Pork Commentary: US Hog Market Retracts06 August 2014
US - In the last week cash US lean hog prices declined from 130.19 to 125.17, a drop of over $10 per head. It appears to us that some people’s notion that lean hogs would reach $1.40 this summer will not happen. With that said $125.17 is still in historical uncharted waters with profits approaching $100 per head, writes Jim Long for Pork Commentary.
At the National Pork Industry Conference Wisconsin a commentary reader came up to me and put their hand on my forehead. He wanted to know if I had a fever! Why? In his mind my commentaries recently had not been overly bullish.
My answer “How do you get bullish with $1.30 lean hogs? There is nowhere to go but down from here.”
Reality is that if we look out at current lean hog futures and where feed costs should be the next twelve months we will be very profitable. Market hogs bringing about $200 per head average, feed costs farrow to finish $90, other farrow to finish costs $50, we end up around $60 per head profit.Never been better.
It the US markets 110 million hogs, a potential industry profit of $6.5 billion. Then at that point the industry won’t be able to stand too much of a good thing and expansion and we expect PEDV outbreak declines will put the industry in the red by 2016.
Hope we are wrong but we believe in the theory “History repeats itself” and “Cheap feed leads to cheap hogs!” and we don’t believe in “this time it will be different!”
Although market hog numbers have declined significantly the real miracle is that the US hog price is $55 per head higher than a year ago with less than 2 per cent pork due to carcass weights almost 5 per cent higher than a year ago.
A year ago to suggest we would have hog prices $55 per head higher with only 2 per cent less pork would have led to howls of laughter, but is has happened. Record cattle prices and no more chicken has sustained a hog price beyond historical comprehension. Pork exports have stayed strong in the face of higher hogs mainly due to even higher hog prices in the importing countries.
Going forward it is our belief that the cattle industry will never recover its cow numbers. The best pasture land has been ploughed up to grow grains with the fences torn down. It will not be going back in pasture.
The long-term drought in much of pastureland of the South-West US is not dissipating. The economics of holding back heifers worth around $1500 to hope to get a calf two years later will take capital and courage. Who has both? Also cow – calf is not conducive to scale with its intensive labour and costs, who’s going to do it? Most cow – calf operations are in their 60’s.
Where’s the next generation of cow – calf operators coming from? Going forward we believe North America’s cattle industry will continue to contract. The opportunity for the swine industry is positive our product as the other red meat.
To do that we must become less obsessed on lean but on eating qualities of taste and flavour. Our demand and price opportunity is growing per capita consumption. We must look at the pork cuts that have the highest prices. Bellies? Ribs? Shoulder? In any carcass they are not the leanest by any measure.
Consumers talk lean but buy taste and flavour. We have made a mistake chasing lean and our per capita consumption has declined over the last twenty years as has our meat protein market share. We have the opportunity to grow our business with demand with swine genetics that are available to push flavour, taste, and tenderness consumers ultimately are paying for.
To accomplish this we have to stop being farmers and become marketers producing products that consumers want to buy more often.
|Author: Jim Long, President & CEO, Genesus Genetics|
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