U.S. pork producers, still stinging from more than two years of losses, will reduce breeding inventories for the eighth consecutive quarter, analysts say.
Based on a Reuters’ survey of analysts, USDA’s Quarterly Hogs & Pigs Report is expected to show the March 1 breeding herd down about 2.7 percent from 5.99 million head in 2009. The report is scheduled for release at 2 p.m. Central time Friday.
The breeding herd, a harbinger of future pork supplies, has declined from year-earlier levels in every quarter since March 1, 2008, according to USDA figures.
Producers scaled back herds as hog prices slumped last year, partly because the Novel H1N1 2009 influenza virus outbreak (wrongly named “swine flu”) in the human population hurt U.S. pork exports.
As for the total U.S. hog inventory as of March 1, analysts expect it to be down about 1 percent from 65.82 million head a year earlier.
Herd contraction may continue for at least another couple of quarters, said Rich Pottorff, an analyst with Doane Advisory Services in St. Louis. Producers “have lost a lot of money over the past 29 months,” with industry-wide losses likely exceeding $5 billion, he added. “They won’t want to repeat the experience anytime soon.”
Additionally, concern over the potential for a spike in feed costs has producers reticent over expansion, Pottorff said.
“Everyone is aware of the risks of a wet spring or other adverse weather that could send corn prices sharply higher over the next few months,” Pottorff said. “Producers will want to feel a little more confident that corn prices will stay reasonable before committing to more hogs.”
Hog futures traded in Chicago have climbed much of this year in anticipation of tighter pork supplies. June lean-hog futures reached a contract high of 83.5 cents a pound on March 22. The contract ended trading on March 24 near 80.725 cents, up about 5.2 percent since the end of January. April futures ended near 71.125 cents, a low for the month.
On the CME floor, some traders suggested hog prices have further upside potential, particularly if demand picks up from China, Russia or elsewhere.
“The question is, have we slowed (herd) contraction too much,” said Jim Burns, an independent hog trader at CME. “There is concern we’re turning off the faucet too soon.”
Ron Plain, University of Missouri economist, estimates that the market hog inventory as of March 1 fell 1.2 percent from 59.83 million head in 2009.
Plain also expects USDA to revise downward its estimates for the Dec. 1 market hog inventory, June-through-August farrowings and the June-August pig crop.