5 July 2022

4 minute read

By: Jim Long

The USDA released its June 1 Hogs and Pigs Report last week. Our observations:

Pretty simple to see. Less sows, less market hogs, no improvement in litter size, less sows farrowing and to farrow. NO increase in production.

June 1 Market Hogs in inventory down 4.7 million head from 2020 or about 200,000 head less a week to market next 6 months. There will be no challenge to slaughter capacity anytime soon.

With 4.7 million less pigs in inventory no wonder there are so many nurseries and finishers empty or under capacity. This is driving demand for small pigs to meet shackle commitments and help ensure fertilizer needs from manure. Currently, hog manure is valued at $15-20 per head as fertilizer. What once was considered a liability is now evolving into a real asset.

Our position is that lean hogs for the next 12 months will track at a minimum to the last 12 months with upside. Our premise. Less sows in place. There will be no more U.S. hogs. U.S. Beef supply declining up to 2 billion lbs. next year. Pork exports will have a greater pull. Next 12 months both Europe and China will have significantly less pork production. Europe will have less to export. China will import. All factors that at a minimum will keep U.S. hog prices tracking for to last 12 months. But! We expect the greater pull of pork will push prices higher than we have had in the last 12 months.

Germany

Preliminary results from Germany’s Federal Statistics office indicate the sow liquidation in Germany continues on unabated. As of May 3, Germany had decreased from November 3, 2021 (6 months) 6.2% in its sow herd. The sow herd had decreased 9.8% since May 3, a year ago. In the last 18 months, Germany’s sow herd had declined from 1.695 million to 1.480 million, a decline of over 200,000. A big number and reflection of the economic pressures of producing pigs under the cost of production triggered by ASF complications, high feed prices, and new animal welfare regulations. At this point, we believe Germany’s liquidation is still ongoing as pig prices continue under the cost of production.

Germany was once the largest producer in Europe. Now that is Spain. In 2015 Germany had 1.923 million sows. Now 1.480 million and still declining. Germany was once a big exporter and has little pork to export in the future when you consider their production compared to domestic consumption.

Feed

Stating the obvious grain is in free fall, corn dropped over 60¢ a bushel last week. Wheat declined in the $1.00 bushel range.

• Corn December contract high $7.66 bushel – last Friday close $6.07 = decline $1.59 bushel.
• Wheat July contract high $12.84 bushel – last Friday close $8.31 = decline $4.53 bushel.
• Soybeans September contract high – last Friday close $14.16 = decline $1.90 bushel.

Lower feed costs are needed to have sustainable hog profitability. Not there yet but the trendline is leading to the “surest cure to high prices is high prices.”

China

We have been writing since last fall that China was liquidating at a massive level due to industry losses of over a $1 billion a week. We also wrote the only truth will be hog price as other data is quite suspect. Since mid-March China’s average hog price has gone up every week.

A huge jump in price last week of 17¢ lb. on a 270 lb. hog is $46 per head. Since mid-March an increase of $143 per head (270 lb. hog). The industry has gone from losses of about $100 per head to profits of about $50. The hogs going to market now are from September breedings. China’s sow herd has gotten smaller every month since then. China’s hog price will continue to increase. In the not-too-distant future, China will be stepping into world markets for importing pork.

Summary

U.S. has less hogs year over year. Europe has fewer hogs. China has fewer hogs. We are in unprecedented territory as the three major hog producing areas in the world are cutting production all at the same time for the first time in history. Prices have significant upside to where they are today in all areas in the coming months.

Woodlands Farm Tour

Recently Jordan Craig Service and Sales Representative for Genesus in Manitoba did a walk-through Woodlands video farm tour. Woodlands has been a Genesus commercial customer for 20+ years and uses Genesus Jersey Red Duroc sire bred to Genesus F1 dam. Woodlands was the first herd in North America to get 30+ PMSY. The video takes you through all of the Woodlands unit and shows pigs from start to finish. The presentation also highlights the data and results in Woodlands has as a Genesus customer.