hog report comments

these are comments from Bert Caputo CFA, for RBC Dominion Securities;

Today’s Quarterly inventory report of US pigs looks to be bullish fall and winter hog futures
I would expect a higher trade from October thru to winter 2022 futures tomorrow
The report was negative near by July and August futures vs. average trade expectations yet these contracts have already fallen and are sharply discounted to the cash trade
Report Highlights
All 3 major categories came in spot on with average trade estimates
Total inventory down 2.2% vs. avg guess of down 2.3%
Breeding down 1.5% vs. avg guess of down 1.1% -- bullish – further confirmation of herd liquidation
Marketing down 2.3% vs. avg guess of down 2.4%
Looking at the weight breakdown here is where it starts to get bullish Fall hogs when you look at the lighter pig classes
The 50 to 119 pound class came in at 97.3% vs. avg guess of 99% -- the 97.3% matches the lowest trade estimate – these would be slaughter hogs between August 13 and October 11
The under 50 pounders came in at 97.1% vs. avg guess of 99.1% and it was slightly below the lowest trade guess of 97.2% -- these would be slaughter hogs between October 12 to December 8
Looking at the heavier hogs for July and August slaughter – the 180 pounders and over which are current market hogs came in at 98.5% vs. avg guess of 94.4%
The 120 to 179 pound class which would be August slaughter came in at 98.5% as well vs. avg guess of 95.6%
Now if we look at weekly kill so far during June – for the week ending June 19th – June slaughter is down 8.5% vs. last year – now a lot of this decline vs. last year has to do with how the Memorial Day holiday fell
Also – like I mentioned on the call yesterday – last year the USDA overestimated spring and summer hog supplies due to the COVID back up, making it look like we had more hogs during this time period then we actually did
So when doing a year over year comparison – it would make this year’s small number look like an even bigger percentage drop vs. last year because last year’s number was too high
For this reason – I would be cautious to read too much into the percentage change year over year for spring and summer hogs vs. what the average trade guess was
The heavier weight drops of 98.5% still fell within the range of trade guess – but just near the high side
The March to May Pig crop was down 3.1% vs. avg drop of 1.9% -- this would be fall hog supplies
Pigs per Liter posted another year over year drop – down 0.5% vs. avg guess of up 0.5% -- two quarters in a row we have seen year over year drops in pigs per liter
Farrowing intentions were also bullish
The second guess for the June to August quarter was down 4.4% vs. avg guess of down 3.3%
The first guess for Sept to Nov farrowings were down 2.5% vs. avg guess of down 0.8%

Hog futures will have expanded limits tomorrow
I would expect October and further out to be up sharply higher off this report
July and August – will depend on how trade reads into the percentage decline and what cash and cutout does – but July has already built in a big buffer for a drop in cash and cutout

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