Lean hog and pork cutout futures opened up sharply higher on Sept. 27, and for good reason, said Len Steiner of Steiner Consulting Group.
“The results of the quarterly USDA ‘Hogs and Pigs’ report were outside the range of pre-report estimates and market participants need to adjust their supply and price expectations for the next few months,” he said in the Daily Livestock Report.
Steiner shared a few reasons for the market movement:
1. USDA reported the inventory of all hogs at 75.352 million head, 3.082 million head or 3.9% lower than a year ago. Pre-report expectations from analysts has the total inventory of market hogs as of September 1 to be 1.7% lower than a year ago.
“The 1.75 million head difference between the survey and pre-report estimates implies a significant reassessment of supply availability during the fall and winter,” Steiner noted.
2. The inventory of market hogs was estimated to be 69.162 million head, down 2.9 million from a year ago. Much of that year over year reduction was in the inventory of hogs under 120 pounds, hogs that should come to market this winter, he pointed out. Weekly hog slaughter could be down as much as 6% year over year during that period.
3. USDA also made some significant revisions to previous inventory estimates. USDA lowered the pig crop for the Dec-Feb period by 1.292 million head or 3.9%, one of the biggest revisions on record. This reflects the lower-than-expected slaughter during the Jun-Aug quarter.
“USDA did not make any adjustments to the Mar-May period but that may happen in December once the slaughter numbers for the Sep-Nov quarter are collected,” Steiner said. “We think slaughter this quarter will be smaller than the survey suggests, which will probably result in more downward revisions.”
4. The USDA survey pegged the September 1 breeding herd at 6.190 million head or 2.3% lower than a year ago. This is about 70,000 head lower than analysts predicted and 0.6% lower than the June quarter. This is the first time since 2013 (another high feed cost year) where the September inventory has been lower than June, Steiner explained.
“We view the smaller breeding herd as bullish for next spring and summer,” he added. “Coming into the report, we thought analyst estimates for only a 1.1% decline in the breeding herd were too optimistic. High feed costs, uncertainty about China demand and upcoming changes in California marketing rules, presented producers with a lot of risk. Gilt retention was low and when combined with a relatively high sow slaughter, it resulted in a notable reduction in the breeding herd.”
More from Farm Journal’s PORK:
Heads Turn at a Bullish September Hogs and Pigs Report
Economists Forecast Hog Prices Following September USDA Quarterly Report
