15 March 2022

3 minute read

By: Jim Long

Our Observations

Despite Lean Hog Futures falling near $5, Friday the Iowa – S. Minnesota Cash Lean Hog price jumped $8.95 to $105.37. Talk about prices going separate ways. Future fantasy market down almost $5 – real market of actual hogs up $9.

Feed prices are increasing significantly. Talk about inflation. Both Ukraine and Russia are large grain exporting countries. Can grain move? Will crops in Ukraine get planted? Things moving fast and no one knows.

U.S. market hog numbers continue to run below year ago with 7.8% less year to date. Hog weights 0.5 lb. heavier. Hogs not backed up.

U.S. Pork Exports are down 21% year to date. Mexico exports have increased 43%, the only country year to date not a negative. Mexico has imported almost 50% of U.S. Pork Exports, 102,000 MT of 206,000 MT total. With lower U.S. lean hogs going to market it is expected there to be less pork to export. U.S. consumer buying power is greater than all.

With U.S. Pork Cut-outs Friday $1.03 and Lean Hog prices near that number, Packer Gross margin doesn’t look good. We expect Pork Cut-outs will need to increase for Lean Hog prices to go higher.

Europe

European Commission last week released data indicating the European sow herd has declined 4% (-400,000) to 10.8 million head. This is from December 2020 to December 2021 - a reflection of the financial losses incurred. The biggest losers are Poland -20%, Germany -7%, Denmark -3%, France -4%. We expect the financial losses since December 1st have decreased further the Europe sow herd with another 150-200,000 as losses continued from $20-50 per head until now. We also expect that the sow losses are underestimated as inventory reports always seem to miss fast inventory change either expanding or contracting. Recently USDA missed the sow inventory decline in the USA for more than one quarter.

A sign of European Commission overstating inventory is the rapid price increase of slaughter hogs in the last few weeks. For example, on January 27th Spain's market was 1.03 Euro/kg, March 3rd 1.23 Euro/kg. At 1.03 losing $30-40 per head. The March 3rd price will decrease losses to $10-20 per head. Spain feed prices, like the USA, jumped last two weeks.

To us, the only reason hog prices have jumped is Europe's supply is down, a reflection of sow liquidation. We understand Gross Packer margins are not good, a sign of Packers chasing a lower number of hogs.

Markets

We have written several times that in our opinion the three major swine production blocks in the world: North America, Europe, and China have production declines at the same time creating an unprecedented supply decline which will lead to very strong prices.

So far North America already seeing production declines and higher prices. Out of nowhere, Europe prices jump 20% in a month. We expect the front end of even lower production. China prices are still dismal with losses continuing at $50 per head. We expect all of a sudden in the second quarter China prices will jump as supply of hogs decline from liquidation. At that point over 75% of the world’s production will be lower. We expect strong prices for a sustained period.

This coming week we will be speaking to swine producers at the annual Kalmbach Feeds Agribusiness Conference in Columbus, Ohio. We will report our observations next week