While pork industry observers expected a big push by producers to liquidate sows, it just does not seem to be happening. Instead, it seems that the new mantra for many producers is “hold on until spring.”
Purchase data the past two weeks imply federally-inspected sow slaughter levels of 60,730 head and 60,930 head, or 3.6 percent and 7.8 percent, respectively, below the levels of one year ago, according to the CME Group Daily Livestock Report (DLR). “That is not what is supposed to happen when producers lost an estimated $52 per head in September and are expected to lose an estimated $31 per head for each hog sold in the fourth quarter.”
One explanation is that these losses are not being realized, at least not by larger operations. Savvy risk management practices are playing an important role in limiting losses many observers believe are plaguing the industry. “Producers are much more active in managing input costs and selling prices than before and are not, in general, suffering losses near this large,” according to Steve Meyer and Len Steiner, authors of the DLR. The authors add that the breeding herd reduction expected by many will likely not happen in the next couple months.
“The futures market keeps signaling producers to try to hold on - and maybe have a lot of hogs ready for market by April or later,” says Rich Pottorff, chief economist, Doane Agricultural Services. “If that is the case, prices next spring may not be as high as currently suggested.”
However Pottorff remains positive that profitability will return. “Unless corn prices move significantly higher, producers should see a return to profits next spring. With cash prices above $90 per hundredweight or so we should be able to get there unless we have a lot more hogs than expected.”
The most recent USDA Quarterly Hogs & Pigs report indicated that producers will be farrowing fewer sows in coming months. September-November 2012 farrowing intentions were lowered to 2.85 million, almost 2.7 percent lower than in 2011, and the December-February 2013 farrowing intentions were 2.821 million.
However, a new record level of 10.13 pigs per litter also was recorded in the report and producers may still wind up producing more hogs than expected. Pottorff believes that the current sow productivity trend will continue. “Litter size will continue to increase, probably by more than 1 percent unless we have a stretch of bad weather,” he says.