The question about the number of pigs in producers' barns is a matter of interest to all hog traders. Today the U.S.D.A. will tell us what they think. In the last H&P report the USDA projected the December to February farrowings to be 2.870 million. One-year ago the pigs per litter dropped to 9.53 from 10.08, a decrease of 5.46%.

Mostly I believe this was due to the PED virus and that amounted to a death loss of about 1.5 million piglets in that quarter.

Now supposing producers have reduced the PED virus losses by 90% (I'm not projecting that they have, I merely say, "Supposing") then this year there will be 10.03 per litter. If the farrrowings did turn out 2.87 million at 10.03 pigs per litter, the piglets saved for the quarter would be 28.772 million compared to 26.326 million last year. That is an increase of 9.3% Yr/Yr.

The average of of analysts surveyed by Urner Barry's put the pig crop at +9.2%.

Maybe this is how they came up with that number.

Now supposing these numbers are correct and today the USDA reports the December to February pig crop at +9 point something %, we are going to see the kill rate go up by about that amount.

If we now look at what has happened kill-wise since 2/15/15 we see the kill has been up 7.55% over the same period last year -

But-

I estimate that pulling hogs forward and dropping the carcass weights has added about 400,000 to the kill or 3.22%. So the increase in kill resulting from an increase in production amounts to about 4.33%.

If we see 9.2% increase in the piglets saved in the December February quarter, we are going to see some good sized kill-runs between now and the MMMs going to cash settlement. If this increase in the kill rate triggers some further reduction in the carcass weight like we have seen since 2/15/15, that could add another 400,000 to the kill putting the kill at the +12% yr/yr.

I'm not projecting this is what will happen but it is what MIGHT happen.

I do think there is greater risk that we will see a bearish H&P report than a bullish report because it appears that the PED virus losses and the resulting high price of hogs triggered the expansion phase of the hog cycle.

Since 2/15/15 there seems to have been some liquidation of market hogs sufficient to have dropped the 6-day moving average carcass weight from 214.58# to 213.09# yesterday.

The analysts surveyed by Urner Barry are projecting that the breeding herd will be up between 2.4% and 4.6%. This may mean that the expansion phase of the hog cycle is still in progress and the longer it continues, the harsher will be the liquidation phase when it gets into full swing.

There are a lot of hungry mouths in the world and I suppose it is possible for demand to step up and carry off this expanded production at its current price level or higher and extend the expansion phase further and further into the future.

That's not the way I am going to trade it.

My bias is that there is some more work to be done on the downward trend that the CME Lean Hog Index is on. From the afternoon reports the model projected that the final Purchase Index would be down again on yesterday's kill and the component on yesterday's kill will shed another -0.30 to -0.60.

So I plan on keeping a bearish tilt to my portfolio.

Best wishes,

dhm

p.s. I, like Framer Ed, talk hogs better than I trade them. At least he can raise them and all I can do is talk them!