Pig outlook: Lean hog futures see strong price recovery this week

Analyst Jim Wyckoff shares an update on the US futures market, USDA reports and global pig news

16 September 2022

5 minute read

By: Jim Wyckoff

The pig traders’ perspective: October lean hog futures bulls stepped up this week to show fresh power and put the market in a much better technical posture, to suggest more price gains in the near term. Weak cash hog market fundamentals may continue to hang over the market. The CME lean hog index fell 62 cents to $97.67 (as of Sept. 12), a seven-month low, and is expected to drop another 9 cents Thursday. However, October futures have sharply narrowed a discount to the index, indicating traders expect the cash market to bottom soon. Look for sideways-higher price action in hog futures over the next week.

Latest week’s USDA export sales for U.S. pork

After a multi-week absence, USDA today released its weekly U.S. export sales report. Here are the latest week’s figures for pork and beef.

Pork: Net sales of 25,100 MT for 2022 primarily for Mexico (9,900 MT, including decreases of 200 MT), China (4,700 MT, including

decreases of 100 MT), Japan (4,700 MT), the Dominican Republic (1,600 MT), and Colombia (900 MT, including decreases of 100 MT), were offset by reductions for Chile (100 MT). Exports of 23,900 MT were primarily to Mexico (11,000 MT), Japan (4,100 MT), China (3,500 MT), South Korea (1,700 MT), and Colombia (1,100 MT).

Update on this week’s China pork sales

China will sell 15,000 MT of frozen pork stocks from state reserves on Sept. 17. We reported the second batch of pork sales yesterday, though no date or tonnage were provided at that time. Last week China sold 37,000 MT of state-owned pork stocks.

China to release additional pork from reserves

China will release a second batch of pork from state-owned reserves, the National Development and Reform Commission (NDRC) said, hoping to temper or stabilize pork prices ahead of holidays. Chinese pork prices were up 0.4% in August compared with July. The agency sold 37,700 tonnes of pork from state reserves on Sept. 8, but there was no tonnage given in media reports about the latest release.

China will ensure ‘reasonable’ pork, hog prices

China’s state planner said the country’s supply of hogs was sufficient and would increase toward the end of the year, guaranteeing pork prices would stay in a “reasonable” range. The National Development and Reform Commission also said it would take measures to ensure that hog prices remained reasonable, after they surged in recent months.

USDA annual report on China livestock

Report Highlights: In 2023, China’s imports of breeding swine and pork are expected to decline to 5,000 head and 1.85 million metric tons (MMT), respectively, due to lower domestic hog and pork prices. Consumer price sensitivity and competition among producers are expected to constrain pork and hog price increases, squeezing margins. Strong carryover stocks of beef cattle from 2022 into 2023 will support an increase in cattle and beef production to 52.575 million head and 7.4 MMT, respectively. Imports of cattle and beef are forecast to decline to 300 thousand head and 2.5 MMT, respectively, in 2023 on a less optimistic economic outlook, COVID-19 restrictions and uncertainty in the HRI sector, and tight global supplies.

China’s swine production in 2023 is expected to reach 675 million head. The collapse of hog and pork prices in 2021 and the first half of 2022 caused severe losses, especially for large producers with significant investments. However, large producers remained steadfast even as losses mounted and are expected to meet production targets in 2023 to maintain market share. Midsized producers are expected to expand production in 2023 on steady hog and pork prices.

Swine Imports: Imports of live breeding swine in 2023 are estimated at 5,000 head. Imports will be pressured by lower hog and pork prices in 2023. Additionally, higher transportation costs for transporting breeding swine, stringent import quarantine and testing requirements, and ongoing COVID19 restrictions for airline crew entering China are expected to weigh on imports.

Pork Production: Pork production in 2023 is expected to grow and reach 52 million metric tons (MMT), below pre-African Swine Fever (ASF) levels but in line with consumer demand and a less optimistic economic outlook. High feed costs are expected to lower average live hog weights in 2023. The practice of “second fattening” (where standard weight hogs are retained for additional fattening by intermediary producers) is expected to have a minimal impact on overall pork production in 2023.

Pork Imports: Pork imports in 2023 are forecast at 1.85 MMT, an 8 percent decline compared to the revised estimate for 2022. The import estimate for 2022 has also been lowered, by more than half from the previous estimate published in the FAS China semi-annual report. Pork imports in 2023 are expected to decline from strong levels witnessed in the last few years as domestic production and prices stabilize. Additionally, imports are expected to be constrained as global pork prices are less competitive compared to domestic prices.

China pork imports expected to decline in 2023

USDA’s attaché in China expects the country’s pork production to increase 1 MMT to 53 MMT, which would remain below pre-African swine fever levels but be in line with consumer demand. The attaché forecasts pork imports will decline 8% from this year to 1.85 MMT “as domestic production and prices stabilize. Additionally, imports are expected to be constrained as global pork prices are less competitive compared to domestic prices.” The post expects China’s beef production to rise 300,000 MT to 7.4 MMT. Beef imports are forecast to decline to 2.5 MMT amid “high global beef prices, lower domestic prices and a weaker economy impacting consumers purchasing decisions of high-value products such as imported beef.”