Hogs are generally bred twice a year in a continuous cycle designed to provide a steady flow of production. The gestation period for hogs is 3-1/2 months and the average litter size is 9 pigs. The pigs are weaned at 3-4 weeks of age. The pigs are then fed so as to maximize weight gain. The feed consists primarily of grains such as corn, barley, milo, oats, and wheat. Protein is added from oilseed meals. Hogs typically gain 3.1 pounds per pound of feed. The time from birth to slaughter is typically 6 months. Hogs are ready for slaughter at about 254 pounds, producing a dressed carcass weight of around 190 pounds and an average 88.6 pounds of lean meat. The lean meat consists of 21% ham, 20% loin, 14% belly, 3% spareribs, 7% Boston butt roast and blade steaks, and 10% picnic, with the remaining 25% going into jowl, lean trim, fat, miscellaneous cuts, and trimmings. Futures on lean hogs are traded at the CME Group. The futures contract is settled in cash based on the CME Lean Hog Index price, meaning that no physical delivery of hogs occurs. The CME Lean Hog Index is based on the 2-day average net price of slaughtered hogs at the average lean percentage level.
Prices - CME lean hog futures prices (Barchart.com electronic symbol HE) had a parabolic rally the first half of 2014 on concern about future pork production due to Porcine Epidemic Diarrhea (PED) virus, which has a near 100% mortality rate for piglets. Going into Q2, the PED virus had spread throughout 30 U.S. states and killed more than 8 million pigs since April 2013, and spread to hog farms in Canada, Japan, South Korea and Taiwan. USDA data confirmed the seriousness of the virus when the Q1 Quarterly Hogs & Pigs report showed that the U.S. hog inventory on March 1, 2013 had fallen -3.3% yr/yr to 62.9 million hogs, a 7-year low. The rally stalled briefly in May after USDA slaughter data showed hog weights had risen to 222.04 lbs, the highest since the USDA began tracking the data in 2002. Hog futures prices then surged to a record 133.900 cents a pound in July, the highest since hog futures began trading in 1964. Hog prices then plunged the rest of the year as record-high pork prices decimated consumer demand. Also, containment of the PED virus hammered hog prices after USDA data showed only 239 cases of the virus reported on U.S. pig farms in September, the fewest in 11 months. Hog futures prices ended 2014 down -4.9% at 81.200 cents per pound.
Supply - World pork production in 2014 rose +1.6% to 110.606 million metric tons. The USDA is forecasting a rise of +1.1% to 111.845 million metric tons in 2015. The world's largest pork producers are China with 51% of world production in 2014, the European Union with 20%, and the U.S. with 9%.
U.S. pork production in 2014 fell -1.9% to 10.329 million metric tons. The USDA is forecasting that U.S. pork production in 2015 will rise by +5.1% to 10.858 million metric tons. The number of hogs and pigs on U.S. farms in 2014 (Dec 1) rose by +2.1% to 67.775 million, well below more than 6-decade high of 68.117 in 2007. The federally-inspected hog slaughter in the U.S. in 2014 fell -4.6% to 106.122 million head, well below the 2008 record high of 115.421 million head.
Demand - World consumption of pork in 2014 rose by +1.3% to 109.882 million metric tons. The USDA is forecasting an increase of +1.2% in 2015 to 111.174 million metric tons. U.S. consumption of pork in 2014 fell by -2.4% to 8.455 million metric tons. The USDA is forecasting a +5.0% increase in U.S. pork consumption in 2015 to 8.874 million metric tons.
Trade - World pork exports in 2014 fell -1.4% to 6.936 million metric tons. The USDA is forecasting that world pork exports in 2015 will increase by +3.7% to 7.196 million metric tons. The world's largest pork exporters are the U.S. with 33% of world exports in 2014, the European Union with 31%, Canada with 17%, and Brazil with 8%. U.S. pork exports in 2014 rose by +2.4% to 2.321 million metric tons and the USDA is forecasting a rise of +2.6% in 2015 to 2.381 million metric tons.
World pork imports in 2014 fell -6.3% to 6.245 million metric tons. The USDA is forecasting that world pork imports will rise by +1.2% to 6.323 million metric tons in 2015. The world's largest pork importers are Japan, which accounted for 21% of world imports in 2014, Mexico (13%), and China (13%).
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