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Pork Commentary: US Lean Hogs Push Higher

by 5m Editor
26 June 2012, at 9:59am

US - US producers are benefiting from a surge in lean hog prices over the last couple of weeks. Iowa – Southern Minnesota averaged $102.36 last Friday with highs reaching $1.08 per pound, writes Jim Long.

That is a long way from where the Chicken Little Ag Economists were predicting a few weeks ago of a market that was not going to get over high 80s/low 90s this summer. We were convinced that the market would reach $1.00. We are really happy for all the producers who are benefitting from prices that could be bringing them up to $40 per head profits. Producers need it after too many months of working for nothing.

Other Observations

  • Supply relative to demand is a huge reason for the price surge. U.S. hog marketing’s last week were 1.954 million the same as a year ago, but 100,000 less than a few weeks ago (eg. The week of June 9 1.938 million).

  • High temperatures and/or a lack of hog supply can be seen in the rapidly dropping hog weights. During the first four days of last week U.S. National Lean Hog Carcass weights averaged about 204.5 pounds compared to 207.41 pounds the week before. An approximate 3 pound drop in carcass weight in a week is really significant. It’s cutting weekly total pork tonnage (about 6 million pounds), it indicates packers pulling hogs to meet demand and producers pushing hogs to market happy with $1.00 plus hogs.

  • U.S. Sow Marketing’s in May were 252,000 up from last year’s May at 241,000. YTD U.S. sow marketing’s are 1.207 million 6,000 more than a year ago. This level of sow marketing’s indicate to us that there is little if any sow expansion occurring.

  • USDA Pork Cut Outs have gotten stronger over the last week reaching $100.81 Thursday. For packers the gap between cash prices and cut outs has gotten better.

  • We had written over the last few weeks that packers have had serious margin issues. The following is an email received from a packer last week.

Some packers might disagree but...

Jim

“After reading your columns for the past several weeks, one area that you are mistaken on is packer margins. You are assuming that processors sell pork at cut out prices, to assume negative margins. The reality is that export product is not included in the cut out and the vast majority of product is sold at a formula price that is greater than the reported pork cutout. We have yet to see anything near negative margins. Not the records are being set on earnings, but still very attractive, just not historical highs.“

Ontario Pork Congress

Last week we attended and participated in the Ontario Pork Congress. Our observations:

  • The Congress was well attended and organized by the volunteer committee that oversees the event.

  • Ontario has approximately 340,000 sows in production. The Ontario industry is not consolidated with only two producers over 10,000 to 15,000 sows. Production is dominated by producers who grow their grain, raise their hogs, and put their manure back on their land. Family Farms are King!

  • Land prices are strong with many areas in the $13 – 15,000 an acre range. This has created significant paper wealth and subsequent confidence and prosperity for many land based hog producers.

  • Ontario is a major market for Genesus, starting in the market three years ago; we have gone from zero customers to 49. It was great to visit with a vast majority of them at the congress. Ontario producers know pigs. Most producers are of Dutch heritage – their character is straight forward. It was great to hear story after story of better production from Genesus. We all have heart and soul in our business and we all have different motivators. For us bringing value to our customers drives us forward. Happy customers…nothing is better!

  • Ontario has probably the highest packer shackle surplus in North America probably 20 – 25 per cent. This is causing a battle for hogs and pushing hog prices higher. We are not sure how this will play out. We don’t sense any expansion in Ontario hog production maybe Ontario packers will bring hogs from USA? Western Canada? If U.S. Country of Origin Labeling goes away it could cut Ontario hog supply further as some of the hog and pig supply could slide to U.S. packers.

  • The next event for Genesus is the National Pork Industry Conference in Wisconsin Dells, Wisconsin 8 – 11 July. Genesus will have a reception Sunday night 9 pm at the Kalhari Resort (all attendees invited). On Monday afternoon at 2:30 – 3:30 I will have the pleasure to present ‘Global Swine Markets and How they Affect U.S.“ I hope you can join us.