The USDA Hogs and Pigs report was bearish for lean hog futures as it projected larger hog inventories and production in 2013 compared to expectations. This will likely lead to increased hog slaughter and pork supplies in 2013, especially during the summer months. However, hog weights remain lower than 2012 levels which could offset some of the bearish impact of increased production. Overall, per capita pork consumption in the US is still projected to decline in 2013 from the low levels seen in recent years.

1. Vol. 11, No. 1 January 2, 2013
Friday’s quarterly USDA Hogs and Pigs Report was, as FI HOG SLAUGHTER, WEEKLY
expected, bearish with every Lean Hogs futures contract losing
value on Monday. The damage was least for the nearby February Thous. Head
contract which only fell by $0.65/cwt. From April forward, though, 2013 2600
calendar year futures prices fell by $1.25 (August) to $1.875 (May). Feb 2500
Spring 2011 Capacity at 5.4 days/week = 2.355 mil. hd./wk.
and April 2014 futures were $1.45 and $1.20/cwt. lower, respectively.
Those price changes were about as we expected since the deviations 2400
of report numbers from pre-report expectations were not, in our opinion, 2300
dramatic enough to drive a limit-down day. 2200
What are the implications of Friday’s “bearish” Hogs and
Pigs report on potential 2013 hog and pork supplies? That is a 2100
question that will be bandied around a lot today, we think. The invento- 2000
Actual 12
ries and production expectations were indeed larger than expected so
1900 Normalized '12
virtually everyone will be revising 2013 output upward. What are gener-
ally known are the expected percentage changes in hog slaughter rela- 1800
tive to 2012. One big issue this year, though, is just what numbers to 1700
use as the 2012 basis for comparison.
1600
The top chart at right shows our computations as to what a J F M A M J J A S O N D
“normalized” (not in the statistical sense, we point out!) weekly slaugh-
ter pattern for 2012 may have looked like. That “normalized” data is the FI HOG SLAUGHTER, WEEKLY
result of distributing the projected sum of all 2012 FI weekly slaughter Based on USDA Hogs & Pigs Report, December '12
totals (111.872 million head) across the 52 weeks based on the aver- Thous. Head
age pattern over the past 5 years. 2600
Comparing actual 2012 weekly data to this “normalized” pat- Spring 2011 Capacity at 5.4 days/week = 2.355 mil. hd./wk.
2500
tern confirms that 2012 was one screwy year for seasonal slaughter
patterns! Actual slaughter fell short of the normal pattern in the first 2400
quarter, fell even further behind in June and July (quite logical, given 2300
2012’s hot weather) and then jumped dramatically ahead of normal
2200
levels in August and September when producers moved hogs to market
early to avoid unprofitable late weight gains. Weekly slaughter totals 2100
have remained above the normal expected levels through the fall. 2000
Computing 2013 slaughter based on the “normalized” pattern Actual 12
1900 Normalized '12
makes sense to us primarily because using the actual pattern doesn’t
Pred '12
make sense. Doing so provides projected slaughter totals that appear 1800
Pred '13
in the bottom chart — and the results are, we think, quite interesting 1700
since they show the big change in projected supply being in the sum-
1600
mer months, not the fourth quarter as one might have expected from J F M A M J J A S O N D
the December report. It also says that Q4 supplies may be lower than
those of 2012.
The “normalized” numbers are, of course, dependent on re- we should note that there is little consensus on the size of the cut and
turning to “normal” conditions. That includes an eventual return to more some disagreement on whether there will actually be a reduction—
normal feed prices and, certainly, more normal summer temperatures. should provide opportunities for U.S. exports to grow again. The U.S.
It is reasonable to expect marketings to stay ahead of last year’s pace population will grow slower than in the past but will still expand by 0.7%.
through the winter since feed costs are still high and weather is, for the Considering all of those factors, Friday’s “bearish” report still indicates
most part, a non-factor in today’s climate-controlled pork industry mean- lower per capita U.S. pork availability/disappearance/consumption in
ing that rates of gain will stay high at least until summer. 2013. In fact, the reduction may be close to 1 pound (2%) from the 45.7
But are these slaughter levels in fact bearish for hog prices? pounds per person of 2011 and 2012 — and that figure is the lowest in
MPR barrow/gilt weights remain about 2 lbs. (1%) lower than last year our data set that goes back to 1955.
and that gap has widened in the past couple of weeks. We think it is Yes, the output reduction may be smaller than had been ex-
safe to expect weights to remain that much lower than year-earlier lev- pected. That means futures prices may have been a bit high. But 2013
els at least through the first half or 2013. The second half depends com- will very likely see a reduction in domestic per capita pork supplies.
pletely on feed costs. Reported reductions of Europe’s output— and The same is true of beef and, most likely, chicken.
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