6 June 2023

3 minute read

By: Jim Long

North America

This coming week is the World Pork Expo in Des Moines, Iowa. We have been attending for decades and as we look back, we realize the huge change our industry has been through.

Once there were thousands of independent producers, multitudes of feed companies, equipment companies, and swine breeding stock suppliers. Consolidation has been our industry's reality. Less of all of the above. It’s not necessarily better by any means but it's where we are.

Currently, 38 production entities manage 65% plus of U.S. hog production.

2023 financially has been a big challenge. You only need to look at the financial losses of the public companies involved in pig production. Unfortunately, 2023 losses come on top of the Covid hog price collapse, high feed costs, and other inflationary driven expense increases (labor) that have weakened our industry.

The financial losses have and are leading to major sow liquidation. There have been plans put in motion to decrease the sow herd by our estimate 300,000 sows (-6 million hogs). There will be significantly less hogs in 2024. If the prices don’t recover soon to at least breakeven total herd liquidation will be even greater.

What we have is a war of attrition. Who has the capital and courage to continue waiting for a big turn in the market? With losses that have been over $40 per head the capital drain has been major. Our industry courage has been hammered with little positive news with the potential of continued high feed prices that maybe might not be the reality but still hanging over us.

Maybe we are delusional but despite all the financial crisis ongoing we see a scenario of rapid price increases. Why?

• By last Friday lean hog futures and cash hogs had increased strongly (+$20 per head).

• Corn can be bought in Brazil with a $3 in front of it per bushel. Will that not put pressure on U.S. corn? Lower feed costs certainly lower break evens.

• The latest Iowa - S. Minnesota hog weights are 281.8 lbs. average. A year ago, same week 286.4 lbs. A decrease of 4.6 lbs. We look at data from the last five years indicates that it is the end of June (not May) before weights get to 282 lbs. We see no indication of the weight decline was from hot weather this year. The lower weights indicate Packer demand, producer cash flow pressure. How low will weights get? 275-276 lbs? Obviously, this year indicates hogs being pulled to market faster. We estimate a 4.6 lbs. decrease is equal to two days or about 500-700,000 hogs. Year to date U.S. hog slaughter is 714,000 head greater than a year ago.

• A dynamic in pricing is the disparity in producer returns. If you have an 88% of pork cut-out contract last Friday cut-out $84.72 x 88% = 74.55¢ lb. Producers selling open market can get 87-90¢ lb. A difference of $25 per head. A pork cut-out contract once was considered the gold standard. Maybe not so much.

• Europe’s hog prices stay at record levels ($1.00 U.S. lb. liveweight). This enhances U.S. pork export opportunities.

• China has had losses per head ongoing of $60 per head plus African Swine Fever. Put the two together and it's worse than U.S. scenario. There have been millions of sows gone out of production. We expect China’s hog price to recover soon. There will be significantly more pork imported.

• For the last five years, Genesus has surveyed the world to identify producers with over 100,000 sows. This year’s edition has 50 world entities. We estimate the 50 have 25% of the world’s sows. Of the 50, Genesus has supplied genetics to 21 of them. We are going to release the 2023 World Mega Producer list this week.

Last week we were involved with a European retailer looking for pork with a better eating experience. Genesus won the multiple source taste test hands down. Someday our industry will realize demand is driven by taste, taste, taste.