USDA trims swine inventory; market faces demand uncertainty

The U.S. hog industry doesn’t face near the backlog of animals compared to last spring and summer, but economic and production uncertainty lingers heading into 2021.

USDA trimmed inventory estimates of hogs and pigs as of Dec. 1, but it raised the estimate of sows farmers intend to farrow this quarter (December through February) by nearly 2% compared to last year.

“There’s a whole lot of uncertainty we’ll be dealing with as we move into 2021,” Dale Durchholz, market analyst with Grain Cycles, said during a webinar hosted by the National Pork Board. “What’s going to happen with (Dec. - Feb.) farrowings has implications as we look toward the summer and fall.”

All hogs and pigs totaled 77.502 million head as of Dec. 1, down 1% from last year, while the market hog inventory also declined 1% to 71.2 million head.

But the breeding inventory declined 3%, to 6.28 million head, about twice as big of drop as analysts expected prior to the report.

“It’s the smallest breeding herd number since early 2018,” said Altin Kalo, analyst with Steiner Consulting. “To me, it underscores some of the decisions and issues farmers are currently dealing with.”

Those issues range from uncertain demand levels both domestically and in export markets to the rapid rise of feed costs.

Yet, even with so much uncertainty, USDA raised sow farrowings to 3.12 million this quarter, up nearly 2% from the same time last year. USDA also revised estimates from last year, including a nearly 2 million head reduction in the June inventory projection.

“They have a hard job,” Bob Brown, independent analyst, said of USDA’s methodology to estimate herd numbers after this year’s disruptions caused by packing plant slowdowns and temporary closures due to COVID-19. “It’s even more difficult with the turmoil we’re seeing.”

Brown believes the hog industry worked through most of the backlog of animals caused by last summer’s packing plant issues, although some regional troubles remain in place.

“We watched these (hog) weights go up and peak in May, before coming down on what appeared to be maintenance rations in the summer,” Brown said. “Then, they went sharply higher by the first week of September. I believe producers decided they cleared the backlog and started feeding hogs again based on what I’ve seen from a weight basis.”

Hogs in the 180 pound-plus category increased 1.2% in the past quarter. Meanwhile, the pigs saved per litter from September through November flattened to 11.05, compared to 11.09 during the same stretch last year.

Looking ahead, the production uncertainty along with direction of demand will drive prices.

Brown estimates CME Index prices could average $64 per hundredweight in the first quarter of 2021 and increase to $81 and $86 in the second and third quarters before dipping to $74 by the fourth quarter. Kalo looks for a similar pattern for the CME Index, with a spring/summer peak, and a range for the year from $65 to $81.

“We still see a pretty good export outlook,” Kalo said. “Pork prices are up 60% in China, and they still have a way to go to rebuild their herd (after losses from African swine fever).”

In Illinois, USDA pegged the inventory of hogs and pigs at 5.45 million head, up 1% from September and unchanged from last year. The breeding inventory in the state (570,000 head) declined by 20,000 compared to last year while the market hog inventory (4.88 million head) was up slightly compared to a year ago.