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Pork Commentary: Smart Guys Already Booked Hogs!

by 5m Editor
5 September 2007, at 10:04am

CANADA - This weeks North American Pork Commentary from Jim Long.

A year ago, lean hogs were in the mid 70’s. Right now, they are in the mid 60’s. Corn was $2.00 a bushel a year ago. Now, it’s $3.25. Soybean meal a year ago was $160.00 a ton. Now it’s $220.00. We are currently, year over year, down $20.00 a head in revenue and up $15.00 a head in cost. That would be $35.00 a head decline in margin potential. Not a prescription for profitability. Too many hogs, too much pork and feed prices being driven higher by the insanity of corn ethanol and bio-diesel.

Looks like the smart guys will have booked hogs a few weeks ago, when October and December lean hog futures were in the mid 70’s. Last Friday, lean hog futures for October closed at 66.82 and December 68.82. In some ways, the October-December lean hog futures are still optimistic when you consider Friday’s Iowa-Minnesota lean hog price averaged 63.12, pressured by last week’s US marketings of 2.093 million. There’s a good chance that we will see US marketings of 2.250-2.300 million this fall. It’s a heck of a lot more pork than we are getting now. We better hope Chinese sales come through. We suspect they will wait as long as they can, downplaying their needs, trying to drive hog prices down and then move fast to procure pork at the lowest possible price.

Our distributor in China reported to us, last week, live hog prices of 90¢ US lb. US pork in stores in China $5.00, about double of the current US price. Like to think we can export pork competitively with that spread. It’s too bad that the 100,000 containers a month that Wal-Mart brings from China cannot be going back full of pork. The theory of world trade is the most efficient least cost producer of any product should have the advantage with the right of market access. China can produce t-shirts and plastic toys cheaper. We can produce pork cheaper. Reciprocal trade would mean more pork to China.

Sow Slaughter

US-Canada sow slaughter year to date is 1.1% higher. This is about 23,000 more sows than a year ago. We expect sow slaughter could start to rise year over year, as profit margins are squeezed throughout the fall.

5m Editor