US pork exports in February accounted for 27 per cent of US pork production versus 25.2 per cent in February 2010. Total pork exports jumped 15 per cent in value. A tremendous accomplishment, more pork sold at a higher price.

Regular readers of this commentary know we have been predicting for 3 months major US pork export increases will be had with South Korea due to the huge liquidation (35 per cent) of its swine inventory because of foot and mouth disease. South Korea has purchased $81.3 million of US pork in the first two months of 2011, double 2010. Last week Genesus had visitors from South Korea. The market hog price in South Korea they said is $500 per head; cost of production is $250 per head, net profit gain of $250 per head too. Imagine making $250 per head for a market hog – it is mind boggling!

With market hogs at $500 per head in South Korea expect US pork exports to stay strong, which is very price supportive.

Japan, the leading value market for US pork was up 17 per cent in value at $280 million the first two months this year compared to last.

With USA – Canada still having the lowest market hog prices in the world we expect pork exports will stay strong in the coming months as demand pulls pork to different countries. The 27 per cent of US pork production being exported will support the hog price move to $1.00 lean per pound expected in the coming weeks.

Markets

• Hogs 53 – 54 per cent lean averaged $94.74 at the end of last week moving ever closer to $1.00.
  
  
• USDA pork cut–outs were $96.57 lean per pound, the spread between hog prices and cut–outs has narrowed considerably from what was over $20. Weekly hog market numbers have dropped to just over 2 million a week (2.028 million) down around 300,000 head per week from last fall.
  
  
• The market hog price has not only increased $50 per head in the last three months as market hog numbers have declined but so have packer margins as competition between packers to keep their plants full has cut their margins. We expect packers will continue to chase hogs over the next few months and will be working for lower margins.
  
  
• USDA cash early wean pigs last week averaged $41.49 (32 – 49) while cash 40 pound feeder pigs averaged $74.94 (65 – 86). Decent historical prices but with higher feed prices not a lot of money left over.
  
  
• Last week Iowa – S. Minnesota live hogs averaged 273.1 pounds compared to 270.12 pounds a year ago. Year over year weights continue to narrow as high feed prices take their toll.

Corn

May corn settled Friday at $7.42 a bushel after reaching $7.83 on Monday. The insanity of corn prices is going to have far reaching ramifications domestically and globally for pork and all meat production.

Some Observations

• Oil a barrel has gone from July last year $75 to $110 a barrel. May corn have gone from $4.00 a bushel last July to $7.42. We expect if you want to know corn’s price direction figure out where oils going.
  
  
• We read some industry facts in feedstuff in an article by Thomas Elam of Farm Econ LLC.
  
  
• On an energy basis 211 million barrels of ethanol (gasoline equivalent) were produced in the US in 2010. The USA consumes approx 20.680 million barrels of oil per day or approx 73 billion barrels of oil per year. Corn ethanol at 211 million barrels produces about 1.5 per cent of consumption – not much is it?
  
  
• Dr Elam estimates the US corn ethanol program increased grain prices globally $60 per ton in 2010. The direct cost to the global food system, increased cost of oilseeds, and other primary food commodities he estimated was $200 billion.
  
  
• The US oil industry received 7 cents/gallon in subsidies in 2010. Ethanol production received 45 cents/gallon (67 cents/gallon on a gasoline energy basis. (Big subsidies – boondoggle).
  
  
• The world consumes 85 million barrels of oil per day. US corn ethanol replaces 2.5 days of yearly global oil consumption.
  
  
• Dr Elam “in summary, ethanol is an expensive gasoline substitute that is produced mainly due to subsidies and usage mandates. Take away tax credits, tariff production and usage mandates, and the US ethanol industry would collapse. With that collapse would come much lower grain and soybean prices.“
  
  
• A Wall Street Journal editorial a couple of weeks ago on corn ethanol stated “driving up the cost of food and fuel with no benefit for the environment or American energy security.“

In the coming months the corn ethanol battle will continue to be engaged. For the sake of our livelihoods we hope common sense can and will prevail.

Summary

US pork exports continue strong, the US lean hog price has hit 94 cents and we are on track to get to $1.00. High feed prices are cutting profit margins but also initiating any sow herd expansion. In the next few weeks record hog prices will be received.