Heading into today's June Hogs & Pigs Report, hog futures contracts ended Thursday a bit lower.
While reports of increased sow slaughter have trickled in during recent weeks, those increases won't be reflected in the report, which concluded on June 1. The pre-report estimates from market watchers are looking for a breeding herd reduction of 1.5 percent to 4 percent. Sow slaughter numbers this spring reported about a 3 percent decline in the U.S. breeding herd. As it goes, numbers in the USDA pig crop report will need to go beyond pre-report estimates in order to generate much response from the markets.
Worth noting is that Smithfield Foods' officials this week stated that the company will start cutting its sow inventory another 3 percent. This follows the company's annual report that showed a net loss of $190.3 million for operations in fiscal year 2009. The loss is blamed on the effect of higher feed costs. Smithfield had cut it's sow herd by 10 percent within the past year. Due to productivity, however, the sow herd cuts reduced market hog output by an estimated 2 percent or so. Still, that equals about 2 million slaughter pigs per year.
Analysts are looking for the market hog category in the Hogs & Pigs Report to be down about 2 percent from 2008 levels. Producers' continuous emphasis on productivity has allowed them to spread out high input costs more efficiently, but it has put more hogs on the market, and pork in the meat case, than sow herd cuts reflect.
For example, in USDA's March pig crop report, the sow herd showed a 3 percent reduction, but productivity increased 2.5 percent. Earlier this spring, market hog weights kept pork production high, allowing only a 1 percent decline in overall supply from last year.
Agricultural economists, Glenn Grimes and Steve Meyer, expect to see further sow herd reductions, but they say most are yet to surface and the profit/loss picture will dictate the level of those cuts. The two will say that market hog production needs to decline 8 percent to 10 percent from 2008's record 116 million head to get production back to more profitable levels.
On the meat side, USDA reported this week that the average wholesale pork price (the cutout price) fell to a six-year low at $53.44 per hundredweight, and traders said further weakness was likely as pork production remained high while seasonal demand slipped.
The summer grilling season and pork demand is not shaping up as previously expected and futures traders are growing increasingly pessimistic heading into fall's typically abundant pork supply.
As more producers start culling herds, more pork will enter the market, and could pressure prices further, especially given export sales are sluggish.
"The tone in cash pork is still weak and we have a lot more pork coming," one trader told Reutters news service.
Looking ahead, market analysts expect market weight categories through the year to be down only about 2 percent on average. Summer farrowings are estimated to be down about 3 percent, while fall farrowings down about 2.5 percent.