Pork Commentary
Jim Long President – CEO Genesus Inc.
October 17, 2022
Last week U.S. hog slaughter was 2.545 million head, a year ago same week 2.630 million, down 3.3% year over year. Year to date -3.1%.
The latest Iowa – S. Minnesota slaughter weights were this week 282.1 lbs., a year ago 285.8 lbs. – 3.7 lbs. lower.
Less hogs, lower weight year over year. In line with inventory reports indicating fewer hogs from a continually smaller sow herd.
USDA calculation of Pork cut-outs was $1.01.86 lb. last Friday. The average net price of live hogs is 94.19¢ lb. Packers should now be making money. They had several months of tough sledding. Packers need to make money to have a sustainable industry.
China
We wrote for several months that the huge financial losses encountered by China’s hog producers would lead to fewer hogs. This week’s price is $1.76 lb. (28.24 RMB/kg) for a 275 lb. hog. On March 18th the price was 85¢ lb. On the 1st of September, it was $1.47 lb.
China has announced several releases of pork reserves in September – October. It isn’t enough to slow price increases, the decline in hog numbers is too good. Since the 1st of September up 29¢ lb. or $80 per head.
Hog futures in China reached a new contract high last week January 23,735 RMB tonne – 3,336,71 U.S. tonne ($1.51 U.S. lb.). We expect higher prices yet. As the supply of hogs continues to plummet. It’s not if but when China will begin with major pork imports to keep consumer prices from accelerating even higher. We expect feeding the people will trump hog producers making even more money. The industry had gone from losing $100 per head to making over $100 per head. There is a saying “surest cure to low prices is low prices.”
Poland
Poland’s latest swine inventory report is a reflection of the economics that is affecting the EU swine industry.
June 2021 2022 Difference Breeding Herd (thousands) 724,000 606.4 -128,800 (-17.5%) Pig Inventory (millions) 11.03 9.61 -1.42 (-12.9%)
In one year, a decline of 17.5% in the sow herd. We understand that liquidation has continued since June.
Liquidation is always a reflection of economics and lack of confidence is the future.
Pork – Taste
We had some international visitors last week who were pig producers in Asia. Before they visited, they were in Chicago and met some friends for dinner in a Morton’s (a very high-end steakhouse chain). They ordered the Pork Chop on the menu. It was $40, then you get to order potatoes, and vegetables separately. Fair to say $40 is an expensive piece of meat. The Pork Chop came and they didn’t like the taste, they brought another one, same story, bad eating. Kept that one but really disappointed.
It’s really bad as an industry we haven’t realized “The Other White Meat” has failed. We continually produce pork that doesn’t deliver a good eating experience. We miss so many opportunities to enhance demand with better-tasting pork. Bellies – Ribs that are heavily marbled continue to lead the pork cut-outs, values we all know why because they taste better. The same logic to put into loins and hams (50% of the carcass). More marbling will improve the taste.
For 24 years Genesus has worked on producing marbled pork at a competitive cost of production. It is in our total philosophy we must put consumers first. They are the customers. If each U.S. consumer ate pork one more time a month it would increase consumption by 7 million hogs per year. That’s real demand.
If we could increase global demand for a better eating experience it multiplies into 10’s of millions of more hogs.
Fundamentally we believe in a simple marketing concept “It’s never bad business to have a better product.” Better-tasting pork is a must for our industry to grow in demand.
Summary
With U.S. pork production down, Europe production down, China production down. We believe U.S. lean hog futures are significantly undervalued. Summer lean hog futures of mid 90’s makes a mockery of where prices will be next summer. We expect $1.20 plus.
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