June 28, 2018 / 10:36 PM / a year ago

Record-high U.S. June hog herd faces pork demand uncertainty

CHICAGO (Reuters) - The hog population on U.S. farms in the March-May quarter was up 3.4 percent year-on-year, a record high for the quarter, according to the U.S. Department of Agriculture quarterly hog/pig report on Thursday.

Farmers grew their herds, bolstered by record numbers of baby pigs, to feed four new packing plants that came online since late 2017, said analysts.

More hogs in the pipeline present a demand challenge after China in early April tacked extra tariffs on U.S. pork after Washington imposed higher duties on Chinese steel and aluminum.

Mexico will allow in U.S. pork under a quota system despite initial retaliatory measures in response to higher Mexican steel and aluminum imports tariffs set by U.S. President Donald Trump.

“This could be risky fourth quarter in terms of producer profitability given the large supplies coming into the marketplace and the uncertain demand dimension,” said Livestock Marketing Information Center director Jim Robb. “It could be more red ink than normal,” he added.

Don Roose, president of U.S. Commodities, said Thursday’s report confirms that aggressive herd expansion was underway. Record pigs per litter speaks to farmer efficiency in raising piglets, he said.

A previous USDA supply/demand report had forecast increased U.S. pork exports and domestic demand, which is expected to absorb the buildup in supplies, said Roose.

“Those are very much uncertain, particularly when you’re talking about the potential trade concerns,” said Roose.

Chicago Mercantile Exchange lean hog futures on Friday may have a neutral to bearish reaction to the report, said analysts.

Thursday’s USDA report showed the U.S. hog herd as of June 1 at 103.4 percent of the year-ago level or 73.451 million head, the most ever for that period since the government began tabulating the data in 1964.

Analysts’ average forecast was 73.140 million head.

The U.S. breeding herd was 103.5 percent of the year-ago level, at 6.320 million head, up from 6.109 million last year.

The average trade forecast was 6.210 million.

The June 1 supply of market-ready hogs for sale to packers was 103.4 percent of a year earlier, at 67.131 million head, up from 64.901 million last year. Analysts, on average, had estimated 66.921 million.

Editing by Marguerita Choy

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