This week we spoke at the National Pork Industry Conference (NPIC) being held in Wisconsin. The talk was on a World Market update.
World Markets
• Our Premise – The three major hog producing areas in the world USA, China, Europe are all cutting production at the same time. This has never happened before.
Feed Prices
• Feed Prices have pushed cost of production to record levels all over the world. Some relief in sight.
Contract Highs Now Corn December $7.66 $6.07 Wheat July $12.84 $8.31 Soybeans September $16.06 $14.16
• Spain 370 Euros/ton or over $10.40 a bushel, was $11.60 a bushel
• China 3128 RMB = $12.50 a bushel, was $13.70 a bushel
Europe
| December 1 | ||||
| 2020 | 2021 | # down | Percentage | |
| Breeding Pigs | 11,415 | 11,004 | – 411 | – 3% |
| Total Pigs | 145,877 | 141,516 | – 4,321 | – 3% |
Europe Pork decline 5% Q1 – was 7% lower in March
Germany
• 1.48 million sows May 2022
• Germany has declined 6.2% since December 1 (-100,000) down to 1.48 million. Down over 200,000 in the last 18 months.
• High feed prices
• Loss of exports due to ASF
• New animal welfare regulations
• 12% less pork in Q1 vs. a year ago
Spain
• Largest producer in Europe
• Business model – contracting unlike rest of Europe it has been the only country in Europe to expand in the past two years
• Last ten weeks slaughter has declined year over year
• Has the highest price on record – just over cost of production
Netherlands
• Livestock industry under huge pressure for nitrogen pollution
• $27 billion USD budgeted to radically reduce livestock production through farmer buyouts – voluntary to start with
Sow herd (1,000 head) 2014 2019 2021 1,106 1,047 910
• Huge protests underway – some estimates sow herd will be cut by 30% -300,000 sows. Less hogs coming
China
• Sow liquidation began last July – 10 months later is March-April.
China Average Hog Prices Price per lb. 35 lb. Feeder Pigs Low was March 18 85¢ lb. $59.60 Week of July 7 $1.38 lb. $103.29
• The only reason the price increased is because of less pigs. China just had its 1998.
June 1 USDA Hogs and Pigs Report (1,000 head) 2020 2021 2022 Kept for Breeding 6,236 6,220 6,168 Market 71,038 66,933 66,356 Pigs per Litter Dec.-May 11.00 10.95 10.97 Sows Farrowing Actual Dec-May 6,329 5,964 5,904 June-November 6,425 6,098 6,025
Why less Hogs?
• Financial losses during Covid crisis
• High feed costs
• Difficulty to get labor
• High building costs – $4,000 sow farrow to wean
• Breakeven?
• Generational change
USA – Demand
• Chicken production lower year over year with prices now $1.60 lb. a year ago $1.05 lb.
• Beef cow liquidation and lack of Heifer retention at record combined levels. USDA projecting almost 2 billion lbs. less Beef in 2023 then 2022 (-7%). Equal to about 4 weeks of hog production.
• Inflation – we don’t think it will cut U.S. Pork demand – consumers will cut out other items. Beef $2.60 cut-outs – Pork $1.08 cut-outs.
Fake Meat
Beyond Meat stock (Nasdaq: BYND)
• 234.90 High in 2019
• 27.17 Last week
Market capitalization – down $15 billion from peak
Down -$1.74 billion since January 1, 2022
Taste does matter
Gene-Edited Foods
• Survey by Iowa State of 2,000 U.S. residents
• Quote “Around 60% of the women in the survey said they would be unwilling to eat and purposely avoid gene-edited food.
Our Concern – Gene Edited Foods
• We support technology but we need to have customers for our Pork.
• I.E Paylean legal product – one customer China says no. Now no Paylean. What happens when one customer says no to Gene-Edited?
Pork Exports
• Challenge of Euro to U.S. dollar
• A year ago, 1.18 Euros to $1 USD – Now 1.03 Euros to $1
• This makes U.S. pork less competitive in World Markets at an almost 15% change
• Year to date exports down -24%
• Thank god for Mexico as its up 11% and the leading export country
• China starts up most U.S. plants approved unlike Spain and Canada
Summary
• Our premise is China, Europe and the USA the major hog producing areas with 75% of the world’s production all down at same time, probably first time in history.
• U.S. hog prices in our opinion be at minimum the same as this past 12 months with significant upside as global pork supply craters.
