What Will Make Headlines in the June Hogs and Pigs Report?
Four economists take a look at the issues most likely to spark attention in the upcoming USDA Quarterly Hogs & Pigs Report to be released on June 24.
Scott Brown, Livestock Economist, University of Missouri
John Nalivka, President, Sterling Marketing, Inc.
Lee Schulz, Associate Professor and Extension Livestock Economist, Iowa State University
Altin Kalo, Head Economist, Steiner Consulting Group
Q. What do you expect to see make headlines in the June Hogs & Pigs Report?
SB: A couple of important pieces of the pork supply puzzle deserve attention in next month’s quarterly report. First, to what extent will declines in sow numbers continue? The breeding herd as of March 1 was reported to be down 256,000 head (-4.0%) relative to Dec. 1, 2019, but still 8% higher than the recent low recorded Dec. 1, 2013. Domestic availability of pork per capita in both 2019 and 2020 was larger than any other year since 1999, and without further declines in sow numbers, supplies remain heavy relative to history. It will also be of note to see whether producers respond more to the recent higher hog prices or to the sharply higher feed costs.
The report will also shed light on the current level of productivity growth. After pigs per litter grew by more than 3% from March 2019 to February 2020, productivity actually declined slightly from March 2020 to February 2021. The extent to which productivity returns to normal for the remainder of the year will be as important for the short-term supply picture as breeding herd inventory is for the medium and long term.
AK: There are a couple of things that market participants are paying close attention to. First, what is the supply of hogs on the ground as of June 1? There has been a lot of talk and speculation about disease pressures last winter and tight hog supplies this summer. We continue to read about porcine reproductive and respiratory syndrome (PRRS) and porcine epidemic diarrhea (PED) losses. And yet, slaughter since the March report was issued has been running higher than the survey suggested. Will the next report offer a different supply outlook for summer and fall? Second, what has happened with the breeding herd in the past three months? Hog prices are currently profitable, and yet sharply higher feed costs and uncertainty about export demand in 2022 make for a very uncertain profit outlook. A shift in the breeding herd, either up or down, would be headline worthy.
JN: Hog producers have seen very attractive margins since early March with sharply higher lean carcass values. Sterling Marketing estimates show producer margins reaching to about $100 per head, the highest since 2014 when the industry was faced with PED, suggesting producers would have pretty strong incentive to build herds. But that is not the situation with the March 1 report indicating a 3% year-over-year decline in third quarter farrow intentions. I think this is a strong indication of producers showing caution going forward as the result of last year’s severe financial situation resulting from plant shutdowns and production due to COVID-19. This caution is only further supported by this year’s uncertainty and high prices in the grain and protein market. Producers simply do not want to turn this year’s positive situation and outlook into a back-to-back wreck following last year. Consequently, I think the June 1 report will show a 1% drop in the total inventory compared to a year earlier and this will be the first time the June 1 inventory has been down from prior year since 2014.
LS: Any revisions to past numbers will affect the interpretation of the report, so I’m cautious to say what the big headlines will be knowing there could be revisions to past numbers. We also need to remember that the June 1 inventory estimates will be compared to the June 1, 2020, estimates. At least that’s the typical convention. June 1, 2020, and the months leading up to it were anything but typical. As such, there is potential for some odd-looking relationships to last year’s numbers.
Many factors could be pushing some producers to tap the brakes. The recent price and production environment of more variability in inputs and outputs might have altered the risk–reward relationship as some producers consider expansion. Farrowing intentions in the last Hogs and Pigs report reflected caution on expansion. But potential also exists for stability in 2021 or possibly even some growth. Hog futures contracts offer profits at today’s costs and expected future costs, but, biology prevents pork producers from rapidly responding to price changes — either higher or lower.
The March 1 U.S. breeding herd inventory was 2.5% lower than a year earlier. That was the fourth consecutive year-to-year quarterly contraction dating back to June 1, 2020. Before that, March 1, 2016, was the last decline compared to a year earlier, and it was minute. The most recent sustained contraction occurred between June 2008 and December 2010. While smaller, the U.S. breeding herd, at 6.215 million head, remains the fifth-largest March 1 breeding herd in 22 years. Whatever the breeding herd estimate is for June 1, it will make headlines. The farrowing intention numbers will also be headline worthy. Breeding herd productivity, as measured by pigs saved per litter, dipped the last three quarters. Two data points do not a trend make, and I’m not sure three points do either. Litter rates will also be a headline grabber.
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