MURICO.com Forum

I'm just not sure - - -

what to think about the H&P report. The market hog numbers came in almost exactly at the 28.772 level that I outlined in my post,

http://murico.com/muricocgi/bbs62x/newforum.pl?md=read;id=1044 .

However the sows farrowing were a bit lower but they were off-set by the pigs saved per litter being a bit higher. When I made the post, I thought if the market hog numbers came in that high it would be a bearish report. That is still mostly the way I feel but I read others saying that the weakness in the futures last week may have already priced in the higher inventory of market hogs.

It appears to me that there has been significant expansion by producers. One aspect of this expansion, besides the +7.75% yr/yr increase in the number of market hogs you mentioned, is that producers have +1.2% more market hogs than they had in 2013 AND the 6-day moving average carcass weight is +6.41# over 2013. Assuming finishing-hogs gain about 2.25# per day, there would be an extra 1.228 million hogs brought to market in the liquidation of heavies. That's about 2.85 kill-days.

Liquidating this many market hogs would make the effective inventory of market hogs for purposes of projecting the kill going forward at 61.181 million or 9.95% not the actual 7.75% the USDA reported.

If producers do decide to liquidate the heavies, it makes a difference when they decide to liquidate. If they just gradually ship a few extra hogs over the next 6-months maybe the market could absorb them reasonable well. If a bunch of producers decide to ship quickly before the price drops further, that could in fact cause the price to drop more quickly.

What are producers going to do?

I'll be switched if I know but it does appear that the PED virus epidemic triggered a bunch of expansion and unfortunately this expanded number of market hogs is coming to market when the dollar is high and demand negatively impacted by the west coast dockworkers' strike.

It is interesting to note that the quarterly hog reports from 3/1/2011 until 6/1/2014 showed and average breeding herd of 5.820 million with a standard deviation of 0.59%. In other words from 3/1/2011 until 6/1/2014 (14-quarters) the quarterly variance of the breeding herd generally fell in the range of up +0.59% and down -0.59%. Looking at the numbers, 2-standard deviations actually caught 100% of the variations.

Then on 9/1/2014 expansion set in and the breeding herd jumped by 1.79% followed by a 3.16% Yr/Yr jump on 12/1/2014 and another 2.24% Yr/Yr jump on 3/1/2015.

Even though the breeding herd was quite stable from 3/1/2011 to 6/1/2014, there was mild expansion taking place with the regression line showing a slope of 32. In other words, on average producers added 32 sows per quarter from 3/1/2011 until 6/1/2014. That number of sows added together with increased pigs per litter and higher carcass weights kept pork production moving up at a fairly steady rate until the PED virus decimated the pig crop last year.

Now we have an expanded breeding herd, have higher pigs per litter and heavier carcass weights. This will be no problem if each of China's estimated 1,361,512,576 people will eat an extra pork chop or two this year.

Otherwise we may have to face the hard reality of a stressful liquidation phase to the hog cycle.

In actuality we may already be in the liquidation phase of the hog cycle and it began when producers began liquidating the heavies and getting more current in their shipments. I think there is a good chance that we will see more liquidation of market hogs and getting the 6-day moving average carcass weight down further. Since it is more efficient for packers to process heavier hogs, we may not see the carcass weights fall back to the 207# to 208# seen two years ago but I do think it will trend a little further down.

Generally when there is over-expansion of production capability, there will be a liquidation phase and production capacity with be withdrawn from the system. I'm expecting some of this to happen to hog production capability. Most likely it will be lower prices that will force the reduction in production capability. I don't know when it will happen but I will crunch numbers every day looking for clues about what is going on.

I came into the report with what may be too many short futures spread out over my portfolio of hog spread trades.

I hope tomorrow treats me better than it treated me last Tuesday. I didn't let Tuesday's action wring any money out of my accounts. I just kicked the can down the road hoping for better days ahead.

Best wishes,

dhm

Lookinthey decide to ship a t matters when th

Messages In This Thread

Hogs and Pigs Report March 2015
Re: Hogs and Pigs Report March 2015
I'm just not sure - - -
MMMs offered limit down!
I was thinking bearish but - - -
Re: I was thinking bearish but - - -