Pigs feeding

Editor’s note: The following was written by Jason Franken, with Western Illinois University, for the University of Illinois farmdoc daily March 30.

Small surprises in the USDA Hogs and Pigs report, on their own, are not as impactful as the COVID-19 situation has been and may be for a while.

The report pegs the March 1 inventory of all hogs and pigs at 77.6 million head, a record for this quarter and up 4% from a year ago compared to pre-report expectations of 3.5% higher.

The number of pigs weighing less than 180 pounds was nearly 6.5% larger than the inventory a year ago. The larger pig crop should imply a larger slaughter this summer.

The larger pig crop also reflects a new record of 11.00 pigs saved per litter, on average, for the December-February period compared to 10.70 pigs per litter last year, continuing the upward trend with an average rate of annual increase of 1.35% over the last decade.

As the U.S. and world economies slow, cold storage is starting to build. According to last week’s USDA cold storage report, there’s plenty of meat to go around. Although stocks of poultry are 4% lower than a year ago, stocks of red meat are up 5% with several pork cuts, including loins and bone-in picnics, up more than 25% — and bellies in particular at 38% above year ago levels.

Accordingly, prices for bellies were nearly 50 cents/lb., the lowest they’ve been since 2008, while loins exceeded $1/lb. for the first time since 2015.

While the Restaurant Performance Index report coming out will likely be negative, grocery demand has surged as people stock up to remain healthy at home. Yet it’s questionable whether that level of grocery demand will hold in the near term.

The USDA has revised downward its forecast of U.S. annual pork consumption by 1 lb. to 51.6 lbs. per person in 2020 after reaching 52.3 lbs. in 2019 or the highest it has been since it was 54.2 lbs. in 1981.

The U.S. exported almost 663 million lbs. in January, about 39% ahead of that point last year, almost entirely due to large exports of 203 million lbs. to China — or seven times more than last January — and 156 million lbs. to Mexico, the most since May 2018 when Mexico accelerated imports of U.S. pork in anticipation of retaliatory tariffs later that year.

China’s cancellation of 45,222 metric tons of pork shipments in early March brought concerns, as China had reportedly just peaked in COVID-19 infections in February. Since then, China has purchased much of that pork back.

The USDA’s weekly export report lists exports to China at just over 23,000 metric tons for the seven days from March 12-19, the highest for 2020 and 47% above the weekly average for the preceding weeks of the year.

Based on early statistics, the USDA estimates first quarter U.S. pork exports to be 1.9 billion lbs., or 31% higher than last year, and forecasts U.S. pork exports in the last three quarters of 2020 to be, respectively, 16%, 19% and 25% greater than last year.

With uncertainty surrounding the duration and impact of the COVID-19 epidemic, there’s still the possibility of profitable hog prices in 2020, even though first quarter prices, on a carcass basis, are averaging around costs of production in the low to mid $60s (about mid to upper $40s live equivalent).

Seasonally, hog prices have jumped 10%-12% from the first to second quarter on average over the last five years. In anticipation that COVID-19 concerns persist for another month or so, this forecast errs toward the lower end of that range, with a projected second quarter price around $69.19/cwt.

Hog prices for the third and fourth quarters of 2020 are forecast to be around $74.62/cwt and $63.69/cwt and dip to $62.31/cwt for the first quarter of 2021.

Of course, if negative impacts of COVID-19 on the economy and pork purchases persist longer, and if continued export demand from China doesn’t materialize, then U.S. hog prices would likely fall short of these projections.