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US Hog Margins, 4 July 2012

by 5m Editor
5 July 2012, at 10:06am

US - Margins deteriorated sharply over the past two weeks primarily due to soaring feed costs. Margins would actually have been even worse if not for a late month recovery in hog prices, particularly in nearby contracts, writes Doug Lenhart, General Manager of Genesus USA.

Projected hog finishing margins are now well below average as well as negative in both Q4 and Q1 following readings near or above the 90th percentile earlier this year.

Genesus Global Market Report
Prices for the week of June 24, 2012
Country Domestic price
(own currency)
US dollars
(Liveweight a lb)
USA (Iowa-Minnesota) 97.91¢ USD/lb carcass 72.45¢
Canada (Ontario) 1.90¢ CAD/kg carcass 67.89¢
Mexico (DF) 21.23 MXN/kg liveweight 71.68¢
Brazil (South Region) 1.86 BRL/kg liveweight 42.37¢
Russia 95 RUB/kg liveweight $1.32
China 13.49 RMB/kg liveweight 96.32¢
Spain 1.38 EUR/kg liveweight 78.72¢

A searing heat wave accompanied by drought has dimmed what earlier were bright hopes for this season’s corn and soybean crops especially in the Eastern Corn Belt. Crop conditions have declined steadily over the past few weeks and are now record low for this point in the growing season.

USDA released their June acreage and quarterly stocks reports this week, which pegged 1 June corn stocks at 3.15 billion bushels and final acreage at 96.405 million, up 541,000 from the March Planting Intentions. Soybean acreage was revised up 2.178 million from March to 76.08 million acres, with 1 June soybean stocks at 667 million bushels. All eyes are on weather though, and rainfall over the next two weeks will be critically important to stem a further decline in corn yield prospects.

USDA’s June All Hogs and Pigs report showed 1 June hog inventories up 1 per cent from last year and in line with expectations. June-Nov farrowing intentions were 1 per cent below last year, and the recent advance in feed costs may further discourage expansion.

The quick deterioration in forward profit margins has highlighted the importance of setting targets to scale into protection as the opportunities to do so can be short-lived.

3rd Qtr ’12 Most Recent Offering of $2.87, the low was $(0.30), the high has been $14.07 and the 5 year percentile of 50.5 per cent.

4th Qtr ’12 Most Recent Offering of ($5.34), the low was ($7.37), the high has been $7.19 and the 5 year percentile of 32.9 per cent.

1st Qtr ’13 Most Recent Offering of ($2.18), the low was ($3.78), the high has been $6.04 and the 5 year percentile of 36.0 per cent.

2nd Qtr ’13 Most Recent Offering of $3.84, the low was $2.83, the high has been $9.83 and the 5 year percentile of 34.1 per cent.

The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses. Thank you to Commodity & Ingredient Hedging, LLC (CIH) for the margin data. Please visit www.cihmarginwatch.com to subscribe to the CIH Margin Watch report.