Jim Long President – CEO Genesus Inc.
January 3, 2023
2022 is over. Interesting year for global pig production. High feed prices all over the world minimized profits for pig production. In many areas, the high feed prices trumped hog prices leading to financial losses. Producers who grew their own feed had a good year if you look at the whole farm income.
USA – North America
As we look to 2023, we see swine inventories lower than a year ago. On December 1 the U.S. was down 1.4 million head from the year before and 4.3 million less than two years ago.
In our opinion, high feed prices relative to hog prices are leading to even lower hog production levels in the near term.
The dynamics of labor challenges, new animal welfare pressures (Prop 12), disease, increased building costs, higher interest rates, old facilities, etc. curtail much expansion enthusiasm.
There will be less U.S. beef in 2023. USDA projecting -7%. Even if it’s not that large there will be significantly less beef in 2023. This will support pork prices.
Poultry is having a big challenge from Avian Flu. The latest data shows 57 million exterminated in the USA. It appears to be not letting up. Egg and Turkey prices have jumped significantly so far, it’s not hit Chicken Broilers as hard. Higher poultry prices support pork prices.
We expect no growth in Canada’s swine sector. It hasn’t changed in five years, and we expect this to continue.
In Mexico, there is not the most reliable inventory data. Price is the reality of supply. Last week Mexico’s national average price 44.75 MXN/kg ($1.06 U.S. liveweight a lb.). The spread between U.S. – Mexico 40¢ lb. or $100 a head. To us, this means Mexico is short of pork pushing prices higher. This is the reason huge amounts of U.S. pork are being imported and will continue.
The U.S. Federal Inspected hog slaughter in 2022 – 124.673 million.
The Canada Federal Inspected hog slaughter in 2022 – 20.911 million.
Total – 146.584 million.
The combined U.S. – Canada swine breeding herd in June – July 2021 was 7.482 million.
If we divide 7.482 million into 146.584 million market hogs the result is 19.6 hogs slaughtered per breeding animal.
Combining U.S. – Canada data captures the pigs imported from Canada whether as small pigs or slaughter.
The average of 19.6 indicated the reality of production. Half are below 19.6.
Dead sows don’t have pigs – average U.S. sow mortality is 14-15% – half of the producers are higher.
Wean to Finish mortality – 9.5% – half of the producers are higher.
Both sow mortality and wean-to-finish mortality have been increasing.
Having more resilient genetics has some true economic benefits.
Last week we wondered about the December 1 U.S. inventory report showing a steady breeding herd. Some of the other data didn’t support this in our opinion. This past week we looked at data further. Here’s an observation.
Illinois Breeding Herd (1,000 head) 2021 2022 September 1 660 590 December 1 590 660
Last week we spoke to several hog industry people we know in Illinois. We asked what did they think of Illinois gaining 70,000 sows from September to December. To summarize no one seemed to name and know where anything close to this could have happened. The thought was September – December was next to zero. Look at numbers from USDA. Did someone transcribe wrong. Are we to believe last year Illinois liquidated 70,000 and this year expanded 70,000. In our opinion good chance the USDA breeding herd on December 1 was overestimated. There is a reason less hogs are coming.
Europe has over 10 million sows. It is a major global producer and exporter. We wrote in October 2021 that the economic conditions of Europe’s industry would lead to the liquidation of 1 million sows before it is done. The inventory report has not been released for November – December this year for all countries. Germany the second largest producer in Europe released there’s a week ago. Down 400,000 sows in the last two years.
Pig numbers are down across Europe leading to high hog prices but with high feed costs. Spain’s price last week was 1.645 Euro/kg (79.8¢ U.S. lb.). Europe has had an advantage in exports through the summer and early fall with lower hog prices then USA-Canada. Now U.S. 60¢ lb. – Europe 80¢ lb. Expect more U.S. exports.
In 2023 we expect continued high hog prices in Europe due to less supply of pork. With less pork, there is less to export.
The lifting of Covid restrictions and large numbers of Covid infections has put big pressure on China’s hog price. In our opinion sick people don’t eat much. Don’t go to restaurants for the fear of getting Covid. Price has dropped over $100 per head but is still high at 17.48 RMB/kg ($1.11 U.S. liveweight lb.). China from what we observe had earlier released its pork reserves. There is no more to release.
Who knows what will happen next. We believe the financial losses from the end of 2021 and into 2022 cut China production in the 10’s of millions. That’s why the China hog price is so strong.
As Covid eventually slows down we expect the China hog price to recover as there will be still a lot less hogs than a year ago. We expect more pork imports.
We see less hogs in North America, less hogs in Europe, less hogs in China. These three areas are about 75-80% of global pork production. This decline in our opinion will lead to very strong hog prices. We continue to believe the summer U.S. price in 2023 will reach beyond $1.20 lb.
We hope in 2023 our industry continues to move to producing better-tasting pork. It is the true driver of consumer demand. It is a way we can grow per capita consumption and sustainable profits. Better eating experience pork we observe in retail stores will sell for more than antibiotic-free and or pen gestation. Taste trumps all. Consumers vote with their money.