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Hog estimates see significant revisions
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Hog estimates see significant revisions

The U.S. Department of Agriculture’s “December Hogs and Pigs” report places the Dec. 1 inventory of all hogs and pigs at 77.5 million head, a decrease of about 1.2 percent from the previous quarter and right at the average pre-report estimate of 1 percent less than the previous year. Similarly, as expected, the market-hog inventory is about 1 percent smaller than a year ago.

The numbers seem consistent with previously anticipated herd contraction, which appears likely to continue as the breeding herd – at 3 percent less than a year ago – is close to the anticipated range of 1.5 percent to 2.8 percent less. That’s the smallest breeding herd since early 2018 and the largest decline in the breeding herd since December 2014. Those 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 decreased compared to the same time the previous year, which is bullish news. The heaviest-two weight classes of 120 to 179 pounds, and more 180 pounds, are about 0.5 percent and 0.7 percent less than pre-report expectations, respectively. Expectations proved fairly accurate for the 50-to-119-pound class but underestimated the less-than-50-pound inventory by 1 percent.

Hence it appears market-ready supply is somewhat smaller than anticipated. Overall the number of hogs weighing less than 180 pounds is almost 2.5 percent smaller than a year ago. Those will be the market hogs arriving at processing plants from January to May 2021.

The decline in lighter-weight hogs partly reflects that the September-November pig crop is 1.4 percent smaller than the previous year, with about 1 percent fewer sows farrowed. That could be viewed as bearish news compared to expectations of 3.5 percent and 3.7 percent less, respectively. Those expectations were likely formed based on the prior USDA estimate of 3 percent fewer sows farrowed for the period – which was revised downward without corresponding revisions to past breeding-herd estimates.

There were 11.05 pigs saved per litter, or about 0.4 percent less than the 11.09 pigs per litter for the same period the previous year. Annual averages were 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 during the past 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 it won’t be to the extent expected, given an even-smaller pig crop was anticipated.

Meanwhile winter-farrowing intentions increased a little more than 1.5 percent from actual farrowings the previous year. That’s compared to expectations of 1.8 percent less. Spring farrowing intentions decreased almost 1 percent from the previous year compared to expectations of almost 1.5 percent less. Those numbers should similarly imply somewhat larger and smaller slaughter numbers in subsequent periods, but the fact that both estimates are at or more than expected ranges seems bearish.

There is still plenty of room in cold storage because it hasn’t yet been replenished since being pulled down earlier during the COVID-19 pandemic. According to the USDA cold-storage report, cold stocks of pork as of Nov. 30 decreased 7 percent from the previous month and 28 percent from a year ago. Poultry stocks decreased 16 percent from the prior month and 10 percent from a year ago, while beef increased 2 percent from the prior month and 7 percent from the previous year.

The USDA has revised its forecast of U.S. per capita pork consumption in 2020, to 51.9 pounds per person from its prior estimate of 51 pounds. It estimates the number being 51.6 pounds per person in 2021. Prior to COVID-19, U.S. per capita pork consumption reached 52.4 pounds in 2019 – the most 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 United States 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.

The United States exported 589 million pounds of pork in October, or about 13 percent more than in October of 2019 – largely due to shipments to China and Hong Kong. Those shipments and strong exports to Canada and Mexico partly reflect trade deals with those countries, which should continue to be important export markets for U.S. pork. Weekly USDA data available through early December appear to support continued strong pork exports. Although export growth is expected to slow to 7.35 billion pounds in 2021, that’s still an increase of about 0.4 percent from 7.32 billion pounds in 2020.

The USDA estimates U.S. pork exports to be 1.9 billion pounds in fourth-quarter 2020, or about 4 percent greater than in 2019. For 2021 the first quarter is forecast to be about 3.6 percent less than the record of 2.02 billion pounds set in first-quarter 2020. The second and third quarters of 2021, respectively, are forecast to be 4.2 percent less than and 4.5 percent more than that of 2020. Hence export demand should remain strong.

Taking all that into account, there’s the possibility of profitable hog prices – especially throughout summer 2021. The forecast presented here is for the national weighted average net price on a carcass basis for all transactions for producer-sold barrows and gilts, including negotiated and contract prices. That net price should be more reflective of what producers receive, on average, and normally runs at a premium of more than $2 per hundredweight more than the base price. From September through November, that net price averaged $71.32 per hundredweight compared to $60.07 per hundredweight for the corresponding net prices for negotiated or spot transactions.

In general hog prices tend to be more in the second and third quarter, with less prices in the first and fourth quarters. Consistent with that pattern, this forecast places first-quarter prices at about $69.25 per hundredweight, increasing to $72.38 per hundredweight and $78.72 per hundredweight by the second and third quarters, respectively, before decreasing to $67.75 per hundredweight for the fourth quarter.

Those projections assume the strong demand observed even in the face of the COVID-19 is maintained. But if that’s not the case or if hog supply turns out to be greater than anticipated, then reduced prices may be realized.

Jason Franken is an agricultural economist at Western Illinois University and contributor to the University of Illinois farmdoc team. Visit farmdoc.illinois.edu for more information.

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