Hog production continues to increase, and that trend could stretch into 2020.
As of last week, nearly 45.2 million hogs have been marketed, according to economist Len Steiner and associates. That’s over 1.3 million head and 3% more pigs than a year ago.
“The data shows that all of this growth was due to packers expanding their numbers while the number of producer-marketed hogs is actually lower than the same period a year ago,” they wrote in the Daily Livestock Report May 24.
“The number of packer-owned hogs during this period was reported to be 15.525 million head, 1.895 million head or 14% higher than a year ago. That is a much higher rate of growth than we would have thought, and the number took us by surprise.”
Steiner and associates said the numbers make sense, considering changes in the market since last summer.
“It appears packers have been motivated to expand their supplies given expected strong demand for pork from China in 2019,” they said. “That supply needs to be ractopamine-free, and in order to assure that supply, packers likely want to have full control of their hogs.”
This comes as margins have tightened for producers.
“The hog market of the last few months has been very difficult to navigate,” Steiner and associates said. “Margins were extremely weak during certain months of 2018. Tariffs on U.S. pork in Mexico and China also made for a challenging environment. This was not the easiest time to convince your bankers you wanted to expand production.”
Packer-owned hogs represented 34.4% of the overall supply reported through the Mandatory Reporting system in the first four and a half months of 2019. Steiner and associates said these hogs are only 92% of overall hog slaughter.
“If we assume the remaining hogs not reported are almost all producer hogs, then packer-owned share of U.S. hog slaughter this year comes to 31.8% compared to 28.8% during the same period a year ago,” they said.
Steiner and associates added the number of hogs traded on a negotiated basis continues to decrease.
“Participants continue to look at the number of hogs traded on a negotiated basis, but the supply of those hogs continues to shrink, and at some point one has to wonder how much market discovery is being done at that level,” they said, adding pigs sold through a negotiated basis is 17% lower than a year ago.