5 May 2022

3 minute read

By: Jim Long

Lean hog futures plummeted last week as traders kicked the crap out of summer futures in the $20 per head range. Interesting that cash hogs lost ground but not nearly at the rate of lean hog futures. Iowa-Minnesota Friday was 1.0672 a lb.

Time will tell, but we expect summer future lean hogs will recover back over $1.20 in the not-too-distant future as the reality of less hogs available for marketing pushes up pork cut-outs and hog prices. We could be suggesting wrong, but a lot of lean hog future trading is done by sharpies running computer programs that work on incremental margins; in some ways, they don’t care if hogs are up or down. It’s just about making money on trades.

Other Observations

Avian Bird Flu has led to over 35 million chickens and turkeys being eliminated. Cutting supply of mostly eggs and turkey.

• Last year this time, turkey $1.14 lb. This year $1.38 lb.
• Large eggs last year this time 90¢ dozen. This year $2.45 a dozen.
• Last year whole broilers $1.05 lb. This year $1.69 lb.

All poultry products prices are significantly stronger than a year ago with little indication of increased supply. Indeed, the Avian Flu is still rampaging, so there is a better chance of less poultry products in the near term. Higher poultry prices are supportive to pork prices.

Being the other red meat, pork pricing compares favorably to beef. Choice beef cut-outs last Friday $2.60 lb.; Pork, Friday at $1.04 lb. Sad to say, consumers prefer to pay significantly more for beef than pork. They like the taste. Two things: (1) we are priced very competitively currently, and (2) the solution long term is producing better tasting pork to drive prices higher to compete with beef.

European hog prices made a jump over the last two months i.e., Spain, from 1.02 Euro/kg to 1.54 Euro/kg. Unfortunately, with current feed prices, most European producers are still below breakeven. We expect sow liquidation continues with fewer hogs coming to market year over year for the foreseeable future.

In China, they have seen modest price recovery. In the last three weeks, China’s hog price has gone from 89¢ lb. to $1.04 lb. Feeder pigs (35lb.) $65 to $74. With Corn near $13 per bushel, the industry is still losing significant money in our calculations. Our premise is, China began liquidating sows last July; if correct, hog supply should be starting to decline. Current Covid lockdowns will be disrupting consumption and pig/pork movement. Price will be the truth; if we continue to see price increases, it will indicate trend.

Our premise is that in 2022 North America, Europe and China, which are over 75% of the world’s pork production, will all be lower. This will be the first time in history, all three simultaneously. We expect this will supercharge hog prices globally.

Hog Manure has become liquid gold in the corn belt. We are hearing of estimates of $10-12 per head fertilizer value currently. It has become a significant equation in contract barn discussions and value of a feeder pig. It will certainly continue to pull pigs to land that can utilize the manure to its optimum.

We see little signs of sow herd expansion. High feed prices, labor challenges, building costs are keeping a lid on new sow barn construction. There appear to be existing sow barns for sale that have few takers. Hog prices are good, but feed costs are high. We don’t have a bullish hog industry.

This coming week we will be at the National Swine Congress of Mexico. We will report our observations on the Mexican industry next week. Muchas Gracias.