Friday’s quarterly Hogs and Pigs Report contained few surprises, but a few interesting numbers that should be carefully noted as producers make plans for the coming months. See Table 1 for data.
The key number for short-term markets is a market herd at 58.612 million head or 96.3% of one year ago. That is not a small market herd by any stretch. In fact, it is the third-largest ever for a June 1 count. The only two larger were in 2008 (61.27 million) and 2009 (60.842 million).
This relationship underscores the fact that we almost need to put any of these all-time records in a pre-porcine circovirus (PCV) vaccine and post-PCV vaccine context. While PCV vaccine is not the only driver of higher numbers, it is definitely a major one and the only one that we can track to a particular point in time.
The key number for longer-term markets is, of course, the breeding herd, which is estimated at 5.788 million head as of June 1. That is 3% lower than last year, but 28,000 head (0.5%) larger than on March 1, 2010.
Does this mean that the herd is growing again? Probably not. I think the more likely explanation is an effort to be ready for seasonal infertility simply because I don’t see enough financial health among producers to get the herd turned that quickly.
The status of the 2010 corn and soybean crops is another factor that has probably delayed a quick move to expansion, but we have to think that source of uncertainty is getting smaller every week. Rain makes grain, it is said. If that platitude holds true, there should be plenty of grain because there has been plenty of rain. More than plenty in some areas but, barring a real catastrophe the remainder of this summer, damagingly high feed prices are not in the mix of realistic possibilities.
Even if the sow herd is not expanding, this report does point to higher output in relatively short order. A 3% smaller breeding herd is predicted to yield 2.3% fewer litters in the summer quarter and only 0.5% fewer litters in the fall quarter. And, perhaps more important, it appears likely that the size of those litters is again growing at a near-record pace.
Litter Size Averages Up Again
The March-May number for pigs saved per litter was 9.81 – a record by over 0.1 pigs! That number returns the U.S. industry to its record-setting growth pattern of 2008 and 2009 (Figure 1) and implies that even a steady sow herd will result in 2-3% more pigs in 2011. In fact, the return of litter size growth to this recent trend says that we will see more pigs than in 2010 in the Q1 and Q2 of 2011 (Table 2). I have supplies slightly higher than either Iowa State University or University of Missouri economists’ predictions, but their forecasts are moving quickly back toward year-earlier levels as well. LMIC’s forecasts were not available at press time.
Will domestic demand growth (population still grows at a short 1% per year) and foreign markets be enough to push prices higher? I don’t think so, but I also don’t think that we are in for any sort of debacle as my quarterly average price forecasts (Table 3) are all higher than projected breakeven levels at this point. In fact, those quarterly averages will result in profits of $15 to $20/head.
For what it’s worth from someone with no direct investment in a pig farm: $15 to $20/head over a long period of time looks very good – high enough to earn a decent return on investment (and especially on the level of equity that many have at present) and low enough to not be too attractive to “outsiders.” One may not get rich quick, but getting rich slowly is not such a bad deal - right?
Is the Odd Number for Real?
One very interesting number in the report was the 50-119-lb. inventories at 16.877 million head, 5.4% lower than one year ago. The odd thing about the number is that it is far different from any other weight category and it’s 2.5% lower than was expected by the analysts surveyed by Dow Jones.
Why the big shortfall? It may be PRRS-induced (porcine reproductive and respiratory syndrome). As many readers know, I have always been very hesitant to forecast lower slaughter numbers due to disease outbreaks because a) they usually are not that much different from year to year, b) they usually affect small geographic areas – at least relative to the entire nation, and c) history says that the impacts get “washed out” of the data over time. It is possible, though, that USDA has found an abrupt shortfall in pig numbers and the timing does, in fact, agree with the reports I had this spring of severe PRRS outbreaks. Slaughter from mid-August through September will tell us if the shortfall is real, but that will not definitively provide an explanation.
Finally, this report clearly shows where much of the pain of high feed costs has fallen – North Carolina. North Carolina accounted for 110,000 of the 180,000 sow reduction in the breeding herd since last year. Minnesota was a distant second with a 30,000-sow reduction. Nebraska (-20,000) and Iowa (-10,000) were third and fourth.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com