What is happening to the U.S. breeding herd? That is a frequently asked question these days. USDA will begin surveying producers this week for the December Hogs and Pigs report, which will be published on Dec. 23.
In the meantime, let’s look at some recent data to see if any conclusions can be drawn about the probable direction of the industry.
Sow slaughter certainly isn’t what it once was (Figure 1). Weekly runs of over 60,000 head have been rare since mid-2009. And 60,000 was about the minimum level of weekly sow slaughter before 1997. It is clear that the major driver of lower U.S. sow slaughter has simply been the existence of fewer U.S. sows. The same is true in Canada. We can’t slaughter what’s not there.
And, increased productivity of sows on both sides of the border has simply meant that fewer sows are required to produce the quantity of pork that can be sold at profitable prices.
The interesting thing about Figure 1, though, is what has happened this year as sow slaughter has increased in recent weeks and months.
Figure 2 shows the significant year-on-year declines in weekly U.S. sow slaughter in 2009 and 2010. The smaller breeding herd simply would not support past levels of slaughter and some pork producers were looking at significantly higher hog prices and seeing profits, driving some mild expansion.
But this year has seen a reversal of those patterns. Beginning in April, sow slaughter began growing, year-on-year. That is understandable for those spring months when corn prices were rising to record highs and soybean meal was moving above $350/ton – near the top of what I consider its new trading range. The 12-month profit outlook for Iowa pork producers on Aug. 31 was a dismal loss of $14.60/head.
The sell-off in the grain market and continued strong Lean Hogs futures have completely reversed that outlook with 2012 profits of $11.13/head forecast on Nov. 17. Total U.S. sow slaughter has moved back toward year-ago levels and the 63,653 slaughtered the week ending Nov. 12 was 0.7% lower than last year. That is the first decline since Sept. 10 and only the second year-on-year decline since July 30.
Recent higher sow slaughter totals become even more suggestive of liquidation when one adjusts for a) lower Canadian sow/boar imports, and b) the smaller U.S. breeding herd. Figure 3 shows U.S. slaughter of U.S. sows as a percentage of the U.S. breeding herd. That figure has been above 0.9% since early September and has been sharply higher than the 2007-2009 average since Oct.1.
The kicker for all of these sow slaughter computations is, of course, the rate of gilt retention – and that is especially true given the value of these cull sows. Incentives are very strong to sell sows and keep new and improved gilts since the trade actually generates cash. As Figure 4 shows, however, the gilt slaughter data from the University of Missouri is pretty noisy and really doesn’t indicate a significant drop in the percentage of total slaughter comprised of gilts.
The average gilt percentage since Aug. 1 is 49.3%. That compares to 49.1% last year and an average of 49.5% for 2001 through 2010. But note that this year’s figure includes the 45.1% for the week of Aug. 27 – a number that increasingly looks like an outlier. Omitting it from this year’s data would leave the Aug. 1-to-date percentage at 49.6 – much higher than last year and even higher than the 10-year average. None of these suggest that a lot of extra gilts have been held out of the slaughter mix.
So what is the bottom line? My bet is that USDA will find very near 5.8 million breeding animals as of Dec. 1. That compares to 5.806 million on Sept. 1 and 5.778 million last year. That would be a 0.4% increase, very close to the findings of recent reports.
I think it is apparent that U.S. producers have not moved into an expansion mode. A few are definitely adding sows, but there have been a good number of producers who also have significant grain farming enterprises that have decided to adopt a corn-soybeans-Florida crop rotation and have liquidated their breeding herds, doing quite well in the process. A stable breeding herd still implies 2% more pigs and carcass weights have defied expectations this year, so I find it difficult to argue with anyone saying they will be 1-2 pound higher in 2012. That amounts to expansion of output without expansion of the production plant – and that represents efficiency that is highly needed in these days of high costs.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.