Pork Commentary, September 8th, 2020
Jim Long, President-CEO, Genesus Inc.

For weeks we have strongly questioned the reported “3 million hogs backed up” opinion of Ag. Economists and futures traders. We just could not comprehend 3 million as a reality. We observed the ripping down of slaughter weights over the last several weeks. We were told we had a “vested interest”, we weren’t sure what that meant other than compared to know nothing chicken little ag economists, we own hogs and our interest in the business far exceeds a cubicle without a door.

Yes, all we have is in the hog business. We are all in as many if not all our customers and many of our readers. We are proud we are vested. Maybe some of the people who have trumpeted “3 million hogs backed up” had a vested interest to depress the hog prices? Only they know the truth.

Some Observations

Chasing Hogs to fill slaughter 

Some Packers are chasing hogs to fill slaughter. Why need to do that if hogs backed up?

National Daily Base Lean Hog Weights

In the first part of May this year National Daily Base Lean Hog Weights averaged 221 lbs. the same time a year ago they were 215.6 lbs. Last week the first 4 days the Weights averaged 206.4 lbs. a year ago same week 211.38 lbs. So, we have gone from about 5 lbs. heavier year over year to 5 lbs. lighter year over year. We don’t have a database to confirm this but we expect the 5 lb. year over year be as a large decline ever recorded. More importantly, anyone who owns hogs knows large levels of backed up hogs don’t lead to lower weights. It would be quite the opposite.

U.S. Cut-Outs

Last Friday U.S. Cut-Outs averaged 80.56¢ lb. This is real positive as a week ago were 72¢ lb. Pork Cut-Outs indicate strong demand.

Feeder Pigs 

Historically this time of year is the low price for feeder pigs. Reason is Sept. 1 – Dec. 31 is maximum annual slaughter and the barns are close to maximum capacity and this cuts feeder pig demands. What we are hearing from sales team and other industry people is right now there are numerous empty finisher barns which is not normal for this time of year. Also, hard to believe hogs backed up if numerous barns empty?

Some year over year 40 lb. feeder pig prices – USDA average.

 2019 2020 Difference
2020 to 2019 
Jan 7$70$68-$2
March 28 $78$47-$31
April 25$74$18-$56
July 18$45$10-$35
Sept. 8$30$27-$3

Its real obvious the collapse of feeder pig prices that occurred during pandemic. What’s interesting to us is the current narrowing of year over year prices in what is traditionally the low price for the year. No one pays more if they don’t have too, what we are seeing in our opinion is the beginning of the realisation of no pigs backed up and fewer pigs being born everyday year over year.

The DTN calculation of the breakeven you can pay for a 40 lb. feeder pig last Friday was $43.64, we expect week upon week appreciation of cash feeder pigs to continually increase. We expect to see $90 plus feeder pigs in 2021.

Empty Finishers

  • Since last December the U.S. sow inventory has been declining steadily. Sow slaughter year to date is about 9,000 more each and every week than a year ago.
  • Low Sow prices is leading to euthanization of poor sows – they don’t end up in current sow slaughter stats.
  • New Sow barn construction is next to non-existent.
  • Gilt retention has declined – we see it in gilt sales.
  • Industry record sow mortality – 12.5% per annum (1% a month). Don’t replace and you have less sows and pigs.
  • USDA Hogs and Pigs Report June 1 indicated 5% less farrowing’s for the balance of 2020.
  • Euthanization of small pigs in May – June is cutting need for barn space and obviously hogs for slaughter.
  • We don’t believe much ration formulation to slow hogs is ongoing.

Summary

  • Guilty – Yes, we have a vested interest in hog prices being profitable.
  • Guilty – We have believed hogs weren’t backed up to the degree “3 million hogs” level spoke about a week ago by the “industry experts”.
  • Guilty – Weeks ago we expressed opinion that Cut-Outs would be first indication of lower hog numbers – closed 80¢ lb. plus Friday.
  • Guilty – We believed liquidation of the sow herd is much greater than the “industry experts”.
  • Guilty – We say to the “industry experts” who claim there will be more hogs in 2021 then 2020 are absolutely wrong, wrong, wrong.
  • Guilty – We believe all lean hog futures are undervalued relative to collapsing hogs supply we expect in 2021.

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