Boston resident Altin Kalo, chief economist with Steiner Consulting Group, said the hog market reminds him a little of his drive in to work each day in Boston traffic.
“Just when you think you will start to pick up speed, the guy in front of you stops and you have to slam on your brakes,” Kalo said. “That’s what pork producers are doing.”
The breeding herd hasn’t grown at all from the Dec. 1 report. In fact, it was down 27,000 head, which is a slight increase from a year ago. Up and down profitability and a fair amount of uncertainty have helped keep the breeding herd in check, analysts noted during a post-report webinar hosted by the National Pork Board and the Pork Checkoff on Friday.
Pork producers also indicated in the report that they intend to farrow slightly fewer sows through spring and summer than they did last year. March-May farrowing intentions are down 1.2%, with June-August farrowing intentions down 2.9%.
Steve Meyer, economist at Partners for Production Agriculture, said his biggest takeaway from the report is that “it’s kind of the status quo” as far as the breeding herd is concerned.
“I’m not surprised by anything in there. I don’t think we’re getting much information that is useful from those farrowing intentions, because they just don’t fit,” Meyer said. “Our take on this was neutral to possibly a little bullish in the long term. We’re scratching our head over whether we agree with the report or not. You always have to make that call at some point as an analyst, but we think there’s some numbers here that are a little iffy.”
Where Are All the Pigs?
One of the things that stood out to Katelyn McCullock, Livestock Marking Information Center Director, was which states reported an increase in their breeding herd.
“Looking at the report, it tended to be the smaller hog producing states,” McCullock said. “We’re not seeing huge increases in states like Iowa, and that might matter to some degree in subsequent quarters.”
Kalo added what they have seen is a shift of where the breeding herd is located.
“Compared to a year ago, the sow inventory in Illinois, Indiana, Missouri and South Dakota is increasing by about 135,000 head while the inventory in Minnesota, Nebraska and Utah are down by about 125,000 head,” he said. “What we’ve noticed on the breeding herd is that the producers are basically in a maintenance phase at this point.”
Implied gilt retention for the quarter was up about 2.2% in the March 1 report. When looking at the farrowings, Kalo said he always keeps an eye out on how farrowings match up with where the breeding herd is currently estimated.
“You can see for the March-May farrowings, relative to what the breeding herd was on March 1, the numbers are a little bit lower than where you would expect. Now we’ve been trending down, so it’s possible that we may see those farrowings do what the producers are saying. But you have to look at those with some skepticism for now and see if producers will go through with the intentions that they’re currently showing in the survey,” Kalo said.
What Do the Revisions Indicate?
USDA made revisions to past data through December 2022. Other adjustments included:
• USDA revised the Dec. 1, 2022, herd 1.28 million head higher, with a 10,000-head downward revision to the breeding herd and a 1.290-million-head increase in the number of market hogs.
• The Sept. 1, 2022, herd was raised 440,000 head, with all of the increase in market hogs.
• Summer 2022 sow farrowings were revised up by 50,000 head, which resulted in a 580,000-head jump in the pig crop to 34.096 million.
• Fall 2022 sow farrowings were increased 48,000 head, with the net result a 540,000-head boost to the fall pig crop.
For McCullock, those revisions were another interesting takeaway from the report.
“You see some fairly large revisions to the Dec. 1 report on all hogs and pigs inventory, and adjustments to the September and December pig crop,” she said. “Revisions happen during every Hogs and Pigs Report. The key thing to point out here is how large those revisions are, and again, these aren’t final yet. This is the current revision to the current estimate.”
Once she saw the revisions, McCullock said the price profile makes more sense on why feeder pig prices were a little bit lower based on what the Hogs and Pigs Report said in December.
“We’ve also seen this match better with what we’ve seen with barrow and gilt slaughter, up about 360,000 head year to date,” she said. “We’re expecting hog slaughter to remain above a year ago, at least in the near term, and then some of those later farrowing intentions are going to come to fruition later in the year.”
She believes the price impact is clear so far that there are more hogs on the market than anticipated.
“Based on what that supply picture in the report painted, that at least in the near term, you’re going to need some help from the demand side heading into Fourth of July to really get this base price up,” McCullock said.
Move the Needle on Pigs Saved Per Litter
For years, the pigs saved per litter number inched higher and higher, as much as 1.7% growth per year, Meyer recalled. But the last few years have been flat. According to the report, pigs saved per litter is up 0.7% from last quarter, but still below pre-COVID-19 growth rates. Since the beginning of 2020, the pigs saved per litter was about 11.09. In this latest survey, it was 11.02 as compared to 10.95 last year.
Meyer said there’s probably some reflection of less disease pressure when you study the pigs saved per litter numbers. Data from the University of Minnesota and others back it up that the industry is dealing with less disease pressure right now, he added. It also means, for at least the near term, the industry is going to have more hogs than what it thought.
“I think we’re moving the general health level of the U.S. breeding herd back toward a good spot. It’s not great yet, but it isn’t as bad as it was a year ago,” Meyer said. “That’s one of the reasons we think we’re going to need some more productivity improvements.”
Analysts agreed there is untapped potential from a genetics standpoint, but Kalo said that’s only one leg of the stool. Labor and the ability to have proper staffing are key to increasing productivity, as well as relief from disease pressure.
From Optimism to Pessimism
“We can decide whether we want to believe the intentions or not. But in my mind, there’s still evidence of what the sentiment is out there. It seems to me that we have switched from cautious optimism among producers last year to a more pessimistic outlook for the future,” Kalo said.
He believes this is reflected in the revisions that have been made to farrowing investments.
“For instance, in June-August of last year, initial estimates from producers were that they were going to have lower farrowings for that period. We ended up with more farrowings. As producers saw profitability improve, it had an impact on their production decisions,” Kalo said. “Now we are seeing a switch, and it’s reflected in the March estimates, which are lower than what was presented in the previous report.”
The sentiment has shifted, and whether or not that will be reflected in the actual numbers coming to market remains to be seen, Kalo added.
More from Farm Journal’s PORK:
Will Consumer Demand Drive Strong Pork Prices in 2023?
USDA’s Hogs and Pigs Report is ‘Sharply Neutral,’ Flory Says
