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Jim Long Pork Commentary: Bad week for pork producers

To say last week was bad seems like an understatement. When you get to the spot to rationalising “It’s not that bad, I am not living in Syria”.

5 February 2020, at 9:54am

It appears for some reason lean hog futures traders believe Coronavirus in China is going to have consumers stop eating pork. Not sure where that idea comes from. Is this rationale or just panic by a group driven by the reality and/or fears of margin calls?

On Thursday, January 30, 2020, in China the average price of hogs was 36.32 rmb/kg ($2.31 US liveweight a lb.) steady with the prior week. In our minds, the hog price is an indicator of demand. If hog price holds it means the market is in place. It seems so far the Chinese continue to eat pork (i.e. food).

Europe (Germany & Spain) have been major exporters to China. We thought it worthwhile for us to check where their hog prices went this week from the week before.

  • Jan 29, 2020 Germany 1.85 Euro/kg +1.6%.
  • Jan 30, 2020 Spain 1.424 Euro/kg +0.3%

So far prices are holding.

US pork exports were 43,600 MT. (Jan 17-23), double a year ago. China was 18,620 MT. (the highest week ever) up from 3,000 MT. a year ago.

Exports are strong - our farmer arithmetic tells us over 200,000 more equivalency hogs were exported this past week compared to a year ago. Price going forward is going to be driven by demand. The number of hogs we have, we have. If exports hold and/or be enhanced we expect no reason domestic pork demand should be lower.

There is a good chance the collapse in lean hog futures will turn around and prices will rebound.

Other Observations:

Sow slaughter the last two weeks has averaged 66,000. Maybe due to Christmas holiday back-up, but if it continues at a pace over 60,000 a week it would tell us to expect some liquidation underway. The US averaged 57,000 a week in 2019.

The US cattle inventory report last week was bullish. It’s the first by animal report in last twelve reports that showed a decrease in total cattle numbers- down 1 percent. Maybe a cattle future bump this week will support lean hog futures. Certainly less beef can be pork price supportive over the coming months.

Brazilian Meat Packers JBS S.A. (Also in USA) and BRF S.A. told Reuters on Wednesday that the coronavirus outbreak in China could boost Chinese demand for their products, including pork. Mainly for food safety issues.

An Article in eFeedLink calls pork, beef, chicken and dairy the big winners in the US - China Phase 1 trade agreement. Premise is to live up to the $40 billion Ag import increase committed by China.

The logical way is to purchase high-value products. Beef (US $6200 tonne), Pork (US $2,600 tonne), Chicken (US $1,090 tonne), Dairy i.e. butter ($4,030 tonne), versus soybeans (US $340 tonne), Corn (US $153 tonne). 200,000 tonnes of combination meat-dairy products are equal to 10 million tonnes of soybeans.

With African Swine Fever (ASF) and its decimated swine herd, China doesn’t need corn-soybeans as much as they need meat (pork) to fill the ASF pork shortage. eFeedLink predicts Chinas pork imports from USA to reach $3.1 billion in 2020 up from about $1.25 in 2019. Some of the increase will be at the expense of Brazil and EU to meet the Phase 1 import commitment.

Tim Hortons is the largest fast-food chain in Canada. They have been selling Beyond Meat products (Fake Meat). Last week they announced they are stopping the sale of Beyond Meat Products because the demand is not there.

Last week we reported my son works at a local McDonalds cooking Burgers and “Beyond Meat burgers”. Only 1 out of 100 burgers sold is a “beyond meat burger”. Maybe this “fake meat” will sell somewhere. But where?

Summary:

It is rattling futures dropping over $10 in a week. Maybe unprecedented.

Upside-cash hogs have held so far.

Pork Cut-outs declined but not a scale close to the lean hog future drop.

Appears so far China and Europe Hog Prices have held. We suspect the futures collapse is an overreaction by a market my late friend Doug Maus called “Chicago! Las Vegas with no rules”.

We ourselves wonder if the futures market is related to the hog market as show pigs are to the swine industry.

Lots (almost all) countries do fine without a lean hog future market. Does it really help producers?