22 February 2022

4 minute read

By: Jim Long

North America

Lean hog prices up 28 from a year ago or over $60 per head.

Every lean hog contract from April 22 – April 23 reached new contract highs last Friday as the sharp money in Chicago and beyond catch-up to reality of a hog supply that is significantly lower than the USDA and Chicken Little Economists expected. June leads the way with Friday close 118.675. On November 1st, June was 91.50 - a gain of $60 per head.

Supply of hogs will continue to be cut by what appears to be significant PRRS and PED breaks. We hear it every other day, producers deciding to quit farrowing for a myriad of different reasons: disease, labor shortage, older tired facilities, tired owners, price of corn (for some they have to buy, for others, they can sell), generational turnover. We see nothing happening to increase pig numbers going forward.

We read where Chicken Littles were worried about Pork Cut-outs getting uncompetitive price-wise. Looks like Pork is still very competitive relative to other competitors. Beef is almost 2.5 times Pork. It’s our only Red Meat competitor.

The ones who worry about Pork Cut-out competitiveness should go to the mirror. Maybe if they produced Pork that had a better eating experience they would recognize that consumers vote with their money. Why is Beef 2.5 times the price of Pork? Simple answer. Taste – consumers pay more for that eating experience.

Other Observations

In the United Kingdom, producers continue to have a massive struggle to get hogs slaughtered. There is a huge backlog of pigs. A combination of Brexit and Covid issues has created a huge shortage of labor for packing plants. The UK government has committed to fast track foreign workers, so far the program hasn’t been overly successful.

The combination of lack of slaughter, high feed costs, and lower hog prices has put most producers below cost of production for several months. Reports from the UK indicate that up to 10% of the sow herd is liquidated or in the process. It is a terrible situation for producers, with no short-term solution in sight.

China – New Hope is a major Hog Producer, Feed and Food Company

New Hope has reported 2021 annual swine division results separate from whole company. New Hope is a Public Company with annual 2021 results below.

New Hope 2021 Results

• 1 million sows
• 12.930 million pigs marketed
• Pigs marketed divided by number of sows = 12.93 PSY
• Financial loss New Hope Swine Division 2021: 10.3 billion RMB ($1.6 billion U.S. Dollars)
• Loss per sow: $1600
• Loss per pig marketed: $126.44

We expect not much joy in Mudville. Let’s assume New Hope swine division is indicative of the whole China industry. 42 million sows total reported. Over $60 billion loss total for the year? Loss of over $1 billion per week? Losses continue at this clip, no way there is no major liquidation ongoing.

China's average market hog price last week 12.37 RMB/kg, significantly below estimated cost of production. We believe China sow herd began liquidating last July, it has continued unabated since then. We expect to see China’s hog marketings begin declining sometime in the 2nd quarter. At that point, there should be a price recovery. The liquidation level will create need for imported Pork in the second half of 2022.

Summary

U.S. lean hog prices continue to increase. How high will they go? We expect them to set record prices. They will get so high to a certain extent it won’t matter. The Chicken Littles have been wrong, they totally missed the devastation of the Covid crisis that has led to large sow liquidation and labor-affected productivity losses. Now high feed prices and huge increases in construction costs are limiting production further. Throw in disease, abracadabra – Less Hogs = High Prices.

We will be at the Illinois Pork Expo this week at the Genesus Booth #528. We will report on the show next week.