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Pork Commentary: Hog Price Tumbles

11 September 2012, at 7:24am

GLOBAL - Cash hog prices tumbled further last week in the U.S. and Canada with 53 – 54% lean hogs averaging $72.25 per pound at the end of last week. We believe that at current feed prices that would be a loss per head of about $40 – 50 – Nasty!

The pundits who don’t think there is sow liquidation going on need their heads checked. Every day we hear of further liquidation. With weekly USA – Canada marketing’s of 2.5 million plus per week. That would mean loss of $100 million plus a week for the production sector. We are going backwards fast.

The more hogs you own the more you lose. There is no magic. Some are hedged or grow their own feed. Some have grain yields – some don’t. It is the last man standing scenario.

Any Silver Lining

Hog marketing’s are surging, we expect it is a combination of seasonal supply, cool weather, less gilt retention, and desire to drop hog weights to cut feed costs. All four points happening at the same time. A perfect storm to push hog marketing’s up; overwhelm an already challenged meat supply chain.

One large production system we spoke to last week is trying to drop market weights by 15 pounds per hog. So far no progress on weights as growth rates are such to keep weights from dropping, but positive is they have less hogs in inventory as hogs being pulled ahead. At some point the dog will hit the end of the chain. You can only kill them once.

African Swine Fever

A couple of weeks ago when we were in Russia we wrote about the huge effort being made to contain African Swine Fever in that country. Last week in the Southern region of Kuban, the government announced the imminent liquidation of all backyard pigs. An estimated 250,000 pigs all in the name of disease control. It is estimated that 40 per cent of all of Russia’s pig production is backyard; if this extends to other regions we could see a huge rationalization of Russia’s domestic production. A potential big market mover as Russia imports large amounts of pork already.

South Korea

We had some South Korean visitors this past week. They too have been challenged by hog price declines. When we asked what that means they said hogs had dropped $250 US per head - $600 - $350 for a 220 pound hog. Corn is $11.00 a bushel. All problems are relative.

Summary

Financial losses per head are high. We see liquidation. Many herds producing small pigs are for sale. We expect small pig supply for buyers is shrinking every week. The total supply of market hogs will begin to drop. We expect in February – March how far the liquidation goes down depends on hog prices compared to feed prices as we go further. Whacking out 300,000 sows USA – Canada or about five per cent of the herd by February could very well happen with the per head losses we see over the next six months.