Pork Commentary, October 18th, 2021
Jim Long, President-CEO, Genesus Inc.
As our readers know, we spent a couple weeks in Spain, the world’s third-largest sow herd country. At the time we wrote about the big drop in hog prices and thought major herd liquidation was ongoing in Northern Europe – Germany, the Netherlands, Belgium, maybe Denmark – Poland. This past week we looked at the markets in Northern Europe now. We have data on prices for the last six years.
- Last week Cull Sows 0.50 Euro/kg – lowest in six years (27¢ U.S. lb.)
- Last week 25 kg feeder pig – 20 Euros – lowest in six years (55 lb. pig – $24 U.S.).
- Last week’s Market Hogs – .0.90 Euro/kg live – matching low of six years.
In Spain, we were told cost of production farrow to finish was 1.18 – 1.22 Euro/kg. Using 1.20 Euros/kg average (64¢ U.S. liveweight a lb.), if breakeven 1.20 Euros and market price 0.90 the loss is 0.30 a kg – .30 x 125 kg market hog = 37.5 Euros loss per head ($45 U.S.).
One guarantee in the hog business is when producers lose money you end up with less hogs after the herd liquidation. Our synopsis, Euro sow price lowest in six years means lots of sows and packers only pay what they have too. Feeder pig price lowest in six years indicates lack of demand and the price finishers figure they can pay to at least break even. Current Market Hog price of 0.90 Euro/kg way below breakeven, losses will be mounting that’s why sow price is low, liquidation.
Meanwhile in China sow herd liquidation continues. We are told the sow price in some areas 2 RMB/kg (15¢ U.S. lb.). They are worth almost nothing. A sign of abundant sows coming to market. Why the liquidation? China’s breakeven estimated to be 21 RMB/kg, the current market price 11 RMB/kg. The loss is 10 RMB/kg (-72¢ lb.) multipled 120 kg hog = loss 1200 RMB per head (264 lb. hog, losing $190 U.S. per head!). It’s hard to believe per head losses of $190 U.S. but that’s the arithmetic.
- Producers run out of cash – can’t buy feed – ship all hogs – sows – plus everything else.
- A major global animal health company told us they are no longer going to ship any products to China – didn’t get paid and are afraid they won’t, ever.
- Biosecurity – health monitoring becomes nonexistent triggering even more ASF, PRRS, and PED breaks.
- One of the publicly-owned stock market World Mega Producer reported loss of $500 million U.S. first half of the year. This year first six months average price of hogs in China about 22 RMB/kg. How’s it working at 11 RMB – $200 a head loss?
- Since January the stock market value of the listed swine genetic companies has declined over $70 billion. Lots of people and businesses out lots and lots of money. $70 billion would have bought the whole U.S. hog industry.
The losses in China per head are the highest ever experienced anywhere at any time. It’s uncharted water, the latest data we saw was China marketing 13 million hogs a week. Farmer Arithmetic 13 million at $190 U.S. per head loss is an industry going backward just about $2.5 billion a week. Maybe too high but take a billion off and it’s still almost incomprehensible. The one guarantee in the hog industry when producers lose money sows get liquidated. When producers lose lots of money lots of sows get liquidated. China losing lots of money.
In 2022 we see fewer hogs in Europe and China. In USA the USDA inventory indicates 6% fewer hogs beginning 2022. The USDA September 1 inventory report had 2.318 million fewer pigs under 120 lbs. than a year before. If we use 16 weeks to get from birth to 120 lbs. 2.318 million that’s 145,000 less hogs per week. A big number.
- Europe will end up with less hogs compared to 2021.
- China will end up with less hogs compared to 2021.
- USA will end up with less hogs compared to 2021
- Every major producer is declining.
Our thought is price will rebound with vengeance as Global supply declines in 2022. Lean Hog futures USA currently undervalued. The dog is going to hit the end of the chain. It’s not if but when.