Pork Commentary, January 24th, 2022
Jim Long, President-CEO, Genesus Inc.
It appears U.S. lean hog futures are finally moving closer to the reality that will be the spring-summer prices of 2022. For several weeks we have been speaking to the fact that from mid-April to mid-August 2021 lean hog prices were $1.00 lean plus lb. We could not comprehend why 2022 with definitely less hogs than 2021 would not match or exceed the 2021 cash price points.
Lean Hog Futures
|November 1||January 22|
We expect cash lean hogs will surpass their lean hog futures with cash prices reaching points over $1.20 this summer.
It appears Packers in USA and Canada are struggling to get hogs slaughtered due to current Covid (Omicron) on top of an already shorted workforce. Last week’s projected U.S. hog slaughter was 2,440,000 compared to last year’s same week 2,718,000 (down over 10%). Some of the decline is a smaller inventory but it is not all of the difference. The good news is so far weights seem to indicate hogs not backing up.
Iowa – S. Minnesota Average Weight
|Jan 15, 2022||291.4 lbs.|
|Week ago, 1/8 2022||292.2 lbs.|
|Year ago, 1/16 2021||291.8 lbs.|
Weights declined from week before and are lower than a year ago. We expect when Omicron runs its course and workforce gets more available we will see a surge in cash hogs as Packers start chasing the limited number of hogs.
Everyone gets a turn to ride the wheelbarrow. Over the next few months, it will be the producers’ turn.
Iowa Pork Congress
This coming week we will be at the Iowa Pork Congress the premier U.S. winter swine event. We will be at Genesus Booth. All are invited to the annual Genesus Reception on Wednesday. I hope to see you there. Next week we will report our observations from the Congress.
Wens is one of China’s World Mega producers which at the end of 2020 had 1.1 million sows. Wens recently released a performance forecast for 2021.
- Hog Sales – 13.2174 million
- Average Sales Price – 17.34 yuan/kg ($1.26 U.S. lb.)
- 2021 Financial loss – 13 billion yuan ($2.05 billion)
If we got it correct, Wens is projecting a $2.05 billion-dollar loss on 13.2174 million hogs marketed while selling at an average of $1.26 U.S. lb. Our Farmer Arithmetic – the number of hogs divided into financial loss is $155 U.S. per head. If Wens had 13.2174 million hogs divided by 1.1 million sows = 12 hogs sold per sow per year.
We Pig is a database in China with 156,203 sows on 195 participating farms.
|Average||Top 10%||Mean||Top 10%|
|Weaned per Litter||9.81||11.59||11.65||12.95|
|Litter per Sow Per Year||1.93||2.39||–||–|
|Pigs Sow Year||18.57||26.57||24.51||30.74|
We expect wean to finish mortality in China is 15-20%. If so, the average producer circling around 15 hogs per sow per year marketed.
China National Bureau of Statistics reports 670 million hogs sold nationwide in 2021. Our Farmer Arithmetic – if we use $100 per head per hog. 670 million x $100 = $67 billion U.S. loss for industry.
Over the coming weeks, the hog companies that are publicly owned will release their financials for 2021. We will see the losses they report.
Our premise – when producers lose money you get less hogs. When you lose lots of money (i.e. $100 per head) you get a lot less hogs. We expect China’s sow herd has declined and is still declining as loses are still in the $100 per head range. Imagine what would be happening here if we had lost $100 per head for months upon months. Armageddon.
As the legendary trader from Memphis Charlie McVean often said “Wait until the dog hits the end of the chain.”
We expect that ongoing decline of the sow herd of USA, Europe, and China, with over 75% of the world’s swine, will lead to an explosion of prices when the dog hits the end of the chain.