Pork Commentary: Nice Hog Price Rally

by 5m Editor
24 June 2008, at 8:21am

CANADA - This weeks North American Pork Commentary from Jim Long.

Last week Iowa-Minnesota’s lean hog price was 74.16 up from the previous Friday’s 68.56. That’s a $11.00 per head gain. USDA pork cut-outs went from 74.84 to 79.33. July lean futures went from 73.40 to 77.20 week over week. As we say a nice rally. We expect further price appreciation. Why?

  • US packing plants at Columbus Junction, Ottawa, Waterloo, etc. have had lost times due to flood conditions. In the coming days we will se all plants working and chasing hogs and pushing prices.
  • Cool weather that has slowed corn development has pulled hogs ahead. As they say, ‘The chickens will come home to roost.’ You only kill them once. There are fewer hogs than recent slaughter numbers indicate.
  • Global prices of pork continue to pull pork out of North America. This past week we hosted South Korean visitors. Market hogs are $400 US per head there (cost of production $300 per head). It doesn’t take a Warren Buffet to figure you should be able to export pork that you buy here for a third of the price to South Korea.
  • We had visitors from Russia a week ago. A market hog is bringing $365 US there. Any wonder pork exports are increasing to Russia.
  • You do not have to look any further than May’s USDA Cold Storage Report to see huge demand and a bullish scenario. May’s pork stock decline was the largest ever for that month. 85 million pounds, the previous record 52 million pounds set in 2005. Domestic and export demand is extraordinary. As supply falls, both domestically and globally we will see continued price appreciation.
    Total Pork
    (Million Pounds)

    April 652,585
    May 567,556

  • June 2009 Lean Hog Futures closed last Friday at 96.75, the highest in history. Write it on the wall. June will be above $110.00 lean before this is over. Global and domestic liquidation is accelerating. High feed prices are triggering financial losses and erosion of confidence for too many here and in the rest of the world. Liquidation of the sow herd continues. The US is currently marketing 7% more hogs than a year ago. We expect in the early fall Canada and the US combined marketings will be negative year over year. What will that do? The liquidation in Canada, USA and Mexico, we estimate has decreased the sow herd from its peak by 400,000 sows. That’s over 7 million fewer hogs per year. Liquidation continues here and many other parts of the world. The only way to ration limited supply is higher prices.
  • Last Tuesday, we announced in our office (we are big on announcement) corn and soybean prices have peaked. Reason: There cannot be any more negative news. Demand will decrease. Ethanol plants will stop or not be built. Mississippi River being closed means corn cannot be exported which cuts buying demand. The rain will stop. The nightly news will tire of pictures of floods. If you watched and listened to the news at all, crops in the Midwest are washed away. Livestock and chicken production weights and numbers are decreasing. Global grain production is increasing.
  • This past week we learned of three packers telling large owners of Canadian sourced feeder pigs not to worry about Country of Origin Labeling (COOL). Reason – by the time COOL happens every hog will be needed. Also, we have heard that Wal-Mart is ready to use multiple country labels. Wal-Mart, the largest buyer of pork in the US, would like nothing better than to be the only buyer.
  • Supply/Demand – Oil, like grains, has high prices. US oil consumption has dropped 3% in 2008. That was before $135 barrel oil. Oil consumption in Europe has dropped 1% YTD in 2008. China, last week, increased price controlled fuel prices 18%. Oil demand will decrease. Grain demand will decrease. Last week, we wrote about corn prices reaching levels that would close corn ethanol plants. Some closed last week. Demand is softening. Prices will soften too.

These are tough times. Financial losses have been unprecedented. It’s hard to be bullish when you are figuring out how to pay your bills and hope but are not sure there is light at the end of the tunnel. (Sometimes it seems like a train coming at us). Some of us will persevere. Some have and will choose to exit. The higher the financial losses the greater the liquidation. We see $1.10 plus next June but if feed prices stay where they are greater liquidation could push supply levels to $1.20 plus. We need to look no further than South Korea. It takes $300 to produce a hog. The market is $400. That’s $100 a head profit. The higher the costs, at some time, the greater the per head margin. We all hope to live long enough to make $100 per head. It is happening in South Korea. It could happen here.

5m Editor