Analysts anticipated a drop in the U.S. hog inventory in Friday’s quarterly update, and the USDA didn’t disappoint. In its Quarterly Hogs and Pigs report, the USDA showed U.S. hog inventory down 3 percent from March 2013 and 5 percent from December.

Doane Advisory Service's Dan Vaught called the report "bearish" at first glance, "since most numbers topped industry forecasts."

Market inventory dropped by 4 percent from 2013.

Some of the highlights of the report, as shown in the Daily Livestock Report include:

  • "If the spread of PEDv is the main reason for the decline in hog inventories, then it would be reasonable to expect hog numbers in the lighter weight categories to be lower. One big inconsistency in the report is the pig crop for the period Sep - Nov, down just 0.1% from the previous year, and the decline in the supply of hogs 180 pounds and over (-4.8%)."
  • "In addition to the larger breeding herd, producers also indicated that they expect farrowings during the Mar - May and Jun - Aug quarters to increase by 2.4% and 2%, respectively. The larger than expected breeding herd and the larger farrowings certainly hold bearish implications for later in the year as well as Q1 2015 pork supplies."
  • "Improved profitability for those producers that have not been impacted by PEDv would certainly drive both the increase in total sow numbers as well as the ratio of sows farrowing. Still, the increase in the overall breeding stock appears surprising following reports of widespread PEDv impacts during the Dec - Feb period, including PEDv cases in operations that specialize in producing replacement gilts."

Read the Daily Livestock Report here.

Vaught points that PEDv outbreak also cut the number of pigs saved per litter by 5 percent.

"The big winter farrowings result at least partially offset the big drop in litter sizes.  That is, the PEDV outbreak apparently cut the number of pigs saved per litter by 5% from 10.08 in winter 2012/13 to 9.53 in the December 2013-February 2014 period," he wrote in a Doane summary.  "When combined with the stated 3% jump in sows farrowing, the net was a 3% drop in the size of the winter pig crop.  That modestly exceeded the average of industry forecasts at 96.4% of last year."

Vaught also warns what it could mean for the rest of 2014 as well as 2015.

He wrote, "The deep deferred contracts for late 2014 and 2015 may also suffer as a consequence of the report, since the farrowing numbers clearly topped expectations.  Traders are probably going to take the winter farrowings estimate at 103% with a grain of salt, but if that figure is proven accurate by relatively large spring and summer slaughter numbers, ideas that spring and summer farrowings were also surprisingly large may also signal relatively large fall and winter slaughter totals.  That could be especially true if the industry is correct in thinking that the return of warm weather will cut PEDV infection rates."

Read Vaught's fully analysis here.