Pork carcasses hanging in cooler marina_karkalicheva/iStock/Thinkstock

No surprises as hog inventory grows, expansion continues

New pork processing plants facing normal start-up challenges.

The U.S. Department of Agriculture’s latest “Hogs & Pigs” report came out much as expected, indicating more hogs and continued expansion.

The U.S. inventory of all hogs and pigs on Sept. 1, 2017, was 73.5 million head, rising 2% from Sept. 1, 2016 and 3% from the June 1 report. This number was mostly in line with the average pre-report estimate for a 2.5% increase.

The breeding inventory held no surprises, at 6.09 million head, which was 1% higher than last year and exactly what analysts had expected. The number was up only slightly from the previous quarter.

The market hog inventory was 3% higher than last year, at 67.5 million head, while analysts had expected a 2.6% increase. The inventory was also 3% higher than the last quarter.

The June-to-August 2017 pig crop, at 33.0 million head, was up 2% from 2016, as expected. During this period, 2% more sows farrowed than last year, at 3.10 million head -- 1% higher than analysts had expected. The sows farrowed during this quarter represented 51% of the breeding herd.

The average number of pigs saved per litter was a record high of 10.65 for the June-to-August period, compared to 10.58 last year. Pigs saved per litter by size of operation ranged from 7.80 for operations with 1-99 hogs and pigs to 10.70 for operations with more than 5,000 hogs and pigs.

Farrowing intentions for the September-to-November 2017 quarter came in at 3.07 million sows, up 1% from actual farrowings during the same period in 2016 and up 5% from 2015.This was near pre-report estimates. Intended farrowings for December to February 2018, at 3.02 million sows, are up 1% from 2017 and 3% from 2016. Analysts had expected only a 0.1% increase.

The total number of hogs under contract owned by operations with more than 5,000 head, but raised by contractees, accounted for 47% of the total U.S. hog inventory, unchanged from the previous year.

USDA reviewed all inventory and pig crop estimates for September 2016 through June 2017 using final pig crop, official slaughter, death loss and updated import and export data. The net revision made to the September 2016 all hogs and pigs inventory was 1.3%, while the net revision made to the March 2017 all hogs and pigs inventory was 0.4%. A revision of 0.8% was made to the December-to-February 2017 pig crop, and a revision of 0.3% was made to the June 2017 all hogs and pigs inventory.

Analysts’ reactions

Ron Plain, professor emeritus with the University of Missouri-Columbia, specifically pointed out that the report marked the 12th quarter out of the last 13 quarters in which actual farrowings have been larger than farrowing intentions.

He said he’s not blaming USDA but said he wonders if it is necessary to start taking farrowing intentions with a grain of salt.

“The industry is doing very well on breeding and reproduction and tends to end up with a few more pigs than farrowing intentions might cause us to think we’ll have,” Plain said.

In reaction to the report, Altin Kalo, senior analyst for Steiner Consulting Group, pointed out that USDA’s numbers suggest that slaughter numbers for October through December should be around 2.9% higher, but he said it begs the question of whether to view this as valid or if it's necessary to look back at the last two weeks and adjust accordingly. Nonetheless, he said even though the inclination may be to discount these numbers, “we’ve seen slaughter numbers pick up.”

Slaughter number in early 2018 should be 2% higher than a year ago, Kalo suggested. After seeing the farrowing numbers, he added that slaughter numbers next summer could also be expected to be up 2%.

As for what the USDA numbers mean for prices, Plain said forecasts will not likely change much. He expects Iowa/Minnesota hog prices in the fourth quarter of 2017 to be around $50-54/cwt. For 2018, Plain expects prices to be at $58-62 in the first quarter, around $68-$72/cwt. in the third quarter and $67-71 in the fourth quarter.

“Despite more hogs, hog prices next year will be comparable to this year,” he said.

Kalo forecasted Iowa/Minnesota hog prices to be $54/cwt. for the fourth quarter of 2017, $62/cwt. for the first quarter of 2018, $74/cwt. for the second quarter, $73/cwt. for the third quarter and $56/cwt. for the fourth quarter.

In terms of margins, Plains said crop corn prices have been very kind to the industry and have been “a big factor in driving the growth" in the industry.

Plain said producers will turn a profit this year, and this will continue next year, which he explained is why the U.S. continues to see an increase in farrowing numbers.

Kalo pointed out, “Sometimes, we get lost a little bit in the increases in production and how much more pork is coming at us. I think we forget the fact that a lot of this pork is actually going to the consumers and getting used up. Now, it’s taking somewhat lower prices to get that done, but those lower prices still have been profitable for the producer.”

The export markets are absorbing a fair amount of this pork as well, Kalo said.

“I think the increase in production is fine, but I think that demand for pork is pretty good, which has allowed producers to stay profitable through this expansion,” he said.

Overall, Plain said the report shows that the industry continues to grow, and while profits aren’t what they weren’t in 2014, the bottom line is that the industry is “alive and well.”

Kalo also said the report shows an industry that's growing, but at a measured pace, which is allowing it to avoid some of the pitfalls of the past.

“We used to have very large expansions and then very large declines, as well,” he explained. Kalo added that this measured growth has “bade well for producers, and it’s bade well for packers as well.”

Processing plants update

Steve Meyer, told Feedstuffs that while the new Iowa and Michigan pork processing plants are both up and running, they have faced some normal challenges associated with beginning operations.

“They have both run into the normal kinds of things when you start trying to make a highly technical piece of equipment start working,” he said.

Adequate labor for their first shift is in place, and workers are learning their jobs as they go along, Meyers added.

Last week, Seaboard Triumph Foods (STF) reported that it was up to about 12,000-13,000 head per week, or 2,500 per day.

Clemens Food Group in Coldwater, Mich., on the hand, was up to about 20,000 hogs last week.

“They will continue to ramp up,” Meyers said.

The expectation is that STF will be to full capacity in the December 2017 to January 2018 time frame, at 10,200 head per day. The Clemens Food Group-Coldwater plant will be at full one-shift capacity later than that, Meyers said. The company anticipates a January to February 2018 time frame for 12,000 head per day, but that could happen as late as March.

“It’s just kind of a normal ramp-up," Meyers said. "We haven’t heard of any big issues.”

According to Meyers, another development has emerged at a plant in Pleasant Hope, Mo., that came on line last year. It has been running into moisture issues in its coolers.

“They did some major work on that just this last week. Hopefully, it solved that,” he said.

The plant has processed approximately 1,000 head per day but has the capacity to process 2,500 per day.

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