Pig outlook: Lean hog futures bulls clawing back

Analyst Jim Wyckoff shares an update on the US futures market, USDA reports and global pig news
calendar icon 18 November 2022
clock icon 4 minute read

Lean hog futures prices this week have rallied despite cash hog fundamentals that continue to weaken seasonally. The CME lean hog index was down another 22 cents to $88.22 (as of Nov. 15), the lowest level since Feb. 9. The pork cutout value fell $2.07 to $93.63, the lowest price since Feb. 2. Seasonal pressure at this time of year is normal as supplies build seasonally. However, it’s likely seasonal lows will be posted soon as hog slaughter numbers and pork production are expected to peak earlier than normal.

Weekly USDA pork export sales

Pork: Net US sales of 25,200 MT for 2022 primarily for Mexico (15,300 MT, including decreases of 500 MT), Japan (4,300 MT, including decreases of 400 MT), Canada (1,900 MT, including decreases of 300 MT), Colombia (1,000 MT, including decreases of 100 MT), and South Korea (700 MT, including decreases of 400 MT), were offset by reductions for Australia (200 MT). Net sales of 1,000 MT for 2023 were primarily for the Dominican Republic (500 MT) and Chile (300 MT). Exports of 30,600 MT were primarily to Mexico (15,300 MT), China (4,400 MT), Japan (3,400 MT), South Korea (2,300 MT), and Canada (1,500 MT).

US Sen. Cory Booker criticizes USDA support for confined animal feeding operations

Booker said he sees linkages between food deserts in rural areas and urban areas. Booker said he believes that current farm subsidies encourage the growing of crops that lead to food deserts and that he wants to work on “realigning subsidies” in the new farm bill. Torres Small said that encouraging farmers to diversify their crops “can make farmers more resilient.”

USDA’s livestock, dairy and poultry outlook

Pork/Hogs: Processors’ spreads will likely be pressured for the balance of 2022 by year-over year higher hog prices and consumer resistance to higher pork prices. Fourth-quarter pork production is trimmed 28 million pounds to about 7.1 billion pounds, almost 2 percent below a year earlier. Hog prices are expected to average $64 per cwt in the fourth quarter. Export forecasts for 2022 and 2023 are unchanged at 6.4 billion pounds and about 6.3 billion pounds, respectively. A gently appreciating peso—partially offsetting higher ham prices—has supported pork exports to Mexico this year.

Pork processors squeezed by high hog prices and buyer resistance to increasing pork prices

USDA also reported federally inspected (FI) hog slaughter in October, estimated at about 10.9 million head, lines up well with the heavyweight category of the September Quarterly Hogs and Pigs report. The estimated October FI slaughter numbers were 1.5 percent below those of a year ago, consistent with the September Hogs and Pigs report, which estimated a 1.5-percent year-over-year decline in the 180-pounds-and-over category. October prices of live equivalent 51-52 percent lean hogs averaged $67.78 per cwt, 7.9 percent higher than a year earlier. Pork processors sold pork at lower year-over-year prices in October: the value of the wholesale pork carcass cutout averaged $101.15 per cwt, about 1.4 percent below the October 2021 cutout value. Price information for 2022 processors’ costs (hog prices) and revenues (wholesale pork carcass cutout and byproduct values) show lower year-over-year processing spreads beginning in March (week 9 in the figure below) and largely persisting through October. Through the balance of 2022, processors will likely pay higher hog prices due to lower supplies of slaughter-ready hogs, while confronting consumer resistance to pork price increases— factors which, when combined, will continue to pressure processors’ price spreads.

Chinese pork imports to rise

China will increase pork imports in the coming months, industry participants said, after losses for farmers last year caused a reduction in hog numbers that appears larger than official data suggests. A manager at a feed producer that supplies more than 100 mid-sized pig producers across China told Reuters, “I think there’s 25% to 30% less fatteners [hogs] than a year ago.” Pan Chenjun, senior analyst at Rabobank, said: “I expect more [pork] shipments to arrive in Q4," adding that 2023 imports will be higher than this year.

The next week’s likely high-low price trading ranges:

February lean hog futures--$86.40 to $93.30 and with a sideways bias

December soybean meal futures--$395.00 to $420.00, and with a sideways bias

December corn futures--$6.40 to $.6.80 and a sideways-lower bias

Latest analytical daily charts lean hog, soybean meal and corn futures

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