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The next quarterly report of the US Department of Agriculture's "Live Pigs and Pigs" will be released on March 25 next week, so now is the right time to conduct a comprehensive review of the live pig and pork market and our position relative to expectations.

First, the hog supply is about 3% lower than the market hog inventory suggested by the US Department of Agriculture on December 1st, and about 1.4% higher than my expectations since December 1st. 

As for year-to-date (YTD) slaughter, please note the -3.8% figure touted by some observers. This figure does come from the weekly meat production (SJ_LS712) report estimated by the US Department of Agriculture based on federal inspections. Although the report shows weekly data, year-to-date calculations are based on daily data, and there are two fewer slaughter days this year than in 2020. The USDA does not try to mislead us, but its year-to-date slaughter volume does depend on the number of days the slaughterhouse operates.  

Compared to last year, a better measure of the number of live pigs available and slaughtered this year is the sum of the weekly slaughter volume, which by definition involves the same number of operating days. The figure shows that this year's slaughter volume has increased by 0.1%. An apple-to-apple comparison of pork production using weekly data shows that pork production has increased by 1.5% so far this year. 

Second, the prices of pork and live pigs have both risen sharply compared to last year. Now, this is an obvious statement, but we must be aware of the importance of the difference. So far this year, the value of pork cuts has risen by 24.5%. Year-to-date, the national net hog price for all purchase methods has risen by 20%. Iowa-Minnesota negotiated benchmark prices that have risen 31% so far this year.

Higher output and higher prices always mean higher demand. A 1.5% increase in production and a 20-30% increase in prices mean an increase in the demand for steroids! 

This brings us to the third point-incredible demand. There is no doubt that this is a demand-driven market, one of the most positive demand scenarios in the wholesale and farm-level markets that I can recall. In January, domestic consumption demand increased by nearly 5% year-on-year, but export demand was weak, with export volume down 11% and pork export volume down 15%. 

The export demand for pork varieties that contribute to the demand for live pigs seems to be stronger, with the volume increasing by 3.7% year-on-year in January and the value increasing by 16.6%. The February data will not be complete until the February export data is released in the first week of April.

A key question is whether domestic consumer demand can remain strong enough to support outstanding demand levels at wholesale and farm levels. This is not impossible, because farm wholesale, especially wholesale and retail profit margins may be compressed, at least in the short term. However, if farm prices are to continue and continue to be supported, higher pork costs must eventually be passed on to consumers. If these prices rise, will demand remain strong? 

The fourth point raises a question: as vaccination continues and herd immunity against COVID-19 is expected to be achieved, what will happen to the demand? On the surface, the conclusion is that demand will increase further, which is possible. A large part of our catering service industry is still operating with reduced production capacity and reduced business hours. The full supply of restaurant services will logically lead to higher demand. But is this automatic? I do not think so.

Please keep in mind that last year we closed a large part of the demand for catering services, and the total demand for pork for the year increased by nearly 4%. How can it be? I think no one fully understands the fact that these meals will still be eaten. Pork sales in retail stores made up for the decrease in food service sales. In fact, one dollar spent in grocery stores must be more than one dollar spent on food service to buy pork, which supports the disappearance of pork and keeps retail prices strong. Instead of buying two slices of bacon on a sandwich, consumers buy a whole pound of bacon, and given the amazing taste of bacon, they may have eaten it in a meal. Despite the weakening of the economy itself, government support payments have provided consumers with a lot of money. 

What will happen this year? The good news is that an additional round of government support funds is being released to consumers. This may have a positive impact on the demand for all commodities including pork. The reopening of restaurants will provide some new opportunities to buy pork, but will "a dollar spent on retail buying more pork than a dollar spent on catering services" will bite us in this reversal? To some extent, this is possible. 

It’s important to note that 2020 has taught many people how to cook at home, and some of them actually like it very much and may continue to do so. Therefore, I did not see a complete reversal of last year's demand growth, but I would be surprised if it remained completely maintained.

For another discussion on year-to-date slaughter and demand, please check the March 16 edition of the Daily Livestock Report. 

We still expect a seasonal decline in slaughter this summer, approaching 2.3 million heads in a few weeks. We don't expect any problems with the packaging capacity in the fall, and the peak week will be around 2.7 million. Of course, all of these may change with the "Pigs and Pigs" report next week, but we will be surprised to see that it has changed dramatically.

One factor that affects the unknown is disease-related losses this winter. The "talk" is a huge loss, and blindly bullish people locked in this to justify the summer futures price.   

We have two objective data sources, but if market analysis is your goal, then it is incomplete. I should point out that none of these sources target market analysis.

The weekly pig health monitoring program of the University of Minnesota, Dr. Bob Morrison sampled 3 million sows in approximately 1,000 sow farms, but only reported the incidence of fractures with PRRS (i.e. the number of farms/ percentage). There is no data on severity. Iowa State University publishes a monthly report on veterinary diagnostic laboratories in Iowa, Minnesota, South Dakota, and Kansas. These data do list information about adult sows and pigs weaned to the market, but again they do not include any direct information about the number of pigs lost. 

We have more information than ever before, but we still don't know anything about PRRS losses. If the investigation response is accurate and the USDA’s procedures are good, we should see disease-related deaths and losses in the report next week. In my opinion, they are manifested as a significant reduction in pig production from December to February and stocks below 50 pounds. We will wait and see.

My current judgment is that PRRS cases in sow farms are relatively normal, there are more cases of growth and finishing PRRS, and the death loss has increased compared with the past. That is to say, PRRS should have a negative impact on the number of live pigs in summer. However, based on history, I expect that these reductions may be difficult to see. From May to September, the number of slaughtered pigs may decrease slightly, but they may be dispersed enough that there will be no obvious “holes”.

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