November 12, 2007

 

US hog supply versus prior year seen sizeable in 1H 2008

 

 

Growth in US hog supply, compared with year-ago levels, is expected to extend beyond this quarter and be sizeable through the first half of 2008 and possibly beyond.

 

Analysts' projections for US hog slaughter in the first and second quarters of 2008 vary from around 2 percent to 4 percent above the same periods in 2007.

 

The US Department of Agriculture's weekly slaughter figures since mid-September have averaged about 6.3 percent above a year ago. In the latest six weeks, the average increase is nearly 7.3 percent.

 

In its latest quarterly hog and pig report released September 28, the USDA's marketing hog data showed an increase of 3 percent from a year ago as of September 1. Weekly slaughters since that time have had a rate of increase about double the projected amount.

 

Market analysts and agricultural economists said the hefty growth in slaughter rates this fall is the result of increased availability of vaccines for porcine circovirus associated disease. Until the vaccines became more widely accessible this past summer, the disease had caused large death losses of growing pigs at some farms since late 2005. The extent of the losses was difficult to estimate, however, because producers are not required to report the disease to animal health authorities. Anecdotal reports indicated that death losses were as high as 30 to 40 percent at some facilities.

 

Successfully controlling the circovirus disease and little to no reduction in the US swine breeding herd so far suggests that hog supplies will continue to be well above year-ago levels into 2008. But because some producers were able to get vaccines in late 2006 and early 2007 while others were not, the year-on-year slaughter comparisons during the first half of 2008 may show variable rates of increase.

 

Rich Nelson, analyst with Allendale Inc. in McHenry, Illinois, said the sustained larger-than-expected slaughter rates this fall have caused him to revise projections made at the end of September for hog supplies in the first and second quarters of 2008. He now expects January-March slaughter to be 3.5 percent above the previous year, up from 2.4 percent projected earlier. The second quarter slaughter could be up 2.7 to 2.8 percent, compared with his earlier forecast of 2.1 percent.

 

Dave Bauer, owner/analyst with Brite Futures, projects first half 2008 slaughters to average from 3 to 4 percent above the same period this year. There has been a drastic reduction in circovirus death losses, he said.

 

There may be a reduction in imports of pigs and slaughter hogs from Canada next year, compared with this year, because of herd downsizing there, Bauer said. This could provide some relief to the growth in hog supplies available to US packers.

 

Federally inspected slaughter data through last week show hog supplies since the end of September have been running about 2.7 percent above the earlier expectations that were based on the quarterly hogs and pigs report, said Ron Plain, agricultural economist at the University of Missouri.

 

Folding in the recent huge slaughters and record figure for October into his projection for the fourth quarter, Plain expects a 6.35 percent increase from the same period in 2006. The quarter this year has one extra work day, versus a year ago, which would account for approximately 1.5 percentage points of the growth, he said.

 

Looking ahead, Plain foresees first quarter 2008 slaughter up 3.6 percent from a year ago and second quarter up 2.3 percent.

 

Bob Brown, private analyst in Edmond, Oklahoma, said the majority of the growth in slaughter rates in recent weeks is from domestic supplies. Weekly totals so far in the fourth quarter are up about 150,000 head, and only about 9,000 of the weekly increase originated in Canada.

 

Brown also expects first half 2008 hog supplies to be above the previous-year figures based on the September hogs and pigs report. He, like many others, has upwardly revised his estimate for this quarter's slaughter, by 1.7 percent to 5.2 percent, following the record numbers processed in October and continuation into November.

 

Market analysts said export sales as well as monthly cold storage stocks are wildcards that could affect hog prices the balance of this year and into 2008.

 

With record large pork production this year and hog supplies expected to remain huge for the foreseeable future, exports must continue to be strong if hog prices are to avoid a major breakdown, analysts said.

 

Lean hog futures and cash prices have already declined sharply this fall under pressure from the huge supplies. December lean hog futures on the Chicago Mercantile Exchange Thursday closed at 51.47 cents, down 23.23 cents, or 31 percent, from the contract high hit on August 3. Cash hog prices are the lowest since December of 2003.

 

The analysts said monthly cold storage stocks may provide an indicator on export sales as well as domestic demand for pork. If pork stocks in cold storage warehouses begin to pile up, it could be an indicator that either export sales have slowed or domestic demand has diminished.