Producers freshen the swine breeding herd
An old proverb says, "You can’t make a silk purse out of a sow’s ear." Forget the silk purse. Many producers would rather have the sow right now–or better yet a replacement gilt.
Early 2021 slaughter sow values ran in the mid-$190s per head according to the Daily Direct Prior Day Sow and Boar Report (LM_HG234), published by USDA Agricultural Marketing Service (AMS) (Figure 1). This is a value based on the average price per hundredweight across all weight categories multiplied by the average live weight. Weight ranges include 300-399, 400-449, 450-499, 500-549, and 550 pounds and up. Price per pound, or hundred weight, for cull sows typically rises as market body weight becomes heavier. By March and April prices had surged, with culls averaging almost $400 per head, the highest since August 2014. Summer sow values cooled to around $250 per head. This is still 2.5 times a year ago and 15% above the 2015-2019 average for this time of year.
Solid sow income goes a long way toward paying production costs, or buying replacement gilts. Breeding gilt prices have soared to almost $350 per head. With a little more momentum they could surpass the levels seen in 2014. The price of replacement gilts can be estimated using a negotiated price for barrows and gilts from sources such as the National Daily Direct Hog Prior Day Report-Slaughtered Swine (LM_HG201) published by the USDA Agricultural Marketing Service. An adjustment is typically added for a genetic premium - in this case we use $85 per head.
Trend is toward steady
The pork market uses these price signals to help operate efficiently. Not stopping and starting abruptly. Instead gently tapping the brakes or the accelerator as conditions change. In fact, the US breeding herd has become more and more stable over time with both expansions and contractions being smaller in percentage magnitude. The hog cycle is not dead, but calling peaks and troughs in the breeding herd is much harder.
The massive losses of 1998 and 1999 drove December-to-December breeding herd reductions of 4.0% and 6.7%, respectively. More indicative of a measured response is the 2.7% and 3.5% decreases in 2008 and 2009 and the 3.2% and 1.1% increases in 2014 and 2015. The December 1, 2020 breeding herd was down 3.0% from year earlier levels after the tribulations experienced in 2020. Concurrently, high feed prices, labor shortages, and more incidence of PRRS are a few dampers on current expansion plans. Producers rarely expand immediately when hog returns become favorable. Normally three to six months of favorable profits are needed before general expansion of the breeding herd occurs.
The latest USDA National Agricultural Statistics Service survey of hogs and pigs farms pegs the US breeding herd at 6.230 million head on June 1, 2021 (Table 1). This is down 1.5% from a year ago but actually up 15,000 head, or 0.2%, from the March 1, 2021 estimate of 6.215 million head.
Spring sow slaughter big again
The ability to somewhat maintain the size of the breeding herd is more amazing than the numbers show. Sow and boar slaughter in March, April and May was 897,500 head, only 34,200 head or 3.7% lower than the big cull in 2020. For the quarter, the ratio of slaughter to the March 1 breeding herd inventory was 14.4%. This was only fractionally lower than the same quarter in 2020. Before that, the last time this ratio was this high was during 2013’s short feed crop situation.
Agreed, part of the higher cull number reflects higher imports of slaughter sows and boars from Canada. Through the first six months of 2021 slaughter sow and boar imports jumped 19,186 head or 9.1% compared to the same period last year. Most of that rise came in the first quarter when sow prices were their strongest, but breeding hog imports from Canada are also up 4,371 head or 7.2% for the year. Most of that surge came in the second quarter of 2021.
Gilt retention remains robust
Producers were able to curb breeding herd contraction despite a high sow cull rate. This implies producers are retaining gilts at a high rate to back fill sow sales. If lower cull values add to the incentive to keep older sows, then higher cull values can contribute to refreshing the herd, conditions willing. Some of this could be health-related depops-repops. Some could be upgrading genetics now while cash is available. Replacing sows with younger gilts can also ease the feed cost squeeze. Sows need more maintenance feed due to their mature size.
Ultimately, the decision to re-up with gilts is based on the relationship between current and expected future hog prices, as well as on the projected stream of production costs. Futures are giving producers a positive margin for the next six months, the six months after that, and maybe longer. Salvage value can help too: cull sow sales normally represent a relatively small percentage of total annual gross income for farrowing operations. It is higher in 2021.
Pig crop, litter rates ease
The March-May 2021 pig crop, at 33.584 million head, was down 3.1% from 2020. Sows farrowing during this period totaled 3.067 million head, down 2.6% from 2020 and 2.1% from 2019. The average pigs saved per litter was 10.95 for the March-May period, compared to 11.00 last year. Each extra pig is worth much more this year than last year at this time. While lower litter rates could have come from higher disease incidence and labor challenges, the makeup of the breeding herd is also a likely culprit. Litter size is usually smallest in the first litter, rises to a maximum between the third and fifth litter, and then remains constant or declines slightly with older parities. Smaller litters help support the notion of a higher sow replacement rate and an overall younger national breeding herd.
Hog producers say they intend to farrow 3.115 million sows during the June-August 2021 quarter, down 4.4% from June-August 2020 actual sows farrowing and down 4.9% from the same period in 2019.
The Hogs and Pigs survey asks producers about "hogs kept for breeding" without specifying their age. While some gilts are selected from the population of market hogs, many are produced by specialized female lines and may be "kept for breeding" from a very early age. Inclusion of more of these younger animals than usual would inflate the breeding herd number. A subtle aspect that holds this together is the breeding herd utilization rate. The June-August 2021 farrowing intentions as a percent of the June 1, 2021 breeding hog inventory would be down to 50.0%, much smaller than the last several years when producers were holding sows longer (Figure 2).
Watch whether producers maintain the breeding herd, or trim it, into the fall and winter. We do not know what they will do but the wave of gilts likely coming and typical within year inventory dynamics are on the side of holding numbers.
Notwithstanding 2020, for obvious reasons, the September and December breeding herds have been the largest inventories within a year since 2014. December has been the largest all but one of those years. In 2018, the September breeding herd was the largest. So while 2021 year-end breeding herd inventories could be marginally down from 2020, next year’s change may not be negative at all. The 2021 feed crop surely will have something to say about that.
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.
A look back at death loss in 2020
How much did COVID-19 related supply chain disruptions contribute to pig death loss? Was 2020 worse than other years that had major challenges?
The USDA-National Agricultural Statistics Service combines survey-based estimators and administrative information to construct balance sheets to estimate supply. Commercial slaughter, imports, and exports information are from administrative sources. Pig crop, deaths, and home slaughter data come from USDA-NASS surveys. For example, the most recent Hogs and Pigs survey asked, "How many weaned pigs and older hogs owned by this operation died during March, April, and May 2021?"
The USDA-NASS Meat Animals Production, Disposition, and Income Annual Summary publishes the annual balance sheet for hogs. The disposition report includes estimates of beginning and ending inventories, births, deaths, in-shipments, marketings, and ending inventories. Death loss refers to pigs that die after weaning and cannot be counted in any inventory category.
Operations had 13,631,200 post weaning mortalities in 2020 (Figure 3). That is an increase of 1,674,400 head or up 14.0% from 2019. It was a record level for the data series.
Still, that number is modest relative to height of the pandemic expectations (anticipations) due to a variety of factors.
From 1988 through 2020 death loss is almost perfectly positively correlated with slaughter with a correlation coefficient of 0.96, which makes sense given USDA’s balance sheet approach and death loss serving as the residual that helps balance pigs crops and slaughter. The year 2019 had a record large pig crop. Many of those pigs were marketed in 2020. The year 2020 had a record large slaughter level.
Because inventories were record-large and by association larger slaughter levels, death loss in units was expected to be higher in 2020 irrespective of any disruptions.
Analysts can use USDA data to calculate annual death loss percentage in several ways. One is simply dividing deaths by the total annual pig crop, which was 139,157,900 pigs in 2020. By this measure, death loss was 9.8%. That is up from 9.0% in 2018 and 8.6% in 2019.
The slaughter capacity crisis in 1998 that created a liquidity crisis for pork producers, and a business crisis for US pork production that spilled into 1999 saw an uptick in death loss. The 5,023,200 head death loss in 1997 saw an uptick to 5,924,800 in 1998 and 6,575,000 in 1999. This equated to year over year increases of 17.9% and 11.0%, respectively. Annual death loss percentage (deaths divided by pig crops) was 5.0% in 1997, 5.6% in 1998, and 6.4% in 1999. It is important to remember that the industry slaughtered over 30 million more hogs in 2020 than in the late 1990s.
Operations suffered a notable rise in death loss in 2013 and 2014 due to the health challenge with PEDV. Pig deaths climbed 7.3% from 2012 to 2013 and another 4.7% from 2013 to 2014. The annual mortality rate was 7.5% in 2012, 8.2% in 2013, and 8.6% in 2014. Even with much larger pig crops, the industry was able to remain in the 8.5% to 9.0% mortality rate range over the 2015-2019 period.
Lee Schulz, extension livestock specialist, 515-294-3356, firstname.lastname@example.org