The market hog inventories in Friday's USDA quarterly Hogs and Pigs Report are friendly and point to lower live hog supplies immediately ahead.
The breeding herd inventory came in a tad larger than average trade expectations. On the surface a rise in the breeding herd might be construed as negative on prices. However, since June 1 crop producers, livestock producers and their animals have all sweltered in a lot of hot weather, little rainfall with even less relief in sight. Producers may yet, and likely will, trim September-November farrowing plans in response to higher feed costs and likely losses that pricy feed will bring.
Looking at the numbers. Based on surveys of hog producers taken about June 1, USDA's National Agricultural Statistics Service estimated the June 1, 2012 inventory of all hogs and pigs at 65.8 million head. This was up 0.8% from June 1, 2011, and up 1% from March 1, 2012. On average traders expected a 1.3% hike.
The breeding inventory, at 5.86 million head, was up 1% from last year, and up 1% from the previous quarter. Traders expected the sow herd to be up a bit more modest 0.7%.
Market hog inventory, at 60.0 million head, was up 0.8% from last year. Traders expected the breeding herd to be up about 1.4%.
The March-May 2012 pig crop, at 29.4 million head, was up 0.6% from 2011, but 0.3% below average trade expectations.
March-May sows farrowing totaled 2.92 million head, up 0.1% from 2011. Traders expected a 0.4% reduction. Sows farrowed during this quarter represented 50% of the breeding herd.
The average pigs saved per litter was a record high 10.09 for the March-May period, compared to 10.03 last year. Pigs saved per litter by size of operation ranged from 7.50 for operations with 1-99 hogs and pigs to 10.20 for operations with more than 5,000 hogs and pigs.
June-August farrowing plans are down 0.9%, very close to the average trade guess of down 0.8%
Intended September-November farrowings, at 2.89 million sows, are down 1.3%, a full percentage point less than the average trade guess, but up slightly from 2010.
Profits will turn to losses. Corn futures surging 25% over last two weeks are further squeezing projected hog producer margins for this year's fourth quarter and into 2013.
"Break-even prices higher than $85 and current hog futures prices for October and December point to projected losses of $16 or more per animal," says Shane Ellis, an Iowa State University agricultural economist.
"December lean hog futures around $79 to $80 suggest producers who did not hedge feed costs will have deep deficits unless corn prices decline or demand for hogs rises significantly," he says.
Producers are unable to trim production for fall-early winter because pigs to be processed then have already been born. But expectations of losses may cause producers to ship near-market ready gilts that they had been intending to shift to the breeding herd to the packing plant, instead.