A sharp drop in feed grain prices during the latter half of 2008 apparently ended hog producers’ plans to pare herds, a move that could mean more hogs in 2009 than previously expected, analysts said after viewing USDA hog herd data Dec. 30.
Opinions were mixed on the direction of February and April contracts, with some analysts expecting a higher start because of a smaller-than-expected number of market hogs, while others predicted a lower start because many of those market hogs will be coming to market soon.
USDA reported the U. S. hog herd as of Dec. 1 at 98 per cent of a year ago, or 66.7 million head, the breeding herd at 98 per cent, or six million, and the market hog supply at 98 per cent, at 60.6 million.
The total herd and market hog numbers were slightly less than average trade estimates, prompting bullish responses from some analysts. The breeding herd, at 98 per cent, exceeded the trade estimate of 96.5 per cent, which is why distant months may come under pressure.
“It looks like the lower feed costs are telling the producers that it is time to stop cutting back,” said Ron Plain, an agricultural economist at the University of Missouri.
Earlier last year there had been a rush to trim hog herds when prices sped higher for corn and soybean meal, important hog feeds. But the Dec. 30 report showed producers cancelled those plans after feed prices later fell, said Plain.
“The hog numbers were not as positive as I was looking for,” he said.
As a result, the USDA data was called mildly bearish for many of the distant 2009 hog futures contracts traded at the Chicago Mercantile Exchange, particularly the August, October, and December.
“Based on the farrowing numbers, I don’t think you could build a very bullish case for those distant months,” said Dan Norcini, a 20-year hog trader at the CME.
The breeding herd was “only down two per cent,” said Dennis Smith, livestock broker with Archer Financial.
“There is nothing in this report that is going to drive the market higher given the current premiums to cash,” said Smith. “There’s not a lot of bullish information for the market to look forward to from a supply standpoint.”
Farrowing data, which is an indication of future pig supplies, was down two per cent for the December 2008 to May 2009 period, compared with four and six per cent reductions in mid-to late 2008.