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Pork Commentary: Cash Hog Prices Continue Surge

by 5m Editor
10 March 2010, at 10:41am

CANADA - This week's North American Pork Commentary from Jim Long.

Last Friday, Iowa – Minnesota’s lean hog price was $72.23 per pound, up $2.25 from the week before. Prices are definitely moving higher with June lean hog futures setting new life of contract highs last week before settling Friday at $81.95. Hogs a year ago now were $59 the $13 a hundred weight difference (compared to $72) amounts to about $26 per head greater revenue. It’s not a miracle but it definitely is a significant price gain year over year. This price difference year over year is being accomplished by better demand for pork and less hog supply coming to market each week. Last week US hog marketing’s were 2.168 million head, down 57,000 head compared to a year ago. In our opinion the $26.00 per head improvement in prices year over year is mostly from increased pork demand domestically and globally. Though hog numbers are down 3 per cent from a year ago this would not change prices $26.00 per head. It is pork demand. The US and global economies are improving, while pork supply has decreased in some countries which has increased US exports year over year.

H1N1 (swine flu) did not hit until the end of April last year. Current year over year prices and demand were not affected by this factor. As we move into May and the summer months, the pork demand factor will be startling this year compared to the year before. No H1N1, a stronger domestic and global economy. “Hang on Cowboys, this market is going for a wild ride!“

Supply

4 million fewer hogs in inventory on 1 January (USA – Canada) compared to January 1st 2008. That’s 4 million empty nursery and finishing spaces. This is equivalent to 4,000 – 1,000 head barns. Is it any wonder the USDA calculated cash sews are $15.21 average while USDA cash 40 pound feeder pigs are averaging $71.60. There are lots of empty spaces chasing fewer pigs. We keep hearing that there is no cash left in our business and credit is tight, the reality is $71.60 cash feeder pigs means there is still enough cash and/or credit to push prices higher. 40 pound cash feeder pigs at $71.60 means that there are lots of optimistic buyers willing to risk their capital.

Demand

Last summer we were at the Lake of the Ozarks conference. Speaker after speaker doomsayers talked about the need to cut supply. We were baffled and dismayed that our industry appeared to be totally focused on cutting supply as the panacea to correct the financial picture. Of course markets are supply but they are also demand. The speakers only seemed to be able to focus on one side of the supply – demand equation. H1N1 was raging in the media, the only solution the speakers had was to cut our industry 500,000 more sows. It was simplistic and an unrealistic proposed solution. They missed what better demand could do. Get H1N1 (swine flu) out of the media and in a couple of months consumers forgot it ever existed. Get the US and Canada GDP jumping 5 per cent in a quarter (as it has) and the next thing you see is increased domestic pork demand. Get the global economy improving and pork exports will increase (December up 14 per cent). It’s both supply and demand. Indeed we have cut supply – the 4 million fewer pigs in inventory USA – Canada January 1st compared to January 1st 2008 is a stark downsizing of supply. The reality is the downsized production base that cut inventory 4 million head was already in place when the speaker spoke at the Lake of the Ozarks. What they were proposing was to cut production by 9 – 10 million more hogs a year? It was over the top and unrealistic. All we would have done is forever handed a greater proportion of meat consumption to poultry as they rushed to fill the hole.

It concerns us that our perceived industry leadership when the going got tough, could only retreat. If they were in charge at Valley Forge they would have surrendered, they would never have crossed Delaware. There would be no United States today. AS an industry we have to grow demand, you do that by selling and promoting. You don’t get it done by acting like a victim.

Pork has 44 per cent of the Global Meat Consumption. It is the Number 1 meat by a large amount. People buy pork because they want to. They are voting with their money. USA – Canada have a quality pork product - producers with expertise and productivity. A globally competitive cost of production. Packers with capital, expertise and scale. This is a powerful combination.

Lean Hog Futures continue to increase. Supply is definitely down and pork demand is up. The doomsayer speakers were wrong this past summer. They forgot to calculate increased demand. It is here and we will all benefit. In the end, producers had more faith in the industry than the expert speakers. They will be rewarded!