We believe in the premise that no one pays more than they have to. On October 7th packers paid 11.54 RMB (83¢ lb.) because they could and producers sold for that. Now in a month, the price for a market hog has increased $100 U.S. per head. We believe we have seen a real indication of fewer hogs coming to market due to disease (ASF, PRRS, PED) and the liquidation of the national herd due to huge financial losses from hogs selling for $150-200 U.S. per head below the cost of production.

A rapid price change in China is not unprecedented. On June 1, 2019, National Price was 14.96 RMB/kg; on October 31, 2019, it was 38.71 RMB/kg. In 6 months a change of almost 24 RMB/kg ($1.73 U.S. lb. liveweight), $432 U.S. per head. This year the National price on January 7th was 35.95 RMB/kg, dropping to 13.76 RMB/kg at the end of June. In 6 months a decline of 22 RMB/kg, ($1.58 U.S. lb. liveweight), $395 U.S. per head.

Super price roller coaster; up in 6 months $1.73 U.S. lb., down $1.58 U.S. lb. in 6 months. Last 4 weeks a jump of 5.5 RMB/kg (40¢ lb.). It’s not hard to believe that in the volatility of China’s hog market history prices are not on a rocket ship higher.

We expect China’s increasing hog price will lead to more pork imports. This will support hog prices in North America and Europe in the future. The key will be which slaughter plants are approved for China imports. Many in Europe and Canada delisted. In USA almost none delisted.

Other Observations

Europe

ASF has devastated the market for German pork exports. Prices have been below the cost of production for most of a year since ASF was found last September. The financial losses and the dynamics of the future have led to liquidation. We are hearing reports that 15% of the herd has been eliminated. In the 2020 census, Germany had 1.692 million sows, a 15% decrease is 253,000 fewer sows. Less sows, less pigs.

We believe the dynamics of financial losses are also hitting other EU countries: the Netherlands, Belgium, Denmark, Poland, France. We expect when the dust settles over 500,000 sows will be gone.

There are reports in the EU of piglets being slaughtered - a true indication of industry economic reality. Even if it’s limited, any such slaughter discussion is a sign of industry desperation.

EU Cull Sow price of 15 Euro/kg (half slaughter price) is the lowest we can find on record. Means lots of sows coming to market.

Negotiation underway in Spain re. new collective bargaining agreement for Spain’s slaughter plants. There is a potential nationwide strike on November 25th if no agreement is reached. A one-week strike could back up 1.2 million market hogs. No doubt a strike could push hog prices lower from where they are now, below the cost of production.

Thailand

Reports from Thailand are that over 30% of the sow herd lost to ASF. Prices have jumped due to lower supply. Thailand had almost 1 million sows.

U.S. Pork Export to China

U.S. pork sales to China in the last two weeks are over 21,000 metric tonnes. We understand it takes about two months from sale to get pork delivered. The 21,000 tonnes are stronger than the last few months. Pork sales are an indicator of the buyer's thoughts on China's pork supply two months from now. We believe China pork buyers are seeing the big pork supply decrease is here. USDA projected in August a 14% decrease in China pork production in 2022. We believe it will be at least 20%.

U.S. Cull Sows

We have highlighted the November sow cull price in the last 20 years. U.S. cull sow price is now in the mid ’60s for 300-499 lb. sows. Last November 300-499 lb. sows averaged 38.92¢ lb. In the last 20 years the average highest November price 300-499 lb. was in 2014 at 56.83¢ lb. In the 14 of 20 years, it averaged in the ’30s or lower.

The latest week's sow slaughter was 57,931. In 2020 January – September average was 64,000 (6,000 a week less in 2021). A year ago, we had sow liquidation. December 1, 2019, Breeding Herd was 6.471 million sows – December 1, 2020, 6.176 million, a decline of almost 300,000 or about 5,000 a week. The breeding herd December 1, 2020, 6.176 – September 1, 2021, 6.190 million. For sake of argument no change in the last nine months.

Our premise why sow slaughter is down 6,000 per week, no sow liquidation, last year 5,000 a week liquidation, sow herd is smaller by about 300,000 sows year over year. Let’s assume 40% cull rate = 120,000 head a year or over 2,000 less cull sows a week due to smaller breeding herd. Putting the two points together 7,000 sows, not far off the 6,000 less year over year. Sow buyers will have to learn to live with fewer sows and pay accordingly as we go forward.

Also, all pig data systems show a continued rise in sow mortality. Going from 7-8% a few years ago to 14% now. Dead sows don’t get to slaughter. A 6% increase in mortality on 6 million sows is 360,000 more dead sows a year (7,000 more a week). This leads to more gilts being put into service and certainly cuts sow cull numbers. It’s amazing the tolerance our industry has for using genetics that have high death loss from feet and legs, temperament, prolapses, lack of disease resistance, etc.

The cost, $1,000 per dead sow. Every 1% to our industry is $60 million. Do the quick math of 1% x $1,000 on your operation. 6%? A producer aptly commented this past week re. genetics. “We don’t want Lamborghini’s for gravel roads.”