Still lower hog inventories with no intentions to expand

URBANA, IL. — The USDA’s September hogs and pigs report places the September 1 inventory of all hogs and pigs at 73.8 million head, up about 1.8% from last quarter but down 1.4% from last year. That is just below the pre-report expected range of 0.4% to 1.2% lower, according to Jason Franken, agricultural economist at Western Illinois University and contributor to the University of Illinois farmdoc team.

“The lower-than-anticipated inventory basically reflects that market hog and breeding herd inventories, respectively, are 1.5% and 0.6% lower than a year ago, compared to average pre-report expectations of 0.5% (range of -1.0% to +0.5%) and 0.8% (range of 0.5% to 1.3%) lower,” Franken says.

The decline in lighter weight class hogs partly reflects that the June through August pig crop is 1% below last year, Franken explains. It is just below the range of pre-report expectations, with about 1% fewer sows farrowed and 11.13 pigs saved per litter which is very close to the litter rate in the same period last year. With annual averages of 11.03 and 11.06 pigs per litter in 2020 and 2021, respectively, the number remains on pace with the upward trend observed over the last decade.

“The smaller pig crop should imply a similarly smaller slaughter this winter. Farrowing intentions for the fall and winter, respectively, are down 2.5% and 0.6% from the prior year, which suggests that slaughter levels in subsequent periods aren’t in danger of getting much above year ago levels,” he says.

Cold stocks of pork have rebounded well, though still have not returned to average pre-pandemic levels, Franken states. According to the USDA’s cold storage report, cold stocks of pork on August 31 are up 1% from the previous month and 17% from a year ago. Beef stocks are up 1% from last month and 24% from last year while poultry stocks are up 2% from last month and 11% from a year ago.

“The USDA forecasts U.S. per capita pork consumption at 51.3 pounds per person in 2022 with the number rising to 52.2 pounds in 2023 which would be the first time its exceeded 52 pounds per person since COVID-19. Hence, domestic demand appears steady to higher,” Franken says.

“Looking to the world market, the U.S. exported 484 million pounds of pork in July or about 5% lower than in July of 2021,” he adds. “The story is the same as it has been for much of 2022, with positive exports to most countries that have free trade agreements with the U.S. except for Canada which is down 21% from July of last year. Appreciation of the dollar is contributing to generally lower exports to much of Asia except for South Korea which is up 12% from July of last year.”

Based on expectations of continued lower demand from major importing countries, the USDA estimates U.S. pork exports to be 1.53 and 1.82 billion pounds, respectively, in the third and fourth quarters of 2022 bringing the total for the year to 6.495 billion pounds or about 8% below last year. Slightly higher pork exports of 6.515 billion pounds are forecast for 2023.

“Overall, there is reason for optimism about hog prices,” Franken states. “The forecast presented here is for the national weighted average net price on a carcass basis for all transactions for producer sold barrows and gilts including negotiated and contract prices. This net price should be more reflective of what producers receive, on average, and often averages a premium of more than $2 per hundredweight over the base price, but for the period of high prices from June through August averaged $110.86 per hundredweight compared to $123.68 per hundredweight for the corresponding net prices for negotiated or spot transactions.”

In general, hog prices tend to be higher in the second and third quarters with lower prices in the first and fourth quarters, Franken notes.

“Consistent with that pattern, prices are forecast to drop to an average of $92.85 per hundredweight for the fourth quarter of 2022 reflecting a balancing of expectations for both lower supplies and exports for the near term. For 2023, prices are forecast to average $91.19 per hundredweight in the first quarter and then rise seasonally to $99.41 per hundredweight and $101.28 per hundredweight in the second and third quarters. However, if supplies prove larger than anticipated or exports continue to soften, lower prices may be realized,” he concludes.