The U.S.D.A. released their quarterly hog inventory report last week for December 1.
U.S.D.A. December 1 Quarterly Hog & pigs (1000 head)
The breeding herd on December 1 was 6,326,000. Six months earlier on June 1 it was 6,320,000. Virtually no expansion the last 6 months. A reflection in our opinion of an industry that has not been profitable. In our opinion there is next to no expansion currently underway. You have to look far and wide to find a new sow barn under construction. While sow slaughter is quite aggressive.
The U.S.D.A. market hog inventory is up 1.3 million head from a year ago. If accurate about 50,000 a week more market hogs come to slaughter over the next 26 weeks, year over year.
It will be interesting if we even have all these hogs. The September U.S.D.A report seems to have overestimated market hogs. Current market hog weights are around 4 lbs. lighter than a year ago. We expect either slaughter weights will continue to decline or weekly hog’s marketed drop in the new year. We expect lean hogs to get to mid-60’s in January. Strong demand for small pigs either early weans or feeder pigs is a current indication of finisher space availability and optimism. Last week U.S.D.A cash average early weans $66.46 40 lb. feeder pigs $75.10.
There will be no shortage of packer capacity in the near future. Last week the U.S. had a record kill of 2,737,000. A reflection of packer capacity and margins. Soon the new Prestage Plant in Iowa will add 50,000 a week to total capacity, while the purchase of the Hormel Fremont Plant by a producer group lead by Pipestone will ensure continued operation of that older facility.
In our opinion the December report provides details re: inventory that are positive for 2019. Already Lean Hog Futures for 2019 would indicate strong profits. Our belief is that potential export opportunities especially to China due to A.S.F. could lead to lean hogs into the 90’s and reaching 100 in the summer.
A reflection of internal ASF border controls in China is the wide disparity between provinces i.e. prices.
There are definitely winners and losers depending on location in China. Sichuan a major hog producing province has excellent prices, while Liaoning is sucking air. On a 250 lb. market hog the spread is $180 per hog?
In Sichuan they are making $100 plus per head while in Liaoning losing $50 plus.
We expect areas like Liaoning will have significantly decreased production in the coming months. We expect China’s hog prices to rise from the current average near 14 to the 20 RMB range by summer. As hog supply diminishes from combination of ASF and government policy restricting small farms. It is estimated that 40% of Chinas production is operations with less than 500 head.
Have a Merry Christmas
“May you never be to grown up to search the skies on Christmas Eve”.
We are an Industry of optimism and faith in the future. We wouldn’t do what we do if we weren’t.