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Pork Commentary: Cash Market Hogs Surge Higher

by 5m Editor
4 August 2011, at 1:23am

US - Last week, the US National lean hog price pushed to over $1.04 per pound (53–54 per cent lean), writes Jim Long in this week's Pork Commentary.

This is a welcome respite to an industry challenged by unprecedented high feed costs. This cash prices is $20 per head higher than August lean hog futures were indicating on 20 June. That $20 is the difference from breaking even as a producer and making money.

I have to say, we get some real satisfaction with not only the benefit from the higher prices but from knowing last August when 2011 lean hog futures were 80 cents a pound, we projected $1.00, says Mr Long. We were out there and we took some arrows for our opinion. The Chicken Little economists were projecting 80 cents lean at the same time we were at $1.00. They just didn't know what was going on in the rest of the world. Armchair academics with no skin in the game and have never left North America do not get global dynamics. After all, 92 per cent of all pigs in the world are not in the US. When the US exports 25 per cent of its pork production and Canada 50 per cent, market conditions in the rest of the world really matter.

We expect the pull of global pork demand will continue for months to come. China is approximately US$1.33 per pound live weight, Russia is $1.56 per pound live weight, South Korea is $1.95 per pound live weight, Japan is $3.25 per pound live weight, and Mexico is 85 cents per pound live weight. It doesn't take a rocket scientist or an economist to realise these countries as large importers of pork have price points way beyond the North American domestic price. There is little wonder pork importers in each of the above countries can and will pull pork to their markets.

It is August again and we see no reason why US lean hog prices next year will not be in the $1.00 plus range next summer, says Mr Long.

He sees little sign of breeding herd expansion, indeed US sow slaughter in June was 268,000 up 21,000 from June last year. For the first six months of this year, US sow slaughter is 1.468 million, up 6,000 from last year. He expects the increase of 21,000 in June would indicate a liquidation level.

If sow prices are any indication, the sausage-makers are getting all they need. On average, 500–550 pound sows are 63.99 cents per pound, the same time last year, they were 67.65 cents per pound; this despite market hogs at $1.03 while at the same time last year they were $82.00.

It has been hot but market hogs keep getting pushed to market. It appears hog weights are still coming down with average US lean hogs last Thursday 198.49 down two pounds from Thursday the week before.

Mr Long expects that some of the sow herd liquidation in June we saw is related to the freefall prices in small pig prices. Last week's cash early wean price averaged $15.58 and 40-pound feeder pigs, $36.99. There are lots of stories of small pig-buyers running away from their contracts. It seems to be a never-ending story. When small pig prices are high, finishers want to buy pigs on a contract usually lower than cash. Then when cash drops below the contract price, too many buyers cannot or will not live up to the deal. The $20 per head loss on the cash small pig prices is too much for many to handle after the cash and equity crater of the last four years.

On the global feed prices, the huge drop of $2.00 a bushel for wheat since the end of May ($8.75-$6.72) could keep upward pressure on the corn price limited. Russia, after a year of no exports, is now on the market again and offering wheat about 75 cents a bushel cheaper than the rest of the world. (That's how you get business back). Wheat can and will flow into swine rations to replace corn. Just last week, the CEO of Cargill blamed much of the jump in world grain prices on Government policy and interference which included Russia Grain Embargo. The US corn ethanol policy is also Government interference but it is expected that the US debt ceiling issues will in all likelihood not play out well for the corn ethanol lobby.

Pfizer's Improvac for chemical castration of pigs was approved last week in Canada. Mr Long is not saying anyone will use it. If Michael McCain, CEO of Maple Leaf, says "no" as Canada's leading personality in the packing industry, it will be dead on arrival, he says. Mr Long says he expects Maple Leaf will not want to risk a consumer and export market backlash from using chemical castration as a risk of damaging their brand.

Road trip

As Mr Long wrote above, you can't get a feel for the global pork markets sitting in a university or corporate cubicle, with no skin in the game. The next 19 days, he is on a road trip to Russia, China, Thailand and India. He will report on what is happening on the ground in the grain and swine markets.