Pig outlook: Lean hog futures in price downdraft

Lean hog futures prices this week hit a more-than-six-month low and the market bears have seized near-term technical control.
calendar icon 17 September 2021
clock icon 6 minute read

However, there are now strong technical support levels just under present futures market prices, which could put in a market bottom. The bulls can also argue that still-high US beef prices at the meat counter and good export demand for US pork will keep a floor under the lean hog and US cash hog markets, and even prompt sideways-to-higher price action into the end of the year.

Latest USDA and other news regarding the global pork industry

U.S. pork exports down in latest reporting week

USDA Thursday reported U.S. pork net sales of 25,300 MT for 2021 were down 25 percent from the previous week and 9 percent from the prior 4-week average. Increases were primarily for Mexico (5,800 MT, including decreases of 500 MT), the Dominican Republic (3,500 MT, including decreases of 100 MT), Japan (3,100 MT, including decreases of 100 MT), Canada (2,700 MT, including decreases of 400 MT), and China (1,800 MT, including decreases of 100 MT). Exports of 25,800 MT were down 11 percent from the previous week and from the prior 4-week average. The destinations were primarily to Mexico (8,400 MT), China (3,700 MT), Japan (2,600 MT), the Dominican Republic (2,300 MT), and Chile (2,000 MT).

USDA annual livestock summary for European Union

The EU pork sector is competitive but dependent on Chinese demand. With the EU market leaders continuing to expand production (i.e., Spain, Denmark, and the Netherlands), and production recovering in Italy, France, Belgium and Poland, EU swine slaughter and pork production is forecast to further increase in 2021. While exports to China and the UK are falling, exports are increasing to other Asian markets (e.g., Philippines and Vietnam) which are anticipated to mostly offset reduced exports to China. However, in 2022, EU pork production is forecast to decline based on lower carcass prices and the threat of additional African Swine Fever (ASF) outbreaks in Central Europe. Thus far, EU exports have been able to outcompete other net producers based on producer flexibility and control over the production chain. However, the current market situation is fragile given the EU’s dependency on the Chinese market. To reduce its dependency on the Chinese market, the EU swine sector is aiming to control production expansion and to continue to diversify its export markets.

Increased slaughter is forecast in the leading pork producing countries, except Germany. Strong sow inventories coupled with the expectation of further improvements in fertility rates are forecast to result in a new record piglet crop for the EU in 2021. The pig crop is forecast to increase most significantly in Spain, France, Denmark, and Poland. Piglet production is also forecast to increase in Italy -- anticipating a recovery in demand for dry, cured meat products. However, major reductions are projected in the Netherlands and Romania. An inventory reduction has taken place in the Netherlands as the Dutch government has implemented a buy-out program to help curb agricultural nitrogen emissions.3 In Romania, sow stocks are forecast to decline as farmers are being cautious in the face of ASF. 4 Bulgaria, however, reportedly made progress in its recovery from ASF.5 Despite numerous calls from Europe’s swine industry, the EU policy draft prohibiting swine breeding in backyard farms is still pending. An upsurge in the number of piglets to be slaughtered in the second half of the year is expected, predominantly in Poland, Spain, France, Denmark, Belgium, and the Netherlands. Elevated slaughter in the Netherlands and Belgium is mainly a result of the reduction of exports of slaughter hogs to Germany (because of ASF and its impact on German pork exports). During the first half of this year, EU official slaughter rose by 3.45 percent.

Profit margins are expected to cut piglet production and slaughter in 2022. In the early summer of 2021, improving market conditions were negatively impacted by reduced Chinese demand for pork and elevated feed prices. In both 2021 and 2022, Chinese pork imports are forecast to remain below the level reached in 2020 (for more information see the Livestock and Products Annual of FAS Beijing, published August 26, 2021). The erosion in profit margins for fattening has also pressed piglet prices and is expected to negatively affect production of piglets. Under the current market conditions, sow stocks are expected to fall to a record low of 11.15 million head in 2022. Major cuts to sow inventories are anticipated in Germany, Poland, France, and the Netherlands. The German swine sector was already under pressure before 2020, but with the ASF outbreaks in the wild boar population, the situation has worsened. Even in Spain, which has shown steady growth in slaughter since 2013, a leveling-off of slaughter is anticipated. The Spanish sector aims at controlled expansion with investments to improve sustainability. Exceptions are France, Italy, Portugal, the Czech Republic, and Hungary, which are still recovering from significant cuts made in 2020. A decline in Polish slaughter is also forecast after an increase in 2021.

USDA annual livestock report for Canada

The Canadian swine herd is forecast to contract to begin 2022. An increase in sow numbers will see the 2022 pig crop grow over 2021, as Canada adds additional finishing capacity and sees greater slaughter capacity utilization and additional investments. Slaughter will increase modestly in 2022 as a result. Live exports will decline in 2022 as Canada recently resolved the labor dispute in Eastern Canada, which saw over four months of processing capacity disruptions, which resulted in greater number of market and feeder hogs heading to U.S. facilities. Despite increased slaughter, 2022 pork production is forecast to decline two percent as resolved COVID-19 disruptions and labor disputes will reduce numbers of backlogged hogs. Carcass weights will be lower in 2022 as a result. Pork exports will remain stable on 2021 volume with continued global demand due to ongoing impacts of African Swine Fever (ASF) in several regions. Imports will be increased due to lower production and to support Canadian consumers’ preference for certain cuts.

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

October lean hog futures--$78.00 to $86.00 and with a sideways-higher bias

December soybean meal futures--$330.00 to $355.00, and with a sideways bias

December corn futures--$5.15 to $5.50 and a sideways-higher bias

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

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