Surprising Hogs & Pigs Report

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The third-quarter Hogs & Pigs Report had economists who participated in the National Pork Board’s teleconference a little dubious and mildly surprised. Lee Shulz, extension livestock economist at Iowa State University; Len Steiner, president of the Steiner Consulting Group and Dan Vaught, economist with Doane Advisory Service, participated in the call. Steve Meyer, president of Paragon Economics provided an initial overview, indicating that numbers were up in nearly every category.

“This was a bit of a surprise relative to pre-report estimates,” saysMeyer.

Vaught, with Doane Advisory Service, mentioned the breakdown of hogs on farms was down about four percent, which suggests slaughter rates will come in close to last year’s. “We’ve seen different practices by producers late in the summer, when hot weather caused huge surges in marketing. The shortfall in the last three weeks is 629,000 head. Essentially, the slaughter numbers imply we’ve already used up the margin for the 180 lb.-and-over category,” says Vaught. “Going forward, we should see a more normal pattern in the numbers.

Lack of PEDv Impact
One of the more notable numbers from the report was the June-August pigs saved per litter average, which was 10.33, up two percent from a year ago. This represents another record.

All of the analysts were surprised pig numbers were as high as they were, considering the devastating impact of porcine epidemic diarrhea virus on the herds that have encountered it.

 “We presently have 644 cases in 17 states,” says Meyer. “There’s no way to estimate pig losses from a case basis and we have no guarantee that all the farms that may have it have been counted.  Still, it’s a bit of surprise that these numbers are as large as they are.”

Producers need to keep in mind the report is an estimate, and depending on the producers polled, the numbers could vary. More than likely, the next report will provide a better indication of the impact related to PEDv. 

Expansion in the air?

All three experts hinted that the industry would likely see some expansion, with corn and soybean prices likely much lower than last year. The question mark is Smithfield, says Steiner, and how much of the pork produced by Smithfield will go to China.

“We won’t be able to keep up if more pork goes to China and exports could be dramatic,” he says. “Consumption of pork in China is about 50 percent more than it is in the United States. The question is, will they produce it there, as they’ve been trying to do, or will they be importing it?”

Shulz says there is “quite a bit of enticement out there for expansion, with potential profits well above breakeven. And we’re seeing strong export demand.”

Vaught doesn’t believe the industry is seeing the same kind of cycle as in the past, but producers are certain to respond to the market. “Prices have stayed quite high by historical standards and that’s going to encourage expansion,” he says. “In addition, corn prices have dropped pretty dramatically and that will surely spark some expansionary tendencies. I believe there are quite a few hog barns that have been empty and I think the industry is anxious to repopulate those buildings.”

Using the CME lean index, here are projections from the three economists:

 

                           4th Qtr. 2013   1st Quarter 2014    2nd Qtr. 2014    3rd Qtr. 2014

Lee Shulz:         $85-88          $83-89                  $88-92           $82-88

Len Steiner:      $87.33 ave.    $86 ave.               $90.70 ave.     $88.70 ave.

Dan Vaught:       $86-90         $86-92                  $90-105          $92-103


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