Strategy Update:  We still hold a few April hog hedges and have protected 15 percent of May-June marketings.  We’ve also covered 25 percent of expected third-quarter sales. We now suggest adding another 15 percent to third quarter coverage via the sale of August futures above 121.00 cents/pound.

The March 28 Hogs & Pigs report seemed bearish, since most of the USDA numbers topped expectations.  For example, industry analysts expected the number of market hogs on farms as of March 1 at just 94.1 percent of last year, but the stated figure came in at 96.3 percent. 

The December-February pig crop fell 2.8 percent below the winter 2013 total, whereas a 3.6 percent reduction was anticipated.  Moreover, the weight breakdown of the market hog population looked decidedly bearish for the summer price outlook.

Nevertheless, CME lean hog futures held up quite well after suffering a sharp drop Monday morning.  Ultimately, the USDA’s recent habit of overestimating hog numbers and widespread pre-report talk of much larger piglet losses to PEDV, seemingly caused the industry to doubt the USDA figures. 

The March price spike seemed greatly exaggerated even when the large supply reductions were taken into account, but would almost surely be the case if the USDA results are accurate.

Hog slaughter totals over the next 2-3 weeks could provide a quick verdict on the USDA data.  That is, the report implied kills during March and early April would average about 5 percent comparable 2013 rates, but the totals posted over the past four weeks average 6.7 percent under last year. 

If the USDA is correct, that implies about 150,000 extra hogs could be coming to market in the days ahead.  Moreover, early-April 2013 kills averaged 101,000 head fewer than during March.  This suggests short-term totals will fall only modestly below last year than was the case last month and might depress prices. 

If the annual difference remains extremely wide or widens further, that would suggest the USDA estimate was too high and offer confirmation of bullish views.