University, discussed a couple of wildcards with respect to demand – both domestically and internationally. 

“One of the positives coming out of this first quarter is the fact that the U.S. is apparently ahead of many other countries with respect to vaccinations, and perhaps a return to more normal behavior on the part of consumers. I think there's a lot of pent-up demand among consumers to get out, a lot of pent-up demand at the restaurant and institutional level and it's going to be interesting to see how that plays out,” Mintert said.

Looking ahead to May and June, the outlook suggests a return to something that's not quite like it was in 2019, he said. It indicates a tremendous desire on the part of consumers to get out and about. All of this will happen in an environment, however, where pork supplies are quite a bit smaller than expected coming into this report. 

“That bodes well for the meat industry in general, in terms of seeing that rebound for pork and beef and to some extent, chicken, as well. I think it’s a very positive outlook on the demand side,” Mintert said.

From an export perspective, 2020’s pork exports to China were roughly double what they were in 2019, he added. There's a tremendous amount of uncertainty about what that volume might be for the rest of 2021.

“Given the issues they seem to be having with African swine fever [ASF], what does that imply about pork exports? Will we see a rebound in those pork exports? They were a little bit weaker in January, but are we going to see a rebound in that?” he asked. 

He said exports can provide an additional source of price strength, so it could be a very positive year for pork producers. 

Where There’s Smoke, There’s Fire 
One of Kerns’ biggest concerns with exports to China is physically being able to execute the demand. The demand is there, he said, but the ability to fill the containers and execute on it has been compromised. 

In addition, he’s concerned about the value of U.S. pork relative to European Union pork. “We're kind of on par right about now, and that's not normal,” Kerns said. “Normally, we created a bit of a discount. Given the tariff situation, we need to trade at a discount.” 

The reality that no one really knows what's happening in China is an obstacle, the analysts said. 

“We hear reports of ‘There's another ASF outbreak,' and you know, where there's smoke, there's fire,” Bluntzer said. “But when it comes to China, I always look at what are the actual numbers showing? What are they doing, rather than what are they saying?”

There’s a reason to be cautionary, he added. Exports have dropped, even though they are still very good. In his mind, “we’ve taken the bloom off the rose” as far as exports to China.

What China is doing in regard to importing corn says a lot about what the country is doing to rebuild its sow herd, Bluntzer said. 

“In my estimation – just back-of-the-envelope cowboy math – they've essentially moved the size of our hog herd into modern facilities from the backyard. That's another billion or billion and a half bushels of corn that they’re going to need, and they're buying it. I don't think they’re buying it because of a trade agreement. I don't think they’re buying it because they're storing it and saving it for a rainy day. I think they need it,” Bluntzer said.

He also cautions producers to remember pork was China’s staple. After all the production kinks and with ASF worries, even a small percentage of Chinese consumers switching to a soy-based, chicken or beef product means a lot of pork that doesn't need to get consumed. 

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