Pork Commentary: Packer Margins Reflect Pork Demand07 October 2015
US - The US marketed 2,270,000 hogs last week up about 200,000 from the same week a year ago. The great news is US pork cut–outs are averaging in the 86¢ per pound range, which in our opinion is a powerful price with the amount of pork coming to market, writes Jim Long President – CEO Genesus Inc.
This reflects good domestic and export demand. Packers are also in good margin territory with national 52-54 per cent lean hogs averaging 72¢, the 14¢ spread from 86¢ pork cut-outs, should be leading to strong packer gross margins approaching, our farmer arithmetic calculates $30 per head.
A strong packer industry making money is good for producers. They will need the money when the new Triumph and Michigan plants open. The 7 million new head a year new capacity will lead to market share warfare. We believe it has already started with packers trying to lock in more future supply.
Hogs and Pigs Report
As we wrote last week, we believe the lack of significant expansion in the September report bodes well for lean hog prices over the next months. On Friday, June 2016 closed at over 80¢ a positive price with upside in our opinion.
June hogs are now bred and there was next to no sow herd expansion. We believe in the next year we will see lean hog prices, the same as this year with the upside of what we expect will be increased exports to China.
This past week we travelled to the Eastern Corn Belt while visiting several hog producers. Seems the edge has come off farmland prices from what we learned in different discussions. The huge equity wealth created by land value is still mind-boggling.
It made us think back to early 1980’s when we had 17 per cent interest and the collapse of farmland values. We are not near that and we don’t expect it again.
When my family was dealing with 17 per cent , interest in those “good old days” if someone said we would see interest rates for multiple years under 5 per cent we suspect white coated people would have taken you away for controlled accommodations!
The hog price in China is mind boggling high at $1.28 USD liveweight per pound. That’s 75¢ a pound higher than the US price or $200 per head. The 11 million sows taken out of production in China is beyond our comprehension.
A sign of the pork shortage in China is “On September 24, to ensure adequate pork supplies for the Mid – Autumn Festival and National Day, authorities released 102,000 tonnes of frozen pork on to the market that was traded through a competitive system.” (Source cnagri.com).
Our farmer arithmetic says that’s the equivalent of plus 1.1 million hogs. When the freezers are empty, the exports will ramp up further. We suspect the Chinese authorities do not want to see hog prices go higher than $1.28 per pound to do that pork imports will need to rise.
Quote of the Week
“No man should be allowed to be the President who does not understand hogs or hasn’t been around a manure pile.”
~President Harry S. Truman
|Author: Jim Long, President & CEO, Genesus Genetics|
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