Pork Commentary: Hog Market – Beyond Belief25 March 2014
US - The Iowa–S. Minnesota lean hog price averaged $128.36 last Friday. A year ago, the price was 74 cents per pound, writes Jim Long.
That is about $115 per head higher year-over-year and at just over two million hogs per week. The difference would be over $200 million a week for the industry (that’s if hogs not sold ahead or margin calls downside). A massive difference year over year. Compound the fact feed costs are down.
This is 2014 – The Year of The Pig Farmer. We are all getting smarter? Getting better looking? Pig manure smell is diminishing? Right now feed costs and lean hog futures reflect a farrow to finish profit of $60 plus per year for the balance of 2014. We never had it so good. Time to pay the bills, put cash aside, and get ready for the price collapse coming at some point. Us all being farmers we can’t stand prosperity, give us time and get PED under control and we will over supply and crash the market. It will take us a while to crash, at least until late 2015. Don’t want to rain on the parade but we truly believe that higher the high – lower the low. In the meantime enjoy the ride.
Cull sow prices are extremely strong. 500 – 549 lb. sows last week 84.29?/lb. A 525 pound sow about $440 a head. High cull sow prices drive revenue and are at levels that certainly allow for gilts entering as replacements.
Last week U.S. hog marketings 2,042,000 a year ago the same week 2,179,000. 137,000 fewer (–6.5 per cent). A lot less hogs. Cattle marketings 575,000 last week - 604,000 last year. 29,000 (-5 per cent) year over year fewer. A lot less cattle. Put together, millions and millions of pounds less of red meat year over year. Stating the obvious but it’s the trigger for all record red meat prices.
Sales of New Tractors
As swine producers the price of feed is our largest input cost. We have seen record feed prices in the last couple years. Part of our future going forward is what the world’s grain production will be and part of that is the world’s update of technology. Will other countries begin to use better seed, fertilizer, farm equipment, herbicides, etc.? A couple of years ago we heard a Monsanto Seed Executive talk about global corn production potential if US type growing practices were used globally. The potential for increased grain production bordered on doubled production.
One part of technology implementation is tractors and tractor sales reflect the modernization of global grain and food production.
Almost a 50 per cent increase in global tractor sales since 2008. 2013 was the highest year ever for world tractor sales. We would guess no one is buying tractors for much else then to grow grain or food. Tractor sales indicate to US continual increase in technology uptake and investment to produce more grain and higher yields. Good chance more grain is coming.
We sure wonder how many Producers hedged, sold ahead, used futures, etc. in the past few months. Certainly we are aware of some large production systems that take positions when they can lock in profits at around $10 per head, some at $20. If that’s the case we wonder how much profit potential has been taken off the table. For the systems that locked in at $10 - $20 per head profit, a hit from PED would almost eliminate all the profit. Many production systems have been pressured by their bankers to hedge and use futures. This in itself is probably good business, you don’t go broke taking a profit. Unfortunately in these wild times they will miss the $60 - $100 per head profits.
Hog markets at record levels. Profits at record levels. Better than we ever expected. There is a song by Pharrell Williams “Happy” says it all. (YouTube)
|Author: Jim Long, President & CEO, Genesus Genetics|
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