Significant Revisions, Bullish Inventories and Bearish Farrowing Estimates

 

By Marianne Stein, University of Illinois

via FarmJournal's Pork - Jan 5, 2021

 

The USDA’s December Hogs and Pigs report places the Dec. 1 inventory of all hogs and pigs at 77.5 million head, down about 1.2% from last quarter and right at the average pre-report estimate of 1% lower than last year. Similarly, and as expected, the market hog inventory is about 1% smaller than a year ago, according to Jason Franken, agricultural economist at Western Illinois University and contributor to the University of Illinois farmdoc team.

 

“The numbers seem consistent with previously anticipated herd contraction, which appears likely to continue as the breeding herd, at 3% lower than a year ago, is just below the anticipated range of 1.5% to 2.8% lower,” Franken says. “That’s the smallest breeding herd since early 2018 and the largest decline in the breeding herd since December 2014. These numbers and downward revisions to past USDA estimates for market hog inventory, sows farrowed, and pig crops add some bullish sentiment.”

 

All except for the heaviest weight class of market hog inventories are down compared to the same time last year, which, Franken notes, is bullish news. The heaviest two weight classes of 120 to 179 pounds and over 180 pounds are about 0.5% and 0.7% lower than pre-report expectations, respectively, while expectations proved fairly accurate for the 50-to-119-pound class and underestimated the under-50-pound inventory by 1%.

 

“Hence, it appears market-ready supply is somewhat smaller than anticipated. Overall, the number of hogs weighing less than 180 pounds is nearly 2.5% smaller than a year ago, and these will be the market hogs arriving at processing plants from January to May 2021,” Franken says.

 

“The decline in lighter-weight hogs partly reflects the September-November pig crop is 1.4% smaller than last year with around 1% fewer sows farrowed—which could be viewed as bearish news compared to expectations of 3.5% and 3.7% lower, respectively,” Franken notes. “Those expectations were likely formed based on the prior USDA estimate of 3% fewer sows farrowed for the period, which was revised downward without corresponding revisions to past breeding herd estimates.”

 

With 11.05 pigs saved per litter, or about 0.4% lower than the 11.09 pigs per litter for the same period last year, and annual averages of 10.98 and 11.03 pigs per litter in 2019 and 2020, respectively, the statistic remains near the top end of the upward trend observed over the last decade.

 

“Still, a smaller fall pig crop, resulting from fewer sows farrowed and fewer pigs per litter, should imply a similarly smaller slaughter this spring, but again, not to the extent expected, given an even smaller pig crop was anticipated,” Franken states.

 

Meanwhile, winter farrowing intentions are up a little more than 1.5% from actual farrowings last year compared to expectations of 1.8% lower, and spring farrowing intentions are down almost 1% from last year compared to expectations of nearly 1.5% lower. While these numbers should similarly imply somewhat larger and smaller slaughter numbers in subsequent periods, the fact that both estimates are at or above the expected ranges seems bearish, Franken notes.

 

There is still plenty of room in cold storage, as it has not yet been replenished since being pulled down earlier during the COVID-19 pandemic. According to the USDA cold storage report, cold stocks of pork on Nov. 30 are down 7% from the previous month and 28% from a year ago. Poultry stocks are down 16% from the prior month and 10% from a year ago, while beef is up 2% from the prior month and 7% from last year.

 

The USDA has revised its forecast of U.S. per capita pork consumption in 2020 back up to 51.9 pounds per person from its prior estimate of 51 pounds, with the number dropping to 51.6 pounds per person in 2021. Prior to COVID-19, U.S. per capita pork consumption reached 52.4 pounds in 2019 or the highest it has been since it was 54.2 pounds in 1981.

 

“Even with strong grocery store demand, uncertainty remains about when restaurant re-openings will occur across the U.S. and how well domestic demand will persist, depending on how long the economy takes to recover from COVID-19. Hence, the market will again look to exports to help bolster prices,” Franken states.  

 

The U.S. exported 589 million pounds of pork in October, or about 13% more than in October of 2019, largely due to shipments to China and Hong Kong. These shipments and strong exports to Canada and Mexico partly reflect trade deals with these countries, which should continue to be important export markets for U.S. pork, Franken notes. Weekly USDA data available through early December appear to support...

 

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