Large Summer Hog Slaughter May Bode Ill for Autumn Prices

Posted on 03/09/2017 10:21 AM

USDA's June Hogs & Pigs Report pegged the U.S. swine population at a midyear record of 68.381 million head, up about 2% from last year. As usual, the number of animals in the various categories on the report held general implications for the forthcoming slaughter hog supply. The June 1 population of heavyweight hogs (180 lbs. and over) was pegged 1% over year-ago, which largely matched June and early-July slaughter totals. The number of hogs weighing 120-179 lbs. was also 101% of last year, thereby indicating early-to-midsummer kills would post commensurate year-to-year gains. The lighter weight (50-119 lbs. and less than 50 lbs.) categories, both came in 2% over June 2015. These data suggested slaughter rates would run about 2% over 2015 levels through late summer and much of fall. Have those implicit forecasts hit the mark? What do the actual slaughter totals indicate about the potential results of the Sept. 30 Hogs & Pigs Report.

hog1_sept142016"The chart above updates a forecast chart I created soon after the June report, with the lime-green line representing rough weekly slaughter estimates for the balance of 2016. Actual weekly totals for the past few weeks are now plotted. Ultimately, the difference between the two series strongly suggests the USDA's June population estimates, at least those for middleweight pigs, were too low. That is, the actual (blue line) consistently exceeded forecasts during most of July and August. Indeed, the sum of hog kills during the July 5 through Sept. 3 period topped the predicted total by about 250,000 head or 1.2%.

The relatively large production total contributed to the Lean Hog Index drop from the June 28 peak at $85.03 to the Aug. 31 quote of $65.76. More importantly, the unexpectedly large supplies may also indicate the official spring pig crop estimate and the stated population of pigs in the lightest weight category on the June report also failed to capture the full extent of the actual number available at that time. In more normal circumstances, this potential difference might not matter a great deal, with hog prices possibly falling a few cents below expectations.

The problem this year is the possibility that late-2016 hog supplies will exceed packing industry capacity. As pointed out previously, such circumstances in late 1998 caused hog prices to collapse. I still doubt the usual fall decline will be all that extreme, especially if the processing plant being refurbished by industry fledgling Prime Pork gets up and running before the holiday season. On the other hand, the Labor Day fire at the Smithfield/Farmland hog processing plant in Monmouth, Ill., reminded the hog and pork industry of the potential for problems that might prove very damaging to the hog outlook later in the year.

As a consequence, all eyes will be focused the USDA's Sept. 30 Hogs & Pigs Report. The results could obviously be critical to the fall-winter hog outlook.


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