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Jim Long Pork Commentary: March 1 US Hog Report irrelevant

Amazing what happened in the last week.

10 April 2019, at 2:00pm

The US March 1 Hogs and Pigs Report released on Thursday March 28 showed an increase of 2 percent in the US breeding and market inventory. Not exactly bullish.

So, what happened since then? i.e. June Lean Hog Friday, March 29 were 88.550. One week later last Friday April 5 they closed at 98.975 - 10₵ a lb lean higher - $20+ more per head. October lean hog future March 29 80.92. April 5 91.15 = $20 per head. This trend is across the board.

In our opinion what has happened is that normal US domestic - export supply:demand equations are being trumped by the China ASF story. All bets are off where the hog-pork market is going.

One thing is for certain, the rapid change in producer attitude. Four weeks ago most were grumpy and they had a right to be. They had been losing money and were losing money. 53-54 percent lean hogs the first week of March were 54.13, a good $20 a head under cost of production. Lean Futures were low and there was little optimism.

Fast forward four weeks to last Friday 53-54 percent lean hogs were 77.54 up 23 or over $45 per head.

we're not sure, but we expect the fastest Hog Price rise over a four-week period, ever. The industry has gone from losing $20 to making $20 plus.

We can see it selling gilts.

It’s not that producers have got rich the last two weeks but now they see a brighter future. Lean Hog Futures and Grain Futures now reflect profits in the $45-50 per head range for the next 15 months.

It’s never looked brighter!

Now producers who were once weary of the future are having the capital and courage to purchase gilts. Filling holes, not expanding - culling old sows (also at higher value).

Higher hog prices are usually not good for Gross Packer Margins. Last Friday USDA Pork Cut-outs were $81.84. Lean hogs 77₵ = a 5₵ spread is no fun for packers.

For lean hog price to go up much more Pork Cut-outs need to rise. Increased Packer Capacity will not be conducive for Gross Packer Margin as hog numbers decline seasonally.

China

The effects of ASF continue in China.

The Ministry of Agriculture reports a 1.44 million reduction of the breeding herd in February. From Dec - Feb 3.2 million. In the last twelve months 7 million.

Reduction is from the disease and also the economic effects of the disease. Producers have been losing money, who's going to lend money to backstop losses if you might get ASF?

Obviously if 1.44 million sows were eliminated in February (the highest month) the liquidation has not stopped.

For China to back-fill, what could be, 200 million fewer market hogs (USDA estimate) they will need to import pork from many countries. The biggest untapped source relative to domestic demand will be the USA.

We were asked four weeks ago if lean hogs could get to $1.20 lb this summer. Our reply “wouldn’t be surprised”.

The slaughter price in China continues to climb with variation depending on province… ($1.00 US lb). In Northern China feeder pig has doubled in the last few weeks. A 15 kg (33 lb.) is now selling for 700-800 rmb or over $100 US per pig.

Going forward, the world’s swine-pork market is going to be dictated greatly by China and ASF.

It’s a Black Swan Event- An Event that comes as a surprise, has a major effect and is often inappropriately rationalised after the fact, with the benefit of hindsight.

When we can speculate that ASF in China could decrease the worlds hog production 10 – 15 percent, the widespread consequences will be severe.