Hog market baffled by inventory report

USDA's September inventory showed more hogs on hand than market expected, leaving industry with more questions than answers.

WHEN the U.S. Department of Agriculture reported a national hog inventory as of Sept. 1 that was essentially unchanged from the same period a year ago, it succeeded in confounding an entire industry.

Economists and analysts had summarily predicted a much smaller market hog inventory and an expanding sow inventory, neither of which came to pass.

The September "Hogs & Pigs" report left the market with more questions than answers because the data contradicted the average of analysts' pre-report expectations in every single category (Table). The total inventory, which was expected to fall 1.4%, actually increased 0.3%, and the breeding herd only grew by 0.4% despite an expectation for a 1.5% expansion.

"USDA pegged the supply of market hogs at 62.546 million hogs, 0.3% larger than a year ago. This was outside the range of pre-report estimates and emphatically contradicts the view that hog supplies on the ground are lower than a year ago," economists Steve Meyer and Len Steiner wrote.

Given a 3.5% reduction in the inventory of hogs weighing more than 180 lb., the economists said hog slaughter in the next two weeks should increase significantly as slaughter during September was down 7.7% compared to the same period last year.

"If producers truly are behind in their marketings, we should see a significant acceleration in hog carcass weight gains, especially with cooler weather and fresh corn available in October," they wrote.

The supply of hogs due to come to market between mid-October and mid-January was up between 1.0% and 1.5% compared with last year, suggesting that assumptions made regarding porcine epidemic diarrhea virus followed the old cliché about making assumptions.

The number of pigs saved per litter last quarter was actually 2% larger than the same quarter last year, coming in at a record-high 10.33 and marking a second consecutive quarter where pigs per litter set a new record.

So, where are these additional market hogs, exactly? That was a key question the market pondered last week, since hog slaughter has been running well behind last year.

Purdue University economist Chris Hurt said there are a variety of factors that could underlie the apparent discrepancy between slaughter data and the Sept. 1 inventory report.

"One involves the very nature of the way the industry evaluates numbers, and that is by comparing this year's slaughter to the slaughter for the same period one year ago," he said. "When numbers viewed in this manner appear unusual, it can be because of aberrations this year, but it can also be due to aberrations in the numbers a year ago."

In other words, it's all relative.

"What is being viewed as a very low slaughter level this year may be due to an aberration in the slaughter numbers a year ago," Hurt explained. "The unusually high slaughter in the late summer of 2012 was being driven by the drought and its impact on hog slaughter numbers."

The situation for producers is much different this year, of course, with much more moderate weather conditions leading to far more favorable feed prices. While USDA is closed for business, it will be difficult for the market to assess if more hogs are actually coming to market.

"The 'Hogs & Pigs' report suggested that a larger-than-expected number of market hogs will be coming to slaughter in the next four to six weeks," Farm Progress analyst John Otte said. "Now, market fundamentalists will be attempting to ascertain if the hogs are really out there. The lack of USDA daily slaughter data makes that assessment more challenging."

Using a combination of USDA's data and private industry surveys conducted by Dow Jones, it appeared that slaughter was running fairly close to year-ago levels through last Thursday.

Perhaps the biggest surprise, however, was the relatively small increase in the size of the breeding herd. Given the much better fundamental outlook for pork producers — stellar cash hog prices and sharply lower feed costs — the market had anticipated an industry in full expansion mode.

Instead, the report indicated a herd only 0.4% larger than last year.

"This would be consistent with an industry that has not yet had time to expand the herd," Hurt said. "Expansion of 1-2% can be expected to be revealed in the December and March 2014 inventory counts."

He said sow slaughter data over the previous seven weeks indicated a 20% drop from the drought-induced liquidation during the same period in 2012. Regardless, he cautioned against dismissing USDA's inventory numbers despite the tendency for some market watchers to second-guess USDA.

"The best information the market has is the USDA inventory counts in this report," Hurt said. "USDA has a near-census of large operations that are accounted for and surveyed more than 7,500 producers for the current report."

Hurt projected that slaughter will remain steady in October and increase roughly 1% in November and December. For 2014, slaughter numbers will likely grow 1% in the first quarter before ramping up 2-3% in spring and summer, with slaughter weights getting heavier as feed costs improve.


USDA Sept. 1 hogs and pigs results versus analyst estimates, % of year ago









All hogs and pigs on Sept. 1




Kept for breeding




Kept for marketing




June-Aug. pig crop




June-Aug. pigs per litter




June-Aug. farrowings




Sept.-Nov. farrowing intentions




Dec.-Feb. farrowing intentions




Hogs less than 50 lb.




Hogs 50-119 lb.




Hogs 120-179 lb.




Hogs 180 lb.-plus




Sources: USDA, Dow Jones.


Market recap

Without the USDA pricing reports, buyers were fairly cautious in the hog markets last week. Cash hogs appeared to be mostly steady last week, based on anecdotal reports and some private industry survey data.

As of last Monday, Agricultural Marketing Service data showed weighted average base prices holding at $89-90/cwt.

In the futures trade, October lean hogs on the Chicago Mercantile Exchange slipped $1.50 from Friday through last Thursday, although the December contract was more or less steady with Friday's close at $87.72.

"Without the USDA market reporting mechanism, price discovery in the hog complex has been frozen," Meyer and Steiner wrote last Friday. "While some private market reports exist, one needs to be careful and take into account the inherent structural pricing difference between them and the USDA values."

Cash cattle also appeared to be holding mostly steady, with reports from the countryside indicating light trading near $125/cwt. As with hogs, the lack of USDA data is putting the brakes on much in the way of aggressive marketing.

Urner Barry's "Yellow Sheet" reported that beef product movement has been on the light side and estimated a Choice cutout of $191.60 last Wednesday, down slightly from its Monday quote of $191.87 and further below USDA's Monday quote of $193.25.

Heeding Meyer and Steiner's warning about the structural differences between private market reporting and USDA's system, this should not necessarily be viewed as a $1.65 drop in the cutout but, perhaps, an inherent "discount" in the very fabric of the different reports.

Live cattle futures softened through last Thursday, hitting $127.02 on the October contract. Feeder cattle futures were essentially unchanged. 

Volume:85 Issue:41

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.