Pork Commentary: All Superlatives Are Understatements in Hog Market18 March 2014
US - We have run out of superlatives to describe the US hog market. Prices have risen not only rapidly but to unpredicted high levels, writes Jim Long, President-CEO of Genesus Inc.
- The U.S. National Average Lean Price last Friday averaged $114.4. The highest in history.
- U.S.D.A. Carcass cut outs last Thursday were $124.75. The highest in history.
- U.S. hog marketings last week were down from a year ago 8%. 2014 - 2.024 million; 2013 - 2194 million. We estimate we are marketing hogs born in September 2013. September was the front end of the intensification of PED breaks in the U.S. We expect the mortality in September of little pigs is the major reason hog numbers are down.
- The 2,024 million last week hogs marketed in the U.S. is more like a weekly marketing number in the summer. A 2,024 million hog marketed number would in a normal year not bring $114 hogs; more like 1.00. The hog market at $114 in our opinion is anticipating even further cuts in supply due to PED and there is a premium in cash prices as packers, retailers and processors chase product. If we are 2,024 million head in March we now expect weekly marketings in the summer months due to PED and seasonality to be around 1.8 million head. If this is the case $120 plus market hogs are a firm reality.
- Magnifying the effect of fewer hogs is the giant decrease in U.S. beef supply. Last week the U.S. marketed 564,000 cattle; a year ago same week 599,000. A 10% drop.
- Cowboy Arithmetic. Last week the U.S. marketed 170,000 fewer hogs than the same week a year ago multiply by 210 lbs carcass weight = 36 million lbs of pork. Last week the U.S marketed 35,000 fewer cattle multiply by 800 lbs carcass weight = 28 million lbs less beef. Add the year over year red meat decline 36 pork plus 28 million lbs of beef = approx. 64 million lbs less red meat year over year. Put in another way 400 plus tractor trailers at 70,000 lbs of red meat per trailer. Imagine 400 tractor trailers stretching in a line 12 miles and that’s how much less red meat was in the U.S. last week, now start putting the 12 miles of tractor trailers week after week together. Is there any surprise hog and cattle prices exploded?!If you’re wondering if chicken will fill the void. Last week egg sets and chicken placed were each up 1% year over year. U.S. human population increases over 1% per year. Chicken isn’t close to filling the 900 tractor trailers to make up the red meat deficit.
When we look at Global Hog Prices we see some headwinds for pork exports to China. Currently the U.S. hog price is about the same as China’s. This will curb pork exports to China. Brazil is now about 20?/lb. U.S. live weight fewer than the U.S. price. Brazil will capture some of China’s market. The E.U. will move pork into China also, especially with Russia closed to them. Currently the U.S. price is lower than Mexico, South Korea, and Japan’s prices. We expect exports will continue well in these areas.
The fact is with probably an 8 – 10% drop in pork supply there is less pork to go around. We will obviously have less domestic consumption and lower exports. You can’t eat what isn’t there! We will find out who wants the pork more, our guess exports will drop at a high percentage than domestic consumption.
Last week we were in Denmark, Germany, and Italy. The European (E.U.) hog market is reeling from being cut off from Russia to sell both live hogs and pork. African Swine Fever found in Poland has been the trigger to close the Russian border to E.U. pork and hogs. Now geopolitical issues over Ukraine will probably keep the border closed longer.
Denmark’s (Danbred) breeding industry is reeling. They have had the ability to truck breeding stock to Russia and it has been an excellent market for them. Now genetic orders are being cancelled and pigs destined for Russian farms are going to the slaughter markets. Losing the Russian market and the North American market in the last few months (USA – Canada Franchise quit) will put a crimp on Danbred’s goal to be the dominant global swine genetic company. Throw in France’s Grimaud Groupe – Choice Genetics USA LLC going bankrupt and PICs purchase of Genetiporc. You have Global Swine Genetic businesses having rapidly changing events and dynamics.
In Italy on our visit we saw the effect of different pork markets. Italian Parma Hams retail for about $16 U.S. per lb. Hams are the main pork driven in Italy. Contrast to the U.S., pork cut outs last week, Loins $1.72/lb.; Bellies $2.11/lb., Hams $1.68/lb. Hams are premium in Italy. Ham is far from that in the U.S. market.
Hog market hotter than hot. In the coming months we will see record profits for those who didn’t hedge and gotten hit by margin calls. Goes to show no fool proof strategy.
Bottom-line we are on quite a ride!!
|Author: Jim Long, President & CEO, Genesus Genetics|
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