June 23, 2011

 

US swine herd to stay consistent amid high feed costs

 

 

The USDA is expected to announce limited change in the size of the nation's swine herd this spring as near-record towering feed costs stopped producers from expanding their herd.

 

The agency is scheduled to release its quarterly hogs and pigs inventory report on Friday (Jun 24).

 

The total number of hogs and pigs as of June 1 was 64.715 million head, only about 0.1% above a year ago, according to the average prediction of eight analysts in a Dow Jones Newswires survey.

 

The survey results are 0.3% below the five-year average of 64.9 million head. Its range put the size of the herd from 0.3% below to 0.9% above last year's inventory level. Analysts expect the data to show the herd grew 1.2% over the last three months from 63.964 million as of March 1.

 

Keeping supplies in check are feed costs, with futures for corn hitting a record just below US$8 a bushel earlier this month. It is also too soon to tell what feed prices are going to look like for next year since this year's corn crop is just starting to develop, said an agricultural economist.

 

Analysts expect grain prices in the near term to keep producers from expanding, especially if hog prices pull back and corn prices remain strong, leaving producers with weak profit margins.

 

"Clearly, higher corn prices will push up hog producers' feeding costs and erode feeding margins," said an analyst with Linn Group. "High corn prices are expected for the remainder of this marketing year and for most of the next one."

 

In late March and early April, lean hog futures were at record highs with the summer contracts all reaching more than US$1 a pound. At that time, producers would have been able to lock in wide profits for the summer, estimated at around US$30 a head, said the director of research at Allendale Inc.

 

Being able to lock in profits at that time despite the high feed costs may have led to the addition of some gilts, or young females, to the breeding herd, as some producers look to expand to take advantage of strong hog prices, he said.

 

Yet by June 1, the summer hog futures contracts had fallen by 13% to 15% while corn remained high, dimming the outlook for producers, the director said.

 

The average prediction of analysts puts the US inventory of sows and gilts kept for breeding at 100.1% of a year ago, with estimates ranging from 99% to 100.8%. The breeding herd continues to hover just above its all-time low set in March 2010.

 

Analysts surveyed on average expect the pig crop from March through May to be down 0.5% from a year ago despite continued gains in sow productivity, or the number of healthy piglets a sow produces. Expectations for a modest decline in the pig crop is driven by the USDA forecasting in its March report a 2.6% reduction in farrowing intentions from March through May.

 

Analysts' estimates of hogs kept for marketing averaged 0.1% above a year ago and ranged from 0.3% below to 0.9% above last year's levels. Based on the various weight breakdowns, slaughter supplies are expected to be at or slightly above a year-ago through the summer then slip slightly below year-ago levels by mid-September or October.