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Pork Commentary: World Pork Expo Here We Come!!

by 5m Editor
5 June 2012, at 7:41am

US - This week we will be at the World Pork Expo. You can find us at the Genesus tent just east of the Varied Industry Building. We expect good attendance. The crop is in and going good, there will be no need to stay home and fret about getting things planted. We will report next week on our industry observations from the Expo, writes Jim Long.

Markets

Lean hog futures got a good bounce in the last few days. On 24 May, July lean hogs closed at 84.20, last Friday June 1st, July closed at 91.575. This is an increase of $7.50 in about a week. That’s a jump of $15 plus per hog. This is certainly going in the right direction.

The hog profit margin potential has also been enhanced by the free fall of corn with July corn down about 80 cents per bushel in the last two week $6.38 to $5.51 last Friday. It doesn’t take a rocket scientist to realize higher hog prices and lower feed costs are a panacea for an industry that two weeks ago was looking at negative margins for most of the rest of 2012. The combined swing in July hogs and corn is about $23 per head to the better.

Hats off to the producers who hedged their summer hogs at $1.00 the definitive chance was presented on the lean futures market. Pulling the trigger at opportune times is always key.

We expect hog weights and total head marketed will decline seasonally over the coming weeks. We believe global demand for US pork will stay strong as we observe the high price points of hogs in importing countries. We believe there is further upside to lean hog and cash prices over the coming weeks.

Packers are not having a good time as their margins are negative. We expect packers will continue to bid and work for next to nothing over the coming weeks as they look to maintain market share, fill retail and export orders and most of all act like farmers (when renting land) chasing fewer hogs. We expect the dire warnings coming from the chicken little ag economists that packer space will be challenged this fall will give packers hope of a margin bonanza. The US packers strength of financial wherewithal efficiency and the ability to pound the export markets is in some ways also their weakness. Strong capital and market penetration also is a curse; it is why they can keep paying more than they should. Throw in that the packers mostly don’t like each other and you get a volatile mix that pushes hog prices higher.

Other Observations

  • US sow marketing’s for the first four months of 2012 are 956,000 compared to 960,000 in 2011 that is not much of a change at all. We look at these numbers and it makes us believe that the breeding herd is holding mostly steady.

    Bottom line: Those marooned in the business are hanging in but few are thinking about expanding.

  • McDonalds the world’s dominate fast food chain announced last week a plan that they will want all pork they purchase to not come from sows in gestation stalls by 2022 – 10 years. As an industry we expect the 2022 timeline will become the target by most retailers and food service groups, as they follow McDonalds lead. We believe it is stupid to get rid of gestation stalls but unfortunately the desire of the misguided animal welfarists is setting the agenda. Of note Chinese and Russian producers are now building 10s of thousands of new sow places with… gestation stalls! Those societies are mostly happy to have meat to eat not social engineering.

Spain

Spain is either the third or fourth largest country in the world (3 million sows) in regards to hog production depending on how you calculate. In Spain last week the hog price hit 1.77 euros a kilogram the highest price in eight years. Spain’s price converts to $1.00 US per pound. The highest prices in eight years are a reflection of supply relative to demand.

Summary

Lean hog futures are up, cash up – feed prices are down. July futures aggregate is $23 per head move to the good. There is still fewer chickens and cattle coming to market over the coming weeks versus a year ago. We won’t be surprised to see lean hogs move higher in the coming weeks.