Analysis by Dr. Steve Meyer:
This is a strongly bullish report with every year/year change number lower than the average trade estimate and all but one of them lower than the LOWEST trade estimate. Only time will tell who was right but USDA is the official word and the market will trade these numbers until proven wrong – if that ever happens. A few important points:
1. Readers should note that USDA’s yr/yr percentage numbers for market inventories CANNOT be used with last year’s data to predict slaughter this year. While the March 2020 report was untainted by the pandemic, slaughter totals for March-Sept 2020 were significantly impacted – at first lower and then higher as plants tried to catch up. These inventories are a reasonable comparison to last year’s March 1 inventories. But the weight class yr/yr changes cannot be used with screwed up 2020 slaughter to predict 2021 slaughter.
2. This is the first year-to-year decrease in March 1 inventories since 2014, the PEDv year.
3. The report carries, I think, evidence that PRRS losses have been larger. The Dec-Feb pig crop is down 1.4% from last year when analysts expected it to be up 0.7%. That fits with the under-50 and 50-119 inventories as well. And even the Dec-Feb litter size which was LOWER than last year – a rare occurrence during a time period that should not have been impacted by pandemic-influenced pig reductions.
4. Mar-May farrowing intentions are reasonable vs. the breeding herd. June-Aug are not – and USDA’s track record on intentions versus subsequent farrowings has been pretty abysmal. See the “Reliability of Quarterly Hog Estimates” table on page 12 of the report.
5. The report moved my annual slaughter forecasts from just over last year to -1%, not a Draconian reduction by any stretch. That number is adjusted for slaughter days in the year.
6. Our price forecasts increased sharply from last quarter to reflect primarily STRONG DEMAND we have seen since the first of the year. While the lower supplies indicated in this report will help push prices higher – which all of us welcome – this is a demand driven market at present and a key to its continuation is that demand remains strong. And there are lots of reasons it well — government stipends to consumers, a rebounding economy, rising employment, better-than-expected exports so far this year. And some reasons it won’t – will the retail-to-foodservice shift reduce demand the opposite of the foodservice-to-retail shift increasing it last year? Will China remain a strong customer (pro side is their ASF losses, con side is the name-calling at the meeting in Alaska last week)? On balance, I expect demand to remain strong. Perhaps not at the levels of January to date but strong relative to history.
7. Quarterly slaughter and price forecasts are shown below.