Since spring 2013, porcine epidemic diarrhea virus has cast tremendous uncertainties over the level of pork production going forward.
Despite those persistent PEDV jitters, the 1.4% uptick in the Sept. 1 breeding herd says producers are responding to pork profits by expanding. Producers intend to have 2.89 million sows farrow during the September-November 2014 quarter, up 4% from the actual farrowings during the same period in 2013, and up slightly from 2012. Intended farrowings for December-February 2015, at 2.87 million sows, are up 4% from 2014, and up 3% from 2013.
USDA's September Hogs and Pigs Report also suggests PEDV may be losing its deathly grip. Based on surveys of pork producers, USDA tallied the June-August pig crop at 29.539 million head, down a tad more than 1% from last year. That's a smaller reduction than the down 2.4% average trade guess in advance of the report.
The average pigs saved per litter was 10.16 for the June-August period, down 1.6% from 10.33 last year. That, too, is a smaller, reduction than the down 2.7% reduction the trade expected.
Hog futures sliding lower on the days leading up to Friday's report suggest the market began to sense that USDA would report accelerating production growth. On the surface, the numbers are bearish. But the pre-report slide could have already factored in enough of that bearishness.
Most of this year, pork production has been rising faster than inventories and slaughter numbers alone would suggest. Here's how.
For the last 20 weeks Iowa-southern Minnesota barrows and gilts have averaged 11.5 pounds heavier than a year earlier. Heavier hogs effectively put about 4% more pork on the market per head than a year ago. September weights already matched the highs of last year's fourth quarter. Lower-cost feed will likely keep producers packing on the pounds. But year-over-year gains will likely start to ease.
Beef cutouts at times running 25% higher than their record highs prior to this year have hiked pork demand by spurring consumers to look elsewhere in the meat case. Many consumers bypassed beef and chose pork.
This year's calf crop is almost certain to be smaller than the 2013 crop. Cow-calf producers will be retaining heifers to expand, which will further tighten feed cattle supply and restrict the completion for pork from beef.
Feathered competition is an entirely different proposition. As feed costs eased in early- to mid-2014, egg sets for broilers remained rather anemic. In April, May and June laying hen inventories just barely topped 2012 and 2013, despite slipping feed costs and lofty beef and pork prices creating a demand umbrella under which poultry could expand.
Everybody recognizes that the short poultry reproduction cycle positions birds to up production much faster than hogs and particularly cattle. However, trade chatter back in the spring suggested lack of broiler-type hens to lay the eggs to become the hens that would lay the eggs to expand broiler production was restraining broiler expansion.
That restraint no longer exists. Over the last five years, broiler chick placements have peaked in mid-June and then slid lower into November. This year, broiler chick placements also peaked in mid-June, but then held relatively steady through September.
The point—lack of broiler breeding stock may have restrained broiler expansion. Broiler producers are gearing up to capture a larger share of the consumer's dollar at retail and restaurants.
Broilers and pork may, and the key word is may, gain an edge in fast food restaurants this fall and winter. Chain restaurants often buy ahead on contracts. Trade chatter suggests fast food procurers may be in for some beef price sticker shock as they renegotiate those contracts. It remains to be seen how such negotiations will impact fast food menu board prices for beef items and how consumers may react to price sticker shock there.
The 1% smaller June-August pig crop and the nearly 3% smaller Sept. 1 market hog inventory reflect earlier baby pig death losses due to PEDV. A lower market hog inventory says hog slaughter will stay below year-earlier through 2014 and early 2015. That should support hog prices at a higher level than they otherwise might have been.
In early 2012, the trade sensed pork producers were poised to expand. Then came the 2012 Corn Belt drought and PEDV. Those forces delayed expansion. They also helped drive summer 2014 hog prices higher than they otherwise might have risen.
Surging summer hog prices upped profits for producers who managed to dodge serious PEDV death losses or who managed to contain losses and mount a fairly rapid production recovery.