The quarterly USDA hogs and pigs report held a few surprises, with the largest being the 4% annual reduction in fall 2015 farrowings. Producers had indicated in September that they expected 2.920 million of their sows to farrow during the September-November quarter, but last week's report stated that total at just 2.875 million, a difference of almost 2%. That might normally have led to a 2%-3% yearly drop in the pig crop, but the reduction was largely offset by a 2.9% annual jump in litter sizes (to a record at 10.53 pigs/litter).
The USDA also diverged sharply from its recent habit of boosting its stated population totals from previous reports. The March, June and September 2015 reports each revised hog population totals from two quarters prior up by at least 700,000 head. In contrast, this report reduced the Sept. 1, 2015. hog herd estimate by 220,000.
We suspect the industry took the reduction with a grain of salt, due in part to the simple fact that hog supplies continued exceeding report-based expectations throughout the fall months. For example, the September report implied fall hog supplies had risen 6.2% annually, whereas September-November slaughter rates actually rose 7.8%. Moreover, the December report stated the Dec. 1 supply of market-ready hogs just 5% more than a year ago, but kills during the first three weeks of December averaged about 7.8% over late 2014 rates. The bullish futures reaction suggests traders expect a commensurate slowdown in early January. Disappointment on that score could trigger another futures decline.