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Pork Commentary: Nasty Week for Hog Prices

by 5m Editor
19 October 2010, at 8:27am

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

This past week lean hog prices took a pounding with Iowa – South Minnesota averaging 64.11 on Friday. With the double whammy of higher feed prices there are few if any producers that can turn a profit at these hog prices.

Other Observations

  • UDSA Pork cut outs were $81.07 per pound last Thursday, lean hogs were 64.11. That is a 15 cent per pound spread or about $30.00 per head. There is no doubt it is better to be a packer than a producer these days.

  • Last week’s US marketing’s of 2.263 million head was large – down only 30,000 from the same week last year. In the coming weeks expect weekly marketing’s over 2.2 million.

  • The chicken industry after showing restraint for several months is now ramping up production 4 – 5 per cent year over year (10 million more chickens per week). The last time corn went over $5.00 per bushel the largest chicken company Pilgrim’s Pride went broke. Now increasing chicken production in the face of raising feed prices? It makes you wonder the wisdom of this plan. Hopefully financial danger signs bring some sanity to the chicken cowboys.

  • We understand $5.00 plus corn does not work to produce corn ethanol when oil is around $80.00 per barrel. BOO HOO!! We can only hope lots of losses can shut down corn ethanol production. It is an industry that is wrong for society ethically, economically, socially, morally, and environmentally.

  • We are aware of producers who have decided to pull the plug on their sow units in the last ten days. The new high feed prices were the proverbial straw that broke the camel’s back. We are not sure the degree of total liquidation triggered but is sure is making a dent in any expansion plans.

  • The industries perception of next fall’s hog supply is indicated by next October lean hog futures hitting life of contract highs last Friday of 76.60 up from 70 cents lean on 4 October. It takes a real optimistic person to see $5.00 corn making more hogs domestically or globally.

  • The US dollar has depreciated compared to the Euro about 15 per cent since June (15 October - .71, 8 June - .837). The weaker US dollar is making US products more price competitive against European products. The lower US dollar will be positive for US pork exports in the coming months as Europe is the next largest global pork exporter. World Pork Exports: USA 35 per cent, Europe – 27 25 per cent, Canada 19.4 per cent, Brazil 10.5 per cent. USA – Canada account for 55 per cent of all of the world’s pork exports.

  • US pork exports in August were less than 1 per cent lower than last year. The total US pork production was lower in August by 6 per cent. A slight decrease in exports should not have been unsuspected. In August hog prices were up $60.00 a head from a year ago and lower pork supply, not only made exports more expensive but also lowered pork availability. Currently the lower US dollar, increased pork supply and lower hog prices will in our opinion trigger greater pork exports.

Summary

It was a nasty week for hog prices. Most producers will be below break even. We have to get through the heavy seasonal marketing’s of the next few weeks before we see much price recovery. $5.00 corn is going to make fewer hogs next summer and fall. Expect lean hog futures the summer of 2011 on to strengthen.