Jim Long President – CEO Genesus Inc.
March 20th, 2023
This past week was not good for U.S. hog producers. Lean hog futures, cash hogs and pork cut-outs declined. In our opinion driven mostly lower because of banking issues that seem to trigger fund selling in futures. Some of it could be pressure to generate liquidity due to other banking related issues i.e., bonds. You get more sellers than buyers, the price declines.
We also understand lean futures decline was pushed by a speculation the USA was getting African Swine Fever which it hasn’t.
We certainly wonder the benefit of lean hog futures to the hog industry. Almost all the world’s pig production has no futures market of significance. Most of the world has higher hog prices. As my late friend Doug Maus used to say, “Chicago Futures – Las Vegas with no rules.” Indeed, last week we viewed a “Chicken Little” panic instruction by a broker recommending liquidating all long positions immediately due to potential ASF. No wonder market got hammered. Wild speculation by people who never owned a pig and never will.
- Spain set a new record for lean hogs last week reaching 2 Euros/kg (96¢ lb. liveweight). Feeder pigs market price is 110 Euros each – over $115. The spread between U.S. market hog price and Spain continues over $90 per head. European swine industry has declined triggering these high prices in Spain and throughout Europe.
Last week we got the following from a reader, “I’m asking politely not to keep talking about record prices in Spain or anywhere else for that matter. We are tired of listening that Spain is at all-time highs. Have a little empathy for North American producers that are losing lots of money.”
Our answer. We appreciate feedback and thoughts. Indeed, we as well as anyone knows the negative ongoing situation in North America. We also believe it’s important for us to report what we see beyond just one market. It’s a global Pork Industry. The U.S. exports 27% of its pork production, it matters what’s going on in Europe (Spain) which has double U.S. production and major pork export competitor.
Indeed the U.S. – North American industry should be buoyed by the high prices in Spain (Europe). The reality of Arbitrage is going to pull U.S. prices higher as importers in Korea, Japan, China etc. react to the price advantage of North American prices. All North American producers should rejoice at European prices and not be afraid of hearing the reality.
- March 1 cattle on feed report indicates a 4% decline year over year. This should continue to support cattle prices. Year to date U.S. beef production is down 4.2% (-251 million lbs.). Week upon week of lower beef production and high prices will be supportive to pork complex.
- Year to date U.S. pork production is up (.9%), up 53 million lbs. Unfortunately, despite a small increase in production, last week’s prices for lean hogs and carcass cut-outs are down about 17¢ lb. (i.e., $35 per head). To say we got a problem is an understatement. While beef is pushing prices on cut-outs almost 3.5 times pork. Beef demand good – pork not so much. Maybe someday we will figure out that Taste drives demand. What other reason market demand has beef 3.5 times pork cut-outs. We chase pennies in cost of production to supply pork that doesn’t make consumer crave like they could. Taste, Taste, Taste is main demand driver. We need to stop thinking as farmers and packer fabricators and more like marketers.
- U.S. pork exports year to date are steady with a year ago (+1%). It appears to us pork sales are higher this year to date, so at some point the increased sales should lead to larger exports supporting hog prices.
- Seems to be more industry chatter of greater ASF breaks in China in support of our reports beginning a few weeks ago. Since we first wrote about it Rabobank, Reuters and Bloomberg have picked up the story.
From mid 2021 for a year, the financial losses in China swine industry were devastating, there was a large liquidation. Prices doubled in the fall as supply declined, Covid issues in December cutting consumer demand and prices dropped. Scenario – liquidation last year – ASF this year could mean 10 million less sows. At some point prices will exceed $500 U.S. per head (30 RMB/kg). China will be a major pork importer to fill the shortage.
- We expect the March 1 Hogs and Pigs Report will show a decline since December 1 of the breeding herd. Sow slaughter continues strong, sow mortality is the highest in history (prolapses courtesy of the world’s largest genetic company contributing to a significant attrition in the sow herd). The economics of the industry are not good. High feed prices, high break evens relative to low hog prices are not conducive to optimism or profits. We believe ongoing liquidation is underway.
We still expect a major pork rally. Less beef, less pork in Europe, less in China, pork price will rise as total meat supplies continue lower domestically and internationally.