"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, September 26, 2014

Quarterly Hogs and Pigs Report Extremely Negative

Living up to their reputation for catching market participants off guard and creating fireworks, the September 2014 Quarterly Hogs and Pigs Report was released this afternoon and "boy howdy" was it a bearish doozy!

In every single category, it showed USDA's numbers far exceeding the average of analysts' estimates ahead of the reports.

Here is a copy of the report, courtesy of Dow Jones:

                                       USDA's               Average             Range
                                      estimates            of estimates       of estimates
All hogs and pigs on Sep 1           98              96.6              95.6- 97.5
Kept for breeding                       102             101.4            99.8- 104.7
Kept for marketing                       97             96.2             94.9- 97.0

Jun-Aug pig crop                         99             97.6              96.4- 99.0
Jun-Aug pigs per litter                  98            97.3              96.2- 98.9
Jun-Aug farrowings                      101          100.4             100.0- 100.7
Sep-Nov farrowing intentions        104          103.2             102.0- 104.3
Dec-Feb farrowing intentions         104         101.5              98.2- 103.6

Hogs weighing under 50 lbs               98          97.9           96.1- 100.4
Hogs weighing 50 to 119 lbs              98          96.4           94.9- 97.7
Hogs weighing 120-179 lbs                97          94.9           94.0- 96.2
Hogs weighing 180 and over               94          93.6          90.9- 96.6

What the report shows, when you dig into it even more deeply, is the number of Pigs Per Litter moving back above the "10" level for the first time since November of last year.

That is a testament to two things:

1.) increased bio-security protocols being followed by larger scale hog producers
2.) decreased incidence of the disease during the warm, dry months of summer

Once we work through the temporary tightness in hogs that has been supporting the nearby October contract, hog numbers are going to ramp up rather rapidly. Also, extremely heavy/record hog weights will continue to mitigate any impact from the PED virus which has plagued the industry.

In comments to the wire reporters this afternoon, I noted that if these heavy weights continue, and I see no reason why there are not going to do just that, especially with cheap new crop corn coming in which is much more nutritious than the older crop stored over from last year, we should see pork production exceed the previous year's numbers for the first time in quite a while.

Another thing - with more abundant pork just ahead, end users of US pork, based on what they can now see in this report, should not be in any particular rush to load up on high-priced pork. Couple that with a soaring US Dollar and I expect export buyers to put off purchases until prices move lower.

I should also note that corn prices have fallen another $0.40/bushel since this report was tabulated. Grain  (feed costs) have gotten even cheaper for producers) and that means more chances for increased profits. That will work to spur additional intentions.

While cattle have been shrugging off one negative factor after another, I think this is a bridge too far for even the cattle bulls to have to deal with. We are going to be seeing more pork and more chicken available in the Q4 and Q1 2015. Beef is pricing itself out of the demand side of the equation.

There are now TWO approved vaccines that are out there for PED virus. We are going to find out how effective these are at getting that disease under control, but if they prove to limit mortality even somewhat, the industry is going to see increased numbers as low grain prices will spur even more attempts at expansion.

Right now, based on what I can see in this report, odds favor limit down openings across the complex with perhaps the exception of the October on Monday morning. That month has been the beneficiary of a recent tightness in supply as evidenced by the 180pounds and over at 94% of last year's levels. However, the bulk of those hogs have been put down at this point.

The trade was anticipating a negative report based on the price structure of the Board but this report was so negative and exceeded the average of estimates by such a significant margin, that the initial reaction should be negative. We will have to see how things progress throughout the day however.


  1. The Lean Hogs COT just came out


    Interesting to see both the Swaps and "Managed Money" are massively long as of Tuesday.

    The metals COT also shows that the Swaps are net long and the "Managed Money is net short.



  2. Hilarious.

    Can the consumer get any luckier?

    I should change the moniker "Resilient Consumer" to the "Lucky Consumer".

    Virtually EVERYTHING is going in the right way for Joe Six:

    Soaring U.S. Dollar allows him to travel abroad and live like a king. Can you imagine going to the Phillipines or Bangkok to party with a super strong currency?

    Soaring stocks has created a huge wealth effect, as most of these Joes contribute "month in, month out" to their 401(k) plans and they have simply been doing stellar the last 5 years.

    Food and energy costs are absolutely imploding. Wait until next year when today's crop and grains prices start filtering into the supermarket.

    Interest rates are still near record lows. I mean really, zero percent offered on pretty much anything if you have good credit.

    No inflation whatsoever. Everyone is enjoying the price of many goods dropping and dropping, while their wages are creeping back up after 6 years of stagnation.

    And now you have the temporary high prices for meat set for a massive collapse, which means more dollar items on the menu of the fast food joints next year.

    The consumer pretty much has it all. Everything is moving in the right direction. We are truly living in the "Guilded Age" with respect to price levels, stability, and ready and easy credit availability.

    The Central Banks and "Central Planners" have created a true economic miracle.

  3. Interesting report Dan, thanks.

    All that analysis about the pigs and the various weights has me thinking about how much I love pig roasts! :-)

    Have a great weekend!

  4. Dan- thanks for the comments. Noticed that Dec and Feb hogs both rallied toward the later part of the trading session today for whatever reason... Hopefully "this" report will give the market some better direction starting Monday. And with more pork and chicken, maybe that will damper the cattle markets. Limit up today for cattle.


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