17 January 2024

4 minute read

By: Jim Long

North America

For Hog Producers that paid $8.00 a bushel for corn, the mantra “What comes around goes around” is apt. Last Friday the US estimated cash average price of corn was $4.22 a bushel, the lowest it's been in 3 years (December 22, 2020).

The lower corn price is being driven by a record USDA estimated corn crop of 15.342 billion bushels. The record crop was greatly helped by a record yield of 177.3 bushels per acre.

The USDA estimates world ending corn stocks at 325.22 mmt the highest in six years.

In the last while US corn farmers got high prices. They planted lots they had incentive to push yields, the weather co-operated. Abracadabra Record Crop and lower prices. Farmer Arithmetic 15 billion bushels – a $1.00 a bushel is $15 billion. There will be lots less money for John Deere’s this coming year.

USDA projects US soybean production at 4.165 billion bushels. World Ending stocks at record levels. Brazil production at 5.77 billion bushels.

For hog producers soybeans matter for soybean meal. Last Friday January meal was $351 ton. November it was $455. A $100 ton decrease. Some industry observers are predicting even further soymeal declines of another $50 per ton. The drop of corn and soymeal price certainly helps swine cost of production. Iowa State University calculates swine farrow to finish breakeven. Last April it was $1.03 lean a lb. December 89¢ lb. About a $30 per head decrease in cost of production. Most if not all attributable to the decline in corn – soymeal prices.

Other Observations

• The lowering of corn – soymeal prices in conjunction with a move up in lean futures has pushed the DTN – Agdayta calculated prices you can pay for a 40 lb. feeder pig to $67.99. The highest it's been since last spring. Last week’s USDA calculated average price paid for a 40 lb. pig was $49.56 (a year ago it was $81.81). A spread of $18. Our overtime observation is that the market will move to the calculated breakeven. The producer’s selling small pigs either cash early wean, or feeder pigs have had a tough time since April. Losses in the $25-30 per head range. Maybe some relief coming.

• If farrow to finish cost of production is 89¢ lb. and average market hog getting 71¢ lb. The 18¢ spread times 215 lb. carcass = $39.00 per head loss. Times 2.5 million hogs a week about $100 million going backwards. USDA continues to predict more hogs in 2024 than 2023. We don’t see that by end of year the total will be more. The losses that the industry has seen over the last 15 months of an average of $30 per head loss is cutting the sow herd. Productivity will not overcome the sow herd decline.

• Packers are doing better. Last Friday US Pork cut-outs closed 86¢ lb. Average Hog Price 71¢ lb. The 15¢ lb. gives Packers a possible $30 plus per head gross margin. The Packers are making money and that’s why they are pushing to get hogs slaughtered. Packer companies that buy their hogs are having better margins than ones that produce a lot of their own. If breakeven for production companies for pigs is 89¢ lb. cut-outs 86¢ = -3¢ lb. plus the cost of operating slaughter plants. Buying hogs much better for Packers today than raising them.

• China continues to confuse us. Producer financial losses have been similar to US compounded by African Swine Fever breaks that continually lead to sow herd liquidation. Data from China means give or take a few million sows and 10’s of millions of market hogs. The one truth is the market hog price, and it remains low. China by far is the world’s largest importer of pork. How it goes affects us all.

• Mexico hog price is about $60 per head plus higher than USA. We expect Mexico will continue to pull large volumes of US pork. As our largest customer every US producer should say “thank god for Mexico”. As an industry we must ask ourselves if Mexico is banning GMO corn for human consumption what will they do on GMO – Gene Edited pork? What’s the risk of losing your biggest customer? The self-interest of a genetic company to push GMO – Gene Edited type products is not necessarily in the best interest of the industry. Surveys all indicate both domestic and international resistance to consuming GMO pork. An industry suicide mission? What Packers are willing to risk the cost of brand defence to a consumer backlash? What’s interesting is for whatever reason US PRRS breaks are down. PRRS is less of an issue? Could the need to have PRRS resistance GMO – Gene Edited pigs be losing some of its lustre?