Pork Commentary: US Hog Prices Languish18 February 2015
US - US 53-54 per cent lean hog prices last week were 63¢/lb.,below break-even for many producers, writes Jim Long President – CEO of Genesus Inc.
A year ago, 53-54 per cent lean hogs were 85¢/lb. Farmer arithmetic - almost $50 per head lower year over year. What is the saying “Surest cure for high prices is high prices”. Unfortunately, true.
US hog marketings last week were 120,000 head more than the same week a year ago (2,222,000 verses 2,095,000).
The difference about five per cent is attributable to less PED and increased production from the industry, a by-product of record hog prices and profits.
What can save us from ourselves?
It seems we as an industry are hell-bent to produce more hogs? We can’t help it, the qualities that make successful hog produces “aggressive, resilient, productive, capitalistic & competitive” all are playing into the road we are travelling. A road to record pork production.
- Beef will help US cut-outs $2.33/lb. on Friday. Pork cut-outs 73¢/lb. Farmer arithmetic tells us wholesale pork one-third the price of beef. We really doubt that will continue. Retailers we expect will feature pork and act like big heroes to the consumer, still make margin, but will up consumption and demand that in turn will support hog prices.
- Will hog prices at 63¢/lb. lean slow down sow herd expansion? We think so, we already know of projects shelved. Also, it’s getting increasingly more difficult to cash flow projects as lean hog futures are not looking too shiny with December 2015 at 67¢/lb. These current lower prices will curb spring construction projects in our opinion.
- The ongoing issue at ports on the US West coast is definitely backing up export pork. We read talks are underway to settle disputes. Pork needs to be exported. Pork backing up pushes pork and hog prices lower. Unfortunately, when people in Asia miss a meal of American pork, it’s missed and never made up. Hog prices in China are currently more than double US hog prices over $125.00 per head difference. We truly believe that more pork will go to Asia when the pork slowdown is settled. This will pull US hog prices higher.
- The US dollar has appreciated at over 15 per cent in the last few months to most currencies. This is making US pork more expensive to purchase. Fortunately or unfortunately when we look at US live hog prices compared to many countries, the US live hog price is lower when all countries are put in US currency.
In the author's opinion, the US market is being discounted about 8¢/lb. due to the pork issue on the west coast. Mexico we expect will see huge increases of US pork with the 30¢/lb. price spread with the US and it’s close proximity with trucking.
Prices are languishing. Hopefully, ports will open and we will get exports ramped up. We believe the low hog price will curb some expansion. With beef prices triple pork the seasonal drop in pork supply in the coming weeks will ratchet hog prices higher.
|Author: Jim Long, President & CEO, Genesus Genetics|
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