USDA Report Suggests Minimal Pork Supply Growth for Next 12 Months

Pork Supply Will Be Steady in the Next 12 Months. Market Focus Will Remain on Demand

The key takeaway from the latest survey of hog producers is that we should not expect any meaningful increase in pork supplies through at least next spring and very possibly well after that. Indeed, if we take the latest survey at face value, it is very possible that hog supplies next spring will be lower than this year and well below 2021. In 2021 and 2022, lean hog futures in April were over $100/cwt. Futures are currently pricing next April at under $92/cwt. Money flow out of commodities and ongoing talk about demand is clearly the main market focus now. Below is a brief recap of the pork/hog supply situation and outlook.

Current Inventories

The inventory of market hogs remains below year-ago levels and well off the peak a couple of years ago. The COVID impact on hog processing plants inflated the June 1, 2020 market hog inventory. However, the inventory in June 2019 was quite large as well. One can look at the inventories accumulated during those years as a by-product of China’s demand for pork following the ASF outbreak. As Chinese supplies have recovered, U.S. hog numbers have declined to better match export demand. Also important when you look is the effect that exports have had on the growth in U.S. hog supplies/inventories during the past 15 years. Exports have accounted for about 2/3 of the growth in demand. It is fair to say that how exports go, so will U.S. hog production. USDA pegged the inventory of all market hogs at 66.356 million head, 0.9% lower than the previous year. This was only 0.2% under the average of analysts.

The inventory of market hogs over 180 pounds was estimated at 12.725 million head, 0.8% lower than a year ago. Hog slaughter during the four June weeks has been 130k head or 1.4% lower than the previous year. The USDA number would suggest that slaughter in the first half of July should run slightly above last year’s levels.

More important in our view is the inventory of hogs in the 120-179 category. Those are hogs that should come to market sometime between mid-July to the third week of August. That inventory was estimated at 13.737 million head, down 0.7% vs. a year ago. This implies weekly slaughter during mid-July through the first week of August is at or below 2.3 million head. It then increases to a little over 2.4 million head by the third week of August. The hog supply side may be supportive through the summer but demand in product markets will be key factor driving futures for that time. This is in addition to the higher inventories of pork in cold storage.

Inventories of hogs weighing between 50-119 pounds were 18.8 million head, 0.6% lower than a year ago. These are hogs that should come to market towards the end of August and through early October. Weekly slaughter after Labor Day and through the first week of October last year was around 2.56 million head/week. The results of the June survey suggest that weekly slaughter during that period in 2022 should be around 2.54 million head.

Finally, the inventory of piglets under 50 pounds was estimated at 21.083 million head, 1.3% lower than a year ago. This estimate was about 0.7% lower than what analysts were expecting. But it does fit with the Mar-May pig crop, which was 1% lower than a year. Last year hog slaughter in mid-October until Thanksgiving week averaged 2.61 million head. The latest survey implies weekly hog slaughter this year will be about 30-40k head/week less than a year ago but still at around 2.57 million head. These levels are well within the ability of packers to process. The improvement in labor capacity at plants should also help narrow some of the price spreads between bone-in and boneless products.

Breeding Herd and Farrowings

The June 1 hog breeding herd was estimated at 6.168 million head, 0.8% lower than year-ago levels but about 70k head or 1.1% higher than the March 1 inventory. Sow and boar slaughter during the period Mar-May was 5.8% lower than the same period a year ago. Sow/boar imports during the quarter were also 6.7% lower than the previous year. Implied gilt retention during the quarter was 2.5% higher than last year. However, last year we also came up with an implied increase in gilt retention numbers only to see USDA revise the breeding herd down in the following quarters.

Producers saw robust profits of around $25/head during Feb-May and that may have encouraged a modest increase in the number of gilts retained. The delay in implementation of Prop 12 in California and the possibility that it may not go into effect could have affected producer decisions. But again, we continue to note the possibility this number may be revised. Farrowings for Mar-May were 1.6% lower than a year ago but the pig crop improved by 0.5%, resulting in a pig crop for Mar-May down 1% from a year ago. The ratio of Mar-May farrowings to the March 1 breeding herd was 49.1%, up from 48.8% the previous year. The farrowing rate has been steadily declining in recent years and the Mar-May number is consistent with the trend.

Future Supply Implications

Producers responding to the survey suggested that they expect farrowings during the Jun-Aug quarter to be down 1% from a year ago. This puts the ratio of farrowings during the quarter vs. the June 1 breeding inventory at 48.9%. While this is similar to what we saw last year, it is well below the +50% farrowing rate we saw between 2013 and 2019. The latest report would imply a lower pig crop for the Jun-Aug period than last year and thus slightly lower hog slaughter for the Dec-Feb period. However, given the current size of the breeding herd, it would be fair to say that there are better odds that Dec-Feb slaughter will be at or even slightly higher than the previous year.

Farrowings for the Sep-Nov period were estimated 1.4% below the previous year, well below analyst expectations for a 0.3% decline. Why do producers expect farrowings to be down so much? It could be that they don’t expect much increase in the breeding stock or they are being cautious/conservative in their future production plans given the current high feed cost environment. If true, this would imply a pig crop for Sep-Nov down 1.3% from the previous year. Therefore, lower hog supplies in Mar-May of next year. One key wild card going forward is the ability of producers to increase the numbers of pigs per litter as the chart above shows. Producers appear to have hit a wall in this regard for the last 4 years. Will we see a return to pigs per litter growth? That will be a key factor for supplies next winter and spring.

Price Charts

Forecasts