ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Pork Commentary: Lean Hogs Hit Life of Contract Highs!!

by 5m Editor
5 January 2011, at 8:57am

CANADA - This week's North American Pork Commentary from Jim Long.

Last week’s USDA December Hogs and Pigs Report were definitely interpreted as bullish. Life of contract highs was reached in all the summer months in 2011 with all four months in the 90’s. The formula for stronger prices is many.

Our Observations

  • The USDA December report showed there was about 70,000 fewer sows, and 500,000 fewer pigs than a year ago. Less is not more!

  • Global meat consumption is expected to increase 2 per cent in 2011

  • US cattle futures hit record highs this past week when the lead month peaked at 107.475. Texas cash cattle also hit $1.07 per pound – the highest in seven years. Drivers in the cattle market are strong domestic and export beef sales, optimism China will buy beef and expected fewer cattle in 2011. April live cattle futures closed at $112.20 per pound last Friday up over 20 cents per pound from April future lows. That would be $260 per head higher on a 1300 pound steer. Record beef prices are going to do nothing but enhance hog prices and the lean hog future market pushing higher is a reflection of that reality.

  • This past week a pork powerhouse leader expressed to us his greatest fear for 2011 – it is not pork demand; the fear is feed price acceleration and the large packer margins that packers have enjoyed since last spring. The just of his premise that packer margins that have reached above $30 per head at times are unhealthy for a robust production base. Especially the last three months when producers were losing $20 per head.

Of note: Pork plant margins for last Thursday, on average, were forecast at $3.90 per head down from $16.70 a week ago, this as hog prices surged in the past week. Over the next while we expect to see an interesting dynamic of lower hog numbers and the dilemma of packers to try to hold margins and or market share.

  • In our opinion, one of the greatest indicators of market psychology is the USDA cash early wean and feeder pig market. Last week cash early weans averaged $56.75(high $65.00), cash 40 pound feeder pigs averaged $67.77(high $73.00). Very strong prices in the face of $6.00 corn. This is a real indication of lack of supply and strong demand.

  • High corn prices, soybean and feed prices will only push hog prices higher over the coming months. With North American pork producers as least cost as any in the world, high feed prices will result in a greater market share gain as pork production is further limited in grain importing countries. Countries such as South Korea, Japan, Taiwan, and Mexico will need to have substantially higher hog prices to cover their cost of production significantly higher than North America. The high domestic prices in these countries will continue to pull pork from North America enhancing prices.

  • In the next while there will be increased interest in improving feed conversions due to high feed costs. There will be ongoing pressure on Genetic companies to show improvement and results. Some Genetics can, some can’t. We are glad that Genesus spent significant money eight years ago to measure individual feed conversions and growth rates. Currently some boars are 2.1 to 1. We all have to become increasingly more efficient.

Summary

Watching NBC national news last week the increasing cost of food and pork was a news item, a National story. Wait until the Einstein’s that have subsidized the insanity of putting billions of bushels of corn into ethanol production begin to see the economic, social, and political implications of higher feed costs. This will become a bigger story in 2011. We suspect that more land will be coming out of set aside while the battle of continued corn ethanol subsidies will be engaged.

The good news for hog producers in 2011 is pork prices will be strong which will support higher feed prices. We expect hogs will reach $1.00 lean this season.