One of my major concerns all summer was what was going to happen to the flow of pigs from farm to harvest when new-crop corn became available this fall. The past few weeks have validated those concerns as slaughter rates and weights have risen sharply.
The question now is just the opposite of last summer. Recall that in July we were asking whether hogs were backed up or were they simply not out there to the degree indicated by USDA’s March and June Hogs and Pigs reports? Now we are asking, “Are the hogs being pulled forward or did USDA undercount inventories on Sept. 1?”
Let’s look at the data. Figure 1 shows that weekly slaughter exceeded the year-ago level last week for the first time since July 17, marking only the sixth time that has happened this year. It also marks the third straight week that slaughter has been above the level suggested by the September Hogs and Pigs Report. The difference between “actual” and “predicted” weekly slaughter has grown sharply over that three-week period with last week’s deviation amounting to 87,000 head.
At the same time, average slaughter weights have risen quickly. Figure 2 shows the average carcass weights of the barrows and gilts reported under the mandatory price reporting (MPR) system. Last week’s carcass average of 206.3 lb. is the second highest ever and is nearly 6 lb. heavier than just eight weeks ago. It appears the rate of growth is slowing, but the record high of 206.7 lb. set the first week of 2006 is definitely in some danger of being eclipsed.
Let’s consider these data for a moment. As Table 1 shows, the MPR data include only “top hogs” or barrows and gilts that generally weigh between 230 and 320 lb. or so. The MPR data represent about 95% of the total number of these animals slaughtered each week. The USDA barrow and gilt data published with a two-week delay include the MPR barrows and gilts, plus the 5% not covered by MPR, a portion of which is comprised of “off hogs,” roaster pigs, etc., that are generally lighter (sometimes much lighter) than top barrows and gilts. Thus, the weights of all barrows and gilts are usually much lower than the MPR data. Finally, USDA hog slaughter weights (Figure 3), which are estimated each week and then finalized two weeks later, include both of those groups, as well as cull sows and boars. These weights tend to be slightly lower than the MPR data.
Click here to view hog weight data chart.
The different data series are useful for different things. If one wants to look at total pork supply, the “hog weights” series, that includes all slaughter, is probably the best. The challenge there is that the most recent two weeks’ data are estimates that can get revised – sometimes significantly – when the actual data are published two weeks after the fact. Such has been the case this fall.
If one is judging whether marketings are current, I think the MPR data is by far the best for a couple of reasons. First, it is almost real time. We get the data daily for the prior day and the weekly data are, in my opinion, the best estimate for top barrow and gilt weights. In addition, it represents the vast majority of the hogs whose feeding period can be variable as well as the vast majority of total pork production.
Credit the Corn
So do these high weights mean we are not current? Not in my opinion in this situation. While smaller than expected, this corn crop is light years better in terms of quality. Feed consumption and, consequently, growth rates have improved dramatically over the past month, pushing market weights up quickly. One producer related to me that they were sick and tired of using poor quality corn, but now they can hardly keep the feed bins full. It’s a nice problem to have compared to last year! I believe these higher weights are simply a function of outstanding growth rates and the higher slaughter runs are the result of producers trying to keep marketings as current as possible – especially as they see hog bids falling.
That brings us back to the question posed in the second paragraph: Are we pulling hogs forward or are there more hogs available than USDA thought? I think the evidence at present supports the former. Pigs are performing very well. Producers are marketing them as quickly as they can and are still not keeping up with the higher growth rates. The push to move hogs to town has pressured prices sharply lower.
But the real question is this: “Will the ‘pulling forward’ stop?” Without some extreme cold weather, some problem with nutrient content, or some widespread disease challenge, we may simply see this performance continue. We may see a slow-down and a slight dip in hog numbers later in the year, but those changes will very likely be subtle and not sharp enough to cause a shortage that would drive prices sharply higher.
I expect numbers to move back toward expected levels, but I don’t expect any big shortfalls. Good corn and cool temperatures will keep hogs heavy and coming to market at a good clip for the foreseeable future.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.