Livestock > Outlook & Prices > Prices
October 2022
Big inventory swings in some hog states
USDA cannot collect every piece of data from every US hog producer to be able to simply add up inventories, pig crops and sows farrowing for each quarterly Hogs and Pigs report.
Instead, USDA’s National Agricultural Statistics Service gathers data from a sample of producers of various sizes in states with various levels of hog production. The goal is to extract and compile, from the bundle of surveys, numbers that accurately reflect what is going on in US pork production.
NASS cannot simply "average" all of the survey numbers to estimate inventories and percent changes in inventories. Here’s why.
Suppose you invest $1,000 in baseball cards. They rise 20% in value. Also suppose you invest $9,000 in cryptocurrency. It dips 20% in value. The simple average rate of return is zero. What is the weighted average return? The $1,800 loss on cryptocurrency overwhelms the $200 gain on baseball cards. You are down $1,600 on your $10,000 investment. So the weighted average rate of return is negative 16%.
From producer surveys, NASS estimated the Sept. 1, 2022 national breeding herd inventory at 6.152 million head, down 0.6% from last year (Table 1). NASS tallied Utah’s Sept. 1, 2022 breeding herd inventory at 55,000 head, down 30,000 head, or 35.3%, from last year (Figure 1).
So which percentage change is right? Odds are both are, with a bit more confidence that the national number is "more" right.
Sample size matters
NASS employs a "top-down" approach for hog inventory, pig crop and sows farrowing estimates. NASS first determines national estimates based on survey responses, slaughter data, balance sheet numbers, state recommendations and ratios of current year and quarter to previous year and quarter. Next, NASS reconciles state estimates to the national number. From a statistical perspective, larger sample sizes yield more precise results. Lumping samples from each state with the other states can generate fairly precise national estimates. Getting the national number "right" is most important as that is what drives market reactions.
Market analysts rarely forecast state-level inventories. Still, individual state numbers are important to the people in those states. They can provide early indications of changes in the local market that may be masked by aggregate, weighted average national numbers.
Cost changes drive decisions
Utah’s hogs and pigs inventory is not large enough to alter national totals. But why did Utah’s breeding inventory plunge 35.3%?
On June 10th of this year, Smithfield Foods announced plans to cease all harvest and processing operations at its subsidiary Farmer John plant in Vernon, California in early 2023.
Vernon is the nearest city to Los Angeles. Smithfield harvested only company-owned hogs at the plant which mainly came from operations in Utah and Arizona. Smithfield’s news release said that it would reduce its sow herd in Utah and was exploring strategic options to exit its farms in Arizona and California. The moves were said to be a result of escalating costs of doing business in California. The company said it would continue to serve customers in California with its Farmer John brand and other brands and products from existing facilities in the Midwest.
Smithfield is providing transition assistance to all employees affected by the moves, including relocation options to other company facilities and farms, as well as retention incentives to ensure business continuity until early next year. The unemployment rate in Los Angeles was 4.9% in August 2022. Workers looking for jobs in the area, likely have or will find them.
Breeding herd age matters
A sound culling strategy is an integral part of herd management. It maintains a steady flow, replacing the less productive sows on a regular basis, without disrupting the overall performance of the breeding herd. Producers voluntarily cull to remove sows identified as having sub-optimal performance. These sows may have shown farrowing difficulties, smaller litter sizes and lower productivity compared to the herd average. The deeper the voluntary cull, the greater the opportunity to boost per unit productivity, but at the expense of fewer units. This is what we have witnessed with the Utah breeding herd.
The June-August 2022 pig crop in the Beehive State, at 442,000 head, was down 9.4% from the previous year. Sows farrowing during the period totaled 32,000 head, down 30.4% from a year ago. The average pigs saved per litter was 13.80 for the June-August period, compared with 10.60 last year. That’s an increase of 30.2% (Figure 2). The 13.80 pigs saved per litter is the largest litter rate for any state, in any quarter, ever.
In contrast to Utah, the Sept. 1, 2022 Texas breeding herd totaled 170,000 head, up 30,000, or 21.4%, from last year. The June-August 2022 Texas pig crop totaled 714,000 head, 6.8% below last year. Pigs per litter averaged 9.40 pigs, down 15.3% from the previous year. Sows farrowed during June 2022 through August 2022 totaled 76,000 head, up 10.1% from last year. Adding so many gilts changes the age distribution of the breeding herd. Before parity three, sows are generally less productive. Other factors are also likely driving the large change in productivity.
Oklahoma also saw a 40,000 head breeding herd rise from Sept. 1, 2021 to Sept. 1, 2022 with a 7.5% hike in sows farrowing in June-August 2022 compared to a year earlier, while the June-August 2022 litter rate fell 6.4%.
Sizable swings in litter rates
Collectively the 14 largest pig producing states had a June-August 2022 litter rate of 11.17 pigs compared to 11.16 pigs last year. Individual states had much different year-over-year differences. For instance, Colorado’s litter rate was down 3.8%, Nebraska’s was down 3.4%, Illinois’s was down 1.4% while Indiana’s and North Carolina’s were both up 1.4%, Iowa’s and Ohio’s were both up 1.8% and Minnesota’s was up 2.5%. For Iowa and Minnesota, these increases led to record high pigs saved per litter for any quarter.
Monitoring disease impacts
The Swine Disease Reporting System includes multiple projects that aggregate data from participating veterinary diagnostic laboratories in the US and reports the major findings to the swine industry. The project is funded by the Swine Health Information Center. The goal is to share information on endemic and emerging diseases affecting the US swine herd, assisting veterinarians and producers in making informed decisions on disease prevention, detection, and management. The website dashboards provide an up-to-date data source.
Pathogen detection and monitoring at the state level can help identify notable changes in hogs and pigs numbers. For example, on July 1, 2022, the one-third mark of the June-August 2022 quarter, the percent of positive PRRSV adult/sow farm cases in Iowa, Minnesota, and Ohio was more than three standard deviations below the baseline. On the other hand, the percent of positive PRRSV adult/sow farm cases in Missouri, Nebraska and South Dakota was over three standard deviations above the baseline.
Commercial slaughter and price forecasts
Table 2 contains the Iowa State University price forecasts for the next four quarters. Prices are for the Iowa-Minnesota producer sold weighted average carcass base price for all purchase types. Basis forecasts along with lean hog futures prices are used to make cash price projections. The table also contains the projected year-over-year changes in commercial hog slaughter.
Lee Schulz, extension livestock specialist, 515-294-3356, lschulz@iastate.edu
