Jim Long Pork Commentary, U.S. Hog Inventory Continues to Plummet Here Come $1.20 Lean Hogs, October 3rd 2022

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Last week the USDA released the September 1 Hogs and Pigs Report:

2020 2021 2022 2022 as a percent of 2021 2022 as a percent of 2020
(1,000 head)
Kept for breeding 6,333 6,190 6,152 99 97
Market 72,766 68,677 67,648 99 93
Under 50 lbs. 22,559 21,690 21,343 98 95
50 – 119 lbs. 20,490 20,211 19,887 98 97
120 – 179 lb. 15,547 14,246 14,073 99 91
180 lbs. and over 14,169 12,529 12,345 99 87
Sows Farrowing
June – Aug 3,260 3,050 3,018 99 93
Sept – Nov 3,165 3,049 2,973 98 94
Pig Crop
June – Aug 36,056 33,944 33,581 99 93

 

The U.S. breeding herd continues to decline. It reached its recent peak in December of 2019 at 6.471 million. This September USDA report 6.152 million. An almost steady decline over the last three years to over 300,000 less (-4%). A reflection of the general lack of profitability in the industry. Less sows mean less hogs.

The decrease in sows is reflected in market inventory with the September 1 report indicating 5.118 million fewer hogs (-7%) than in September 2020. Compared to last September 1 about 1 million fewer. We expect the current market inventory will result in 200,000 fewer hogs per week over the next 6 months compared to 2020.

USDA also projects fewer sow farrowing’s in the future.

Summary

Less sows, Less markets, Fewer sows to farrow, Less supply of hogs. This is bullish.

We thought it would be interesting to look at where the breeding herd inventory of each state has evolved since September 2019

September 1 Breeding Herd
(1,000 head)
2019 ranking 2019 size 2022 size 2022 ranking
1 Iowa 1,030 930 1
2 North Carolina 900 820 2
3 Minnesota 580 510 4 (tie)
4 Illinois 560 590 3
5 Missouri 470 430 6
6 Nebraska 450 410 7
7 Oklahoma 450 510 4 (tie)
8 Indiana 260 250 9
9 South Dakota 245 300 8
10 Ohio 190 190 10
11 Kansas 170 160 12
12 Colorado 155 125 14
13 Texas 150 170 11
14 (tie) Michigan 120 110 15
14 (tie) Pennsylvania 120 140 13

 

 

 

 

 

 

 

 

 

 

 

The big decline in the breeding herd has been in Iowa, North Carolina, and Minnesota. The growth in Oklahoma and South Dakota. Probably lots of reasons for the decline some due to the health of herds. Feed costs in North Carolina, Oklahoma, and South Dakota has relative isolation and demand for market hogs. When all is said and done few quit pig production when they are making money. The general erosion of the U.S. pig inventory is a reality of a lack of profits.

 

Other Observations

U.S. market weights in latest report 280.3 lbs. a year ago 283.5 lbs. 3.2 lbs. lower. They are reflecting the current market inventory.

U.S. sow slaughter in August was 273,020, a year ago 257,800. The week of September 17 was 65,727. Sow slaughter in our opinion indicates no sow herd expansion, maybe in continued sow herd contraction

The September USDA Hogs and Pigs Inventory Report sure indicates that the U.S. Quarterly Pork Production Projection indicating an increase in Pork Production in 2023 is wrong.

USDA Quarterly Production
(million pounds)
2022 2023
Quarter 1 6904 (actual) 7000
Quarter 2 6639 (actual) 6545
Annual Projection 27,133 27,520

 

The USDA has been projecting about 400 million more pounds of pork in 2023 than in 2022. We find that hard to believe with less sows and hogs in inventory. USDA projections are 2 out of 3 times overestimating supply in Pig Report which is always to the detriment of production as it drives down expectations and gives futures traders a reason to bad mouth the market.

Market Prices

June lean hogs are at 96.625 and close on Friday. Lean hogs reached over $1.20 this summer and the previous summer. There are significantly less hogs in inventory now than the last two years. Only the insanity of futures trading could lead one to believe that June will be 96¢ in 2023. Other Observations.

  • China released 200,000 tonnes of Pork Reserves in the first 3 releases. China produced 53 million tonnes of pork in 2021. 200,000 tonnes are next to nothing in a market of 1.4 billion people. It’s why the hog price in China continues to climb. Last week 24.59 RMB/kg ($1.56 lb.) was up from 23.56 RMB/kg on the first of September. China will be importing pork; the release of pork reserves is the government’s attempt to hold down price. It will slow it but the lack of hogs can’t be overcome.
  • Mexico bought 23,750 tonnes of pork in the latest data week. The largest amount since July 2021. I have done business in Mexico for decades. Usually, the price of market hogs is about 10¢ lb. higher in Mexico than in the USA.

Last week in Mexico it was liveweight $1.02 U.S. lb. (45 pesos/kg). In the USA price was 73¢ lb., 29¢ lb. difference. The reason for the big export sale. That spread will pull massive levels of pork into Mexico. Trucks will be rolling.

Summary

There is much talk of the economy, currency, and inflation cutting pork demand. Maybe? When we look at hog profitability over the last 40 years there is little correlation between the hog cycle and the economy. One example is 1983 which had 13% inflation – 17% interest rates – Iowa state farrow to finish profitability that year over $40 per head. The key to us is the continued liquidation of hog supply in the USA, Europe, and China – 75% plus of the world’s production. There will be less pork which will push prices higher. Supply – demand – attitude – 96¢ lb. June futures – a terrible travesty – $1.20 June futures write it on the wall.