Pork Commentary: Hog Prices Poised to Go Higher14 April 2015
CANADA - We expect from now into summer to see a relentless increase in Lean hog prices. Easter has passed and the subsequent short hog-marketing week is over. Packers will have full week activities until memorial weekend. Short weeks are never farmer’s price friends, writes Jim Long President – CEO Genesus Inc.
A year ago, US carcass weights were 219.28 lbs. This year same time 214.64 lbs. About a 4.5 lb. carcass decline or approximately 6 lbs. liveweight.
Farmer Arithmetic – 6 lbs. at 2 lbs. per day gone is equivalent to one million head shift ahead in marketings. Year to date the US has marketed 1.5 million more hogs there a year ago. Could one million of the increase be because of the lower marketing weights? Who knows if this is correct arithmetic but without a doubt the lower weight has pulled a large number of hogs ahead.
At some point the market will be rewarded from the lower weights this year from both lower hog numbers being marketed and lower pork tonnage from smaller carcasses. Last summer was cooler than normal and hog weights did not decline seasonally as normal. A normal hot summer will pull pork tonnage down to even lower levels. Less pork, higher prices.
- Olymel Packer strike in Quebec was settled last week. The strike had put about 35,000 extra hogs into the distribution chain looking for packing plants. As significant number came to the United States. This had put pressure on lean hog prices as packers had more supply especially over a holiday weekend with plant closures. The strike being settled means discounted hogs looking for a home will not continue hurting the market.
- Hopefully not acting as a one trick pony, we continue to look at Beef cut-outs versus Pork cut-outs.
Beef $2.56/lb. Pork 65.87¢/lb.
- Pork is 25% the price of Beef. No way that this will continue. Pork Prices will move towards beef relentlessly over the next three months.
- At Genesus last week we had visitors from Europe. Market there is about breakeven. Little thought of expansion. Seems to be further erosion of Dutch and Danish production as heavily financially leveraged farmers not able to pay bills. Europeans looking for Genetics that are easy to manage but still high producing. Too many farms with 15% sow mortality, as Genetics raised on straw do not have the ability to withstand modern hog production. End result – More Genesus Genetics going to Europe.
- The 7 million sows that have been eliminated in China the last 16 months might now be beginning to jump that market. End of February to end of March, China’s live price went from 11.22 rmb to 12.46 rmb or 84.78¢ USD liveweight/lb. to 91.1¢ USD liveweight/lb. The price difference between the current USD liveweight price of 43¢/lb. is about $125 per head.We believe with the pacific pork worker strike settled and the ability to flow pork to China getting more plausible, there are more than enough capitalists in China who will figure out how to buy Pork in America and bring to China for a profit. Smithfield Foods - Chinese owned is in driver seat to cash in. We believe the Chinese purchasers of Smithfield always have seen Pork to China as a major part of their end game.
- At some point China will be down 1.5 million market hogs per week from the liquidation. Exporting 100,000 equivalent hogs from America is a major market mover for US prices. 100,000 hogs a week is less than 1% of Chinese current production. We continue to believe it is not if, but when China pork needs Turbo Charge US prices.
We see relentless US price increases with lean hogs reaching 2013 summer levels of 95¢ lean.
|Author: Jim Long, President & CEO, Genesus Genetics|
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