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Pork Commentary: Lean Hog Future Prices Languish

by 5m Editor
28 March 2012, at 7:26am

US - Last Friday June lean hog futures closed at 92.225/lb., the lowest daily close of June lean hog futures in the last 9 months, writes Jim Long.

Not Good. Since the first of March lean hog futures have dropped 7 cents / lb. or $14.00 plus per market hog in potential value. Unfortunately most other future months have dropped similar amounts. The hard fact is lower lean hog futures are not creating a bullish sentiment or colored profit potential.

The 53-54 per cent lean US national price was $85.87 at the end of last week. With USDA pork cut-outs at 79.67 the difference is price points would lead us to believe packers are not doing very well. Indeed with this negative margin it’s hard to believe there can be any other conclusions.

US carcass weights have been running two pounds heavier than a year ago. (recently 210 lbs versus 208) The mildest winter in our lifetime has in all likelihood enhanced hog growth rate pushing weights heavier.

53 – 54 per cent Lean hog prices were $85.33 a lb. a year ago basically the same as this past weeks price of $85.87. A year ago in the next few weeks lean hog prices exploded higher as weekly hog numbers declined seasonally.

Hog numbers will decline seasonally again this year. As they do we expect lean hog prices will push higher as they did last year. $1.00 lean we expect, we might be fantasizing but that’s what we believe.

Why?

  • Pork Exports are strong, near record levels we expect his to continue.

  • We don’t expect a significant increase in hog numbers year over year through the summer.

  • We believe hog numbers have been impacted by levels of PRRS breaks that have eliminated in our estimation 30,000 market hogs per week in the June-August time period.

  • Chicken production is running 5 per cent less than a year ago. Less chicken is price supportive for lean hogs. We expect Chicken production to stay lower though the summer (chicken – 2012 $94.31 lb., 2011 $84.19 lb.).

  • June live cattle prices are $1.22 / lb. Cattle prices are very strong. The US cattle industry has marketed 5 per cent fewer year to date than last year. This trend shall continue.

Our scenario is less beef, less chicken with both having stronger prices than a year ago will be price supportive for hog prices. Pork exports will continue at record levels with hog supply similar to a year ago. Put it all together $1.00 lean a lb. is our target. Time will tell.

Visitors

This past week Genesus had visitors from Ukraine. Prices are very strong therewith hogs bringing over $250 per head. Grain is plentiful in Ukraine with 30 per cent of the worlds black earth. They believe that if they can develop their swine infrastructure their cost of production will be lower than European Union countries and Ukraine will once again be the bread basket of Europe. The spirit and initiative is there. Lots to do to get to the goal.

Genesus also had visitors from Thailand last week. Thailand has about one million sows. The producers we have met are quite knowledgeable and the industry is sophisticated. Like producers in much of the world Thai’s producers are looking at increasing their genetic capacity and technology. Thailand has prices currently in the 70’s U.S live weight a lb. At that price producers are making some money but not getting rich. Corn is slightly cheaper in Thailand then USA but soybean meal is more expensive.

The world is getting smaller. We hear of niche markets but every country we go producers are looking for the same. Big litters, fast growth, feed conversion, health, easy to manage, good carcasses etc. etc.