USDA's June Hogs and Pigs report is bearish regarding the outlook for hog prices over the next few months (the market hog inventory is higher than expected), but it is bullish for 2016 prices as farrowing intentions are lower than expected. If USDA's numbers are right, hog slaughter in both 2015 and 2016 could be close to 114.7 million head, up 7.3% from 2014 and the second and third highest ever after the 116.452 million slaughtered in 2008.

The latest Hogs and Pigs report said the total inventory of hogs on U.S. farms at the start of June, 66.9 million head, was up 8.7% from 12 months earlier. (See Table 1 below) The trade was expecting an 8.1% increase. USDA said the market hog inventory was 9.4% larger than a year ago and the number of hogs kept for breeding was up 1.2%. The average of the pre-release trade estimates were for an 8.9% increase in the market hog inventory and a 2.1% increase in the swine breeding herd.

USDA made large upward revisions to past inventory estimates to bring them in line with hog slaughter. USDA raised their estimate of the December market hog inventory by 1,581,000 head (2.4%) and raised their estimate of the March market hog inventory by 700,000 (1.2%). They increased the number of sows farrowed during September-November 2014 by 123,000 litters (4.3%) and increased the September-November pig crop by 1,260,000 (4.3%). USDA also increased pigs per litter during December-February by 0.6%.

USDA said spring (March-May) farrowings were up 1.4% from a year ago. They reported farrowing intentions for summer (June-August) are down 2.5% compared with a year ago and predicted fall (September-November) 2015 farrowings are likely to be down 4.3% compared to 12 months earlier (See Table 3). Spring farrowings were 0.7% lower than trade expectations and 0.7% lower than the forecast made in the March Hogs and Pigs report. USDA's forecast of summer farrowing intentions is 2.0% below the pre-release expectations and 0.4% below the forecast in the March report. Fall farrowing intentions are a big 4.9% below the average trade forecast.

The PED virus has had a big impact on baby pig survival. From December 2013 through May 2014, pigs per litter were down 5.3% compared to a year earlier. Death loss was much less this last winter. The number of pigs per litter during December-February, 10.23 head, was the highest ever for the winter quarter. The year-over-year increase, 7.3%, was more than double any previous quarter in the last 30 years. The trade was expecting a 6.1% increase in spring pigs per litter. Pigs per litter during March-May were actually up 6.0% to a record 10.37 head. The spring pig crop was up 7.5%, which is 0.2 points above the pre-release trade forecast.

USDA's survey indicated the number of market hogs weighing 180 pounds or more on June 1 was up 13.4% compared with 12 months earlier. (See Table 2) This looks high compared to actual slaughter this month. It looks like daily barrow and gilt slaughter in June will be up a bit over 11% compared to a year ago. The report said the 120-179 pound market hog inventory was up 11.5% from a year ago. The 50-119 pound inventory group was up 8.7% from a year earlier. The inventory of pigs weighing less than 50 pounds was up 6.6% compared to a year earlier.

Based on the market hog inventory and the expectation of a steady supply of live hog imports, our forecast is for an increase of 10.6% in third quarter 2015 daily hog slaughter. With this level of pork production, we expect 51-52% lean hogs to average in the low $50s live and Iowa-Minnesota negotiated sales to average close to $70/cwt on a carcass weight basis.

For the fourth quarter of 2015 we expect hog slaughter to be up 4.4% on a daily basis with 51-52% lean hogs averaging close to $50/cwt live and Iowa hogs averaging around $64/cwt on a carcass basis.

With the number of litters farrowed expected to be down 2.5% this summer and pigs per litter up by 2.3% (my forecast), the summer pig crop should be 0.3% or so smaller than a year earlier. We are forecasting first quarter 2016 daily slaughter to be up 0.2% compared to a year ago. Look for carcass prices of barrows and gilts to average in the mid $60s/cwt.

The forecast of a 4.3% decrease in fall farrowing intentions should fully offset an increase in litter size to yield a fall pig crop that is down about 2.4% compared to a year-earlier. We are forecasting second quarter 2016 hog slaughter to be down 1.4% on a daily basis.

Our estimates of slaughter and prices for the next six quarters are in Table 4.