Late summer and early fall hog slaughter fell well below expectations based upon recent USDA Hogs & Pigs reports, thereby playing a major role in boosting swine and pork prices to record highs for this time of year. Industry analysts are trying to divine the underlying causes of the supply shortfall and their implications for the late 2013-2014 price outlook.
Although the ongoing spread of the Porcine Epidemic Diarrhea Virus (PEDv) seems likely to reduce market hog numbers in late 2013 and early 2014, it’s difficult to blame PEDv for the recent decline. It may have killed a few more feeder pigs than was anticipated, but it is mostly deadly for weanling piglets. Indeed, a prominent industry analyst made the latter point in a widely touted item published this week.
He blamed the quality of the feed left from the 2012 grain/soy harvest, as well as surprisingly droughty late-summer 2013 conditions, for the bulk of the late shortage.
He also argued that producers were delaying sales of market-ready animals in late October in hopes of getting higher prices for those (heavier) animals. The following chart offers considerable evidence to back up this contention.
Hog weights were clearly running well above year-ago levels in early summer, but underwent a relative decline when the numbers shortage was most severe in early September. Industry analysts didn’t realize that weights were rising so dramatically during early October, since the government shutdown caused the USDA to suspend publication of numerous livestock reports.
Ultimately, this suggests the supply of market-ready animals is much larger than was the case in early autumn, with the underlying implication that slaughter rates and pork production could accelerate in early November. That might prove especially correct if the USDA was correct in implying late-2013 hog supplies will average about 1 percent over levels seen in November and December 2012.
On the other hand, questions concerning potential winter and spring hog supplies are growing. The following chart shows the number of U.S. farms reporting cases of PEDv has accelerated upward with the arrival of autumn conditions.
Indeed, the latest weekly total, at 68 operations, easily topped the spring high. The fact that a large percentage of those cases are occurring in North Carolina is also worrisome.
However, while veterinarians have counts of the types of farms being affected, the industry still has a very poor handle on the size of those farms, the number of pigs affected and the size of piglet death losses.
Traders and farmers still expect to see the first evidence of the disease outbreak in early December and anticipate persistent supply reductions through winter. However, the latest surge in cases suggests the losses will grow next spring and makes one wonder if they’ll spike upward during winter.
These developments largely explain the large gains posted by deferred futures this week. Indeed, increasing case totals might send the summer 2014 contracts even higher. Nevertheless, industry participants should also keep the September USDA Hogs & Pigs report in mind, since it seemed to find very little evidence that the PEDv outbreak had affected litter sizes or the size of the U.S. pig crop last summer.
For example, it stated the average size of summer litters at 10.33 pigs saved per litter (2 percent larger than the comparable 2012 total). That average also represented an all-time quarterly record.