PREVIEW-US hog herd seen at 3-yr low amid losses

* Hog numbers seen down 2.3 percent as of Dec. 1

* Breeding herd seen down 3.3 percent

* Hogs for market seen down 2.2 percent

* Analysts say further cuts needed for profits

By Jerry Bieszk

CHICAGO, Dec 28 (Reuters) - U.S. hog producers continued to reduce their herds in 2009 amid ongoing losses and, as a result, analysts expect supplies as of Dec. 1 to be the smallest in three years.

Anemic demand for pork due to the economic recession and double-digit unemployment, plus the outbreak of the H1N1 flu, combined to pressure hog prices.

Hog prices were down 25 percent in first eight months of 2009, but a late year rally produced a 6 percent year-to-date gain.

"The lack of producer profitability thus far this year suggests hog producers should be reducing the U.S. sow herd," said Erica Rosa, agricultural economist with the Livestock Marketing Information Center, which provides economic analysis and market projections for the livestock industry.

The U.S. Agriculture Department will issue the year's final quarterly hogs and pigs report on Wednesday.

Analysts polled by Reuters were expecting the report to show the hog herd declining for a fifth consecutive quarter. [USLIV/PIGS].

Analysts, on average, expect Wednesday's USDA report to show the U.S. hog herd at 97.7 percent of a year earlier, the breeding herd at 96.7 percent, and the market hog supply at 97.8 percent.

But they differed on the degree of reduction during the latest quarter as some producers may have canceled herd reduction efforts, a move that may have offset the slowdown in imports of Canadian hogs.

Even if USDA's numbers match the average trade estimates, analysts said, further herd reduction is needed to restore profits.

'NO SIGNAL TO LIQUIDATE'

"The industry is pulling back, but not as much as some people had been hoping for," said Don Roose, president of U.S. Commodities Inc. "From a supply side, the decline is not good enough. We need to be down more like 3 or 4 percent.

"We just haven't gotten a signal to liquidate. We have premiums in the (hog futures) market, which are keeping the faith out there," he said.

A drop in the number of hogs imported from Canada following implementation of Country of Origin Labeling in the United States helped reduce the U.S. herd size. U.S. producers and packers were reluctant to handle Canadian hogs amid concerns that consumers would shy away from pork that did not have a U.S. label.

"It does look like these last two pig crops (reports) would support a market hog figure in the 98 to 98.5 percent of a year ago, but you adjust for Canadians (hogs) and you have a smaller number," said Bob Vande Vorde, livestock analyst with brokerage firm Mast Group LLC.

He said breeding hog numbers usually don't fall much during the final quarter, but were likely to do so this year because of poor profits.

"My breeding estimate takes 62,000 head out of the herd from Sept. 1 to Dec. 1. If it were not for year-on-year reductions in Canadian-origin feeder pigs in our market hog mix, our market hog number would be fully 1 percent larger. Breeding herd number over the past two quarters has been reduced 24,000 head and 93,000 head, respectively," he said. (Editing by Walter Bagley)