Hogs & Pigs Report, March 2018

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The USDA released its quarterly hogs and pigs report on March 29. The Pork Checkoff hosted a teleconference for the media featuring market analysts to review the report. The analysts include Steve Meyer of Kerns and Associates, Dan Bluntzer of New Frontier Capital Markets, Kevin Bost of Procurement Strategies and John Nalivka of Sterling Marketing.

Host

Don Wick

Guests

Dan Bluntzer, Partner, New Frontier Capital Markets, Corpus Christi, TX

Kevin Bost, President, Procurement Strategies, Des Plaines

John Nalivka, President, Sterling Marketing, Vale, OR

Length

14:37

Transcript

Don Wick:  00:08  From the Pork Checkoff in Des Moines Iowa, it’s Pork Pod.  Pork Pod, a look at the hot topics in today’s pork industry. The Pork Checkoff is working for you through various forms of research, promotion, and consumer information projects.  This is Don Wick on behalf of the Pork Checkoff and today we focus in on the Hogs and Pigs Report.

C Cunningham:  00:27  Good afternoon and welcome to the National Pork Board’s roundtable discussion of today’s USDA Quarterly Hogs and Pigs Report. I’m Cindy Cunningham, with the National Pork Board and I’ll be your moderator for today’s call.

Pork Checkoff funds are being used to host this call with the sole purpose of educating and providing information to pork producers.  The views expressed on this call are not necessarily those of the National Pork Board and do not in any way reflect marketing direction from the National Pork Board.

With us today we have three distinguished ag economists. We have John Nalivka,  who is the president of Sterling Marketing in Vale, Oregon. We have Dan Bluntzer, he is a partner with New Frontier Capital Markets in Corpus Christi, Texas, and we have Kevin Bost president of Procurement Strategies, Elgin, Illinois. We also have with us Steve Meyer with Kerns and Associates.  And before we hear from our panelists today, we’d ask Steve to please recap the numbers from today’s report.

Steve Meyer:  01:18  Thanks Cindy. Good afternoon everyone.  The reports came in very much is expected by the trade and as evidenced by the comparison of the number to analysts pre-report estimates.  Let’s start with the number all hogs and pigs, 72.908 million head,  3.1  percent larger than one year ago. And that’s precisely the change that analysts had expected. Breeding herd at 6.200 million head,  up 1.7 percent. That’s slightly larger than the analysts pre-report estimate average of 1.5 percent.   [inaudible]  kept marketing,  66.708 million head.  Again, 3.1 percent larger and 3.3 percent larger. And that is the number that analysts had pegged before the report.    Under 50 pound category, 21.047 million head, 3.1 percent larger.  That is, analysts had expected that to be up 3.1 percent.  50 – 119 pounds, 18.422 million head, 3.1 percent larger. And again, analysts had expected that number to be up 3.1 percent.

Steve Meyer:  02:31  120 to 179 pounds, 14.874 million head, 3 percent larger than one year ago, and that was the pre-report number from analysts. They average at 3 percent.  And 180 and over, up 3.9 percent at 12.364 million head, slightly larger than analysts had expected. They expected that number to be up 3.4 percent. We move to the production figures.  Farrowings:   December February, sows farrowed at 3.057 million head, up 2.4  percent from a year ago, slightly smaller than the analysts had expected.  March May intentions at 3.078 million head, up 2.1 percent.  Again, precisely the number for the average of analysts pre report estimates. And then June August intentions, up 1.4 percent slightly lower than what analysts had expected at up 1.7 percent. So, continued growth in farrowings that, that goes reasonably well, it looks with the breeding herd   December February pig crop 32.341 million head, 3.8 percent larger than one year ago. Analysts had expected that number to be up 3.7 percent.  And December February pigs saved per litter at the record for the quarter, for the December February quarter, 10.58, up 1.4 percent.  Slightly larger than the analysts pre report average of 1.1 percent.  Cindy, those are the numbers.

C Cunningham:  03:53  Thanks Steve. And it sounds like we got our audio situated as well, so thank you for that. And we’ll move now to John Nalivka, John again is the president of Sterling Marketing in Vale, Oregon. And I would ask our other panelists to please remain on mute unless they are speaking. John, I will turn things over to you.

John Nalivka:  04:15  Thank you Cindy. Well, I think it’s like Steve said, the report has followed pretty closely with what most of us were thinking in our, in our numbers. So it certainly follows through on the margins with the,  I’ve got the, as close as I follow the margins. I’ve got that producers made an average of about $26 per head from January through February and now that’s a pretty good return compared to, you know, a year ago.  That that same return would’ve been about half of that.  The, you know, they’re following through with, with,  you know, relatively low corn feed costs, both corn and meal on the protein side and enjoying, you know, good, you know, sound returns through the first quarter of this year until we got into March. And at the same time they’ve been, they continue to build that herd into the capacity, of the new packer capacity that we’ve already seen at the end of last year, as well as what will be added additionally for this year.

John Nalivka:  05:27  So at the same time we’ve seen on the packer side, the packer margins, it’s kind of got a little weakened a little bit from, from a year ago. It was kind of pretty much the opposite that we saw, packers this year in the first, you know, in the first quarter were probably average, will be averaging around $17 or $18 per head and January for instance, the packers made, you know, from the packer margins, it was about $14 per head and that would be again just opposite of where we were on the producer side, about half of what they were last year. The pork packer processor margins last year in January were $29, followed by a $15 margin, about the same in March. So the margins last, you know, recently with the drop in hog prices in March and still maintaining a relatively, you know, relatively good cut out value of the packer margins improved pretty significantly and going up to around $20 per head. So I think we’re, I think things are still on track to where, you know, I thought we’d be earlier prior to the report and see about a 4 percent, about 4 percent increase in slaughter this year,  and about a 5 percent increase in pork production. Of course, the demand side is going to be, although we certainly can’t complain about the demand side on the domestic market, it’s certainly been supported by strong export market and you know, we expect that to continue.

C Cunningham:  07:19  Thanks John. We’ll move now to Daniel. Daniel is a partner with New Frontier Capital Markets in Corpus Christi, Texas. Daniel?

Dan Bluntzer:  07:28  Yes, I’d like to talk a little bit about the breeding herd at 6.2 million, that’s up 1.7 percent from a year ago. Certainly , the largest March 1 breeding herd that we’ve had on record and actually, just makes a string of six straight quarters that have averaged a 1.7 percent year over year increases. So certainly on the expansion side of the cycle and should continue that for the next few quarters as we fill up packing capacity with these number of hogs. I’m looking at the pigs per litter, again up 1.4 percent from a year ago. That makes the third straight quarter of, in excess of 1 percent gains in that pigs per litter number. So certainly our supply of hogs, being, you know, three and a half to four and a half percent, well through the end of the year is pretty much solidified. It’s interesting that this is really the first gain that we’ve had from December to March as far as the absolute number of the breeding herd, that gain, the first time we’ve increased the breeding herd from December to March in three years. And that follows a pretty healthy expansion from September to December. So certainly there’d be no holes in the hog supply at all that we foresee.  I think the interesting thing too, on any kind of expansion, is what the numbers USDA gave us in the grain reports this morning.  A really kind of shaking up the expectations for carryover for, for next year. So,  if we were to get into some type of a real weather market, this summer, you know, possibly putting a slowing on any kind of expansion, either depending on what those grain prices do.  But another outside market to watch also would be the beef complex. so be no shortage of beef for the next 90 to 120 days, possibly some packing capacity issues there. But plenty of protein to go around for the foreseeable future.

C Cunningham:  09:37  Thank you Daniel.  We’ll move now to Kevin. Kevin Bost is the president of Procurement Strategies in Elgin Illinois. And again, I would ask our other speakers to please mute their phones. If they are not speaking.

Kevin Bost:  09:57  Thanks  Cindy!  I don’t have anything else to add in terms of the trend, I mean it is obvious.  The herd is still growing. I guess it’s going to have to grow until producers started moving money consistently, which really doesn’t look like it’s gonna be anytime soon. But, bottom line, to me it looks like the kills, which have been running really close to 2.4 million a week., for about the past month, dropped down to a low of about 2.285 million in June. That’s an average, but that would be up the, it’s going to be up five percent from a year ago. And then it looks to me like,  that would be headed for a high in December with a weekly average at  about 2.625 million head per week and that would be up 4 percent.  As a matter of fact, it looks like the year over year increases in the kills will range from plus three to plus five percent every month through the rest of 2018.  And that, when I combined the imports and exports, by the way, as Daniel pointed out, you know, the supply is {inaudible} big and it just underscores the importance of the export market, as well as domestic demand, because they’re both going to have to be a pretty stout to absorb this kind of pork supply.

Kevin Bost:  11:44  It looks to me like domestic pork supplies when you, when you consider the, the put the imports and exports into the equation,  looking at some pretty big increases in May and June, in particular, in this domestic pork supply.  Like up to seven to eight percent almost from a year ago during that period, a smaller increases like three to four percent in July and August, and then about a five percent increase in the Fall.  So those are pretty big increases.  In terms of hog prices,  the bottom line looks to me like unless you have something really odd happening in the way of demand, that we’re probably looking at summer high, around eighty five per hundred weight. And I’m talking in terms of the CME lean hog index, by the way.

Kevin Bost:  12:46  So my guess is that we would have a peak in that CME lean hog index of about eighty bucks per hundred weight. Most likely in June.  I think that June and August would be the highest monthly averages, right around $80. The low point in the Fall. Yeah. It really doesn’t look like it would be much different than it is right now in that the index is just above $57 per hundred weight now. And like I said, unless something really weird happens with demand and if these pig crop or farrowing intentions are correct, I mean accurate, they are always correct,  then, we might be looking at a Fall low of about $57, $56, and that compares with the low last fall with $54.16, the single day number and that was in September. So, I guess the only other comment I have, and it’s kind of a question of what sort of packer margins can we expect of. One would think that they would continue to run, I don’t want to call them tighter, but narrower than they did in 2017 just because of the additional slaughter capacity. So that would put more support in the hot market than it would in the pork market.

Don Wick:  14:30  Thank you for listening to this edition of Pork Pod. For more information on this topic or the Pork Checkoff itself, visit pork.org.