* Pig virus offsets U.S. hog herd expansion
* USDA report seen bullish for CME hogs Monday (Adds analysts' comments, background on pork production, CME futures prices)
By Theopolis Waters
Dec 27 (Reuters) - The U.S. hog herd fell by 1 percent in the latest quarter, slightly more than forecast, U.S. government data showed on Friday, as a deadly swine virus thwarted pork producers' efforts to rebuild herds.
"This confirms that PED is in the nation's hog herd, which was not shown nor implied in their previous report (September)," Rich Nelson, chief strategist at Allendale Inc, said after seeing USDA's lower hog numbers on Friday.
The U.S. Department of Agriculture (USDA) on Friday reported the U.S. hog herd as of Dec. 1 at 99 percent of a year ago, or 65.940 million head. Analysts, on average, expected 66.307 million head, or 99.9 percent of a year earlier. The U.S. hog herd for the same period last year was 66.374 million head.
The quarterly report was the first to show a noticeable drop in hog numbers, which analysts attributed to Porcine Epidemic Diarrhea virus (PEDv), reinforcing expectations that herds will shrink as the industry struggles to develop vaccines to treat the virus that has killed thousands of young pigs across 20 states.
The virus outbreak was largely undetected in USDA's September survey.
In Friday's report, hog numbers in all of the three major categories used by traders and producers as an insight into the state of the market - all hogs and pigs (or inventory), breeding and marketing - came in under expectations.
The closely watched report was surprisingly "bullish", said Nelson.
On Friday, Chicago Mercantile Exchange hog futures for February delivery closed up 0.35 cent per lb, or 0.4 percent, at 85.650 cents ahead of the report.
Analysts predicted the news could push CME hog futures up 0.500 to 0.750 cent at Monday's opening.
As of Dec. 15, the number of confirmed cases with PEDv totaled 1,764, according to data from the USDA's National Animal Health Laboratory Network. Each case could represent hundreds to thousands of hogs.
In a conference call earlier this week, Smithfield Foods , the nation's biggest hog producer, said PEDv might result in a loss of 2 million to 3 million hogs, or a 2 to 3 percent decline in U.S. production in 2014.
Analysts and swine veterinarians have stressed that while the virus is fatal to young pigs, pork is safe to eat.
The government showed the U.S. breeding herd at 99 percent of a year earlier, or 5.757 million head, compared with average trade expectations for 101.0 percent, or 5.875 million. A year ago the breeding herd was 5.819 million head.
The difference between industry estimates and USDA's breeding herd number was "critical", Livestock Marketing Information Center director Jim Robb said.
"Down the road (that) certainly sets up for tighter hog production than what most analysts had been expecting," he said.
Another sign that PEDv is taking its toll on baby pigs is the slowdown in the upward trend in baby pigs per sow, analysts said.
The data on Friday showed producers had a record number of pigs per litter during the period at 10.16, up marginally compared with last autumn's record of 10.15. But, that is the smallest increase over the past two quarters.
"When pigs per litter is up only one tenth of 1 percent after averaging up 2 percent since 2003, that's quite a difference," said University of Missouri livestock economist Ron Plain.
USDA made significant revisions to past reports to account for larger-than-expected hog slaughter in recent months, he said.
The Dec. 1 supply of market-ready hogs was 99 percent of a year earlier at 60.183 million head. Analysts, on average, expected a 0.2 percent decline, or 60.435 million. Last autumn's market hog supply was 60.555 million.
"The overall numbers do not show the expansion that the industry has expected given the profitability of producers," said Robb. (Additional reporting by Meredith Davis and P.J. Huffstutter; Editing by Chizu Nomiyama, Tim Dobbyn and Bob Burgdorfer)