Purdue Ag Economist Reflects on Low Hog Supplies
There were some surprises in the Quarterly Hogs and Pigs report released by USDA Friday. Purdue University Extension Economist Chris Hurt says the higher-than-expected USDA numbers can't be dismissed as unrealistic. He says low slaughter numbers have been driving higher lean hog futures and seasonally strong cash prices. He says a common explanation for the low slaughter numbers recently is that death losses from the porcine epidemic diarrhea virus has reduced the market herd much more than previously thought. If that is the case - Hurt says hog prices could strengthen further with limited supplies this fall and winter. The impact of the PED virus on hog numbers is a mystery. Hurt says there's no accurate national accounting of death losses from the disease. He notes pork producers and packers have suggested a one to two-percent reduction in slaughter supplies this fall and winter. He adds it had been felt the lower slaughter numbers wouldn't start to show up until the fall. But Hurt says weekly slaughter rates have been down three to 10-percent since the middle of August. For the last seven weeks - he says slaughter has been down in aggregate by over five-percent. Cash prices of hogs have been sharply higher than in the same period in 2012 when they averaged 55-dollars per live hundredweight. With sharply lower slaughter - they have averaged about 68-dollars since mid-August. Hurt says lean hog futures have also increased about four to five-dollars over the same period.
According to Hurt - another explanation could be the very nature of the way the industry evaluates numbers - comparing this year's slaughter to the slaughter for the same period one year ago. When numbers viewed in this manner appear unusual - Hurt says it can be because of aberrations this year or due to aberrations in the numbers a year ago. So what is being viewed as very low slaughter level this year may be a result of an aberration in the slaughter numbers last year. Hurt notes the 2012 drought rapidly pushed corn and meal prices to peaks in August and September of 2012 and sow slaughter rose as some producers tried to quickly reduce their herd size and others decided to exit the industry. Producers also began to advance shipments of market hogs to reduce losses on every pound being produced.
Hurt says this year's outlook is almost opposite. Feed prices - especially corn - have been falling sharply. He says the hog outlook is profitable and producers are more likely to be retaining or building the breeding herd and weights are expected increase as producers hold onto market hogs longer to gain profits on every pound. To the extent the recent low slaughter numbers are explained by the unusual economic conditions in the late summer of 2012 compared to this year - Hurt says USDA's recent inventory numbers may not be so far off.
USDA found that the breeding herd is only fractionally larger than a year ago. Hurt says this would be consistent with an industry which has not yet had time to expand the herd. USDA's inventory count did show that market hogs of 180 pounds or higher were down four-percent - which he says is reasonably consistent with the five-percent lower slaughter supplies that have recently been experienced. In addition - Hurt says preliminary data suggest that sow slaughter during the most recent seven weeks is down over 20-percent from the same period in 2012 when drought panic greatly influenced behavior.
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