HOG REPORT SHOWS MORE HOGS ON FARMS

  The USDA quarterly hogs and pig report
  yesterday showed more hogs on U.S. farms compared to last year
  as profitability resulting from low grain prices encouraged
  producers to step up production, analysts said.
      Most analysts seemed to agree with Chicago Mercantile
  Exchange floor traders that the report will be viewed as
  bearish to pork futures and futures prices may open sharply
  lower today. Some traders and analysts expect limit declines in
  nearby contracts, with spillover selling likely in cattle.
      University of Missouri agronomist Glen Grimes said,"The
  report shows that hog producers have responded to a very
  desirable feeding ratio that they enjoyed for the past 10
  months."
      Shearson Lehman analyst Chuck Levitt said hog futures
  prices are above producers' break even points. Even if futures
  fell the daily limit of 1.50 cents today, producers could still
  lock in a profit, which increases the likelihood of heavy
  selling pressure today.
      "We have not had a period of profitability of this
  magnitude since last summer," Levitt said. "In fact, hog
  operations on many mixed livestock/grain enterprises have been
  so profitable that it actually enabled some farmers to get back
  on their feet and refinance their loans just based on the hog
  operation alone."
      Levitt said the weight breakdown in the report also was
  negative, in that some lead time was anticipated before the
  slaughter increased from the previous year.
      We expected farmers to increase hog operations, but we
  didn't expect this degree of expansion to show up in a 10-state
  spring report, Levitt added.
      High hog corn ratios (the number of bushels of corn that
  could be bought for 100 lbs of hog) and the resulting increased
  profits, encouraged farmers and confinement operations to
  increase production starting late last year.
      Analysts also noted that part of the increase in the hog
  herd resulted from a revision of the December report and
  without the revision, the March report might have been very
  close to average expectations.
      Robin Fuller of Agri Analysis said the USDA made a major
  upward revision of 105,000 head in the size of the breeding
  herd in the December 1 report. So the December report was more
  bearish than initially indicated.
      But Fuller, as well as other analysts, expected the report
  to be less negative on deferred futures contracts. Distant
  contracts are already at a sharp discount to cash because
  traders anticipated high farrowing intentions, she noted.
      Discounts in the October and December contracts take into
  consideration a six to seven pct increase in March/May
  farrowing intentions, which was borne out in the March 1
  report, Fuller said.
      Grimes said, "As far as the distant months are concerned,
  if our first quarter pig crop is up only six pct and under 60
  lb inventories actually up only five pct, it would take a
  tremendous discount in price for each percent increase for us
  to push down to the prices that the current futures show for
  the July and August period."
      Jerry Abbenhaus, analyst for AGE Clearing noted that
  distant futures prices are already 15 to 20 dlrs lower than
  they were last summer.
      "If cash hogs at the 7-markets last year averaged 61 dlrs
  during July, that doesn't mean hogs have to be 15 dlrs cheaper
  this year because we have six pct more numbers," he said.
  

