Pork Commentary: Some Sign of Life?05 August 2015
US - Last Friday the USDA pork cut–outs closed at 87.48¢ a pound. We expect this reflects an increase in demand for pork, writes Jim Long President – CEO Genesus Inc.
With lean hogs at 78? a pound, the spread of 10? a pound between cut–outs and hogs reflects improving margins for packers. Pork cut–outs reaching 87 plus with US hog marketings of 2,137,000 last week leads us to expect that export demand is pulling pork off the US domestic market.
Good growing conditions in most of US Corn Belt has lead September corn to drop 70? a bushel in the last two weeks. Soybeans have decreased 75¢ a bushel the last two weeks. The National DTN corn index Friday was $3.42 a bushel, with corn North Dakota – Minnesota $2.93. It appears the fear of weather having a major negative impact on corn – soybean supply has dissipated
The first six months of 2015 ending June, the US marketed 1,419 million sows. Last year it was 1.365 million. An increase of 50,000 this year. In June this year, the US sent 251,000; last year 230,000 or 21,000 more. The increased sow marketings year over year reflect in our opinion the reality of lower profit margins. We also find it hard to believe there is large net sow expansion ongoing with sow liquidation 21,000 higher in June than last year.
China cancelled a previous US sale of 7.3 million bushels last week. It has been reported that this probably reflects on China’s slowing economy. We think it reflects 60 million less hogs in China’s inventory. Less hogs means a lot less soya needs.
The latest China Ministry of Agriculture’s Swine Inventory report indicates China liquidated 477,000 sows in May, and 236,000 in June – about 700,000 in the two months. We expect this also means China’s liquidation has not stopped. China’s sow herd has now gone from 50.46 million in April 2013, to 39,100 million in June 2015 – a drop of 11.3 million sows.
The China June Market Hog Inventory 384 million down 60 million from April 2013. Market hog prices in China at 17.45 rmb/per kilo or $1.28 US, a pound liveweight accurately reflects the collapse of China’s hog supply. The price spread of 72¢ per pound US liveweight between China and the US is about $175 per hePCd. We expect the increase of US pork cut–out values to 87¢ are the beginning of the signs that US pork is moving to China. China’s market hogs have increased in value $100 per head since mid-April (85¢ - $1.28). We wouldn’t be surprised to see the largest pork exports in our history over the next twelve months.
Some life in the market with an increase of pork cut-out values. Feed prices have moved down and will probably stay there. China has continued to liquidate despite hog prices bringing $300 US per head. Disease, debts, restructuring, high feed prices, etc., lead to this massive liquidation. US is about to cash in!
|Author: Jim Long, President & CEO, Genesus Genetics|
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