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Pork Commentary: Hog Markets Tread Water

by 5m Editor
14 December 2010, at 10:05am

US - In this week's Pork Commentary, Jim Long writes about the Iowa – Southern Minnesota hog market.

The Iowa – Southern Minnesota price last Friday averaged $68.10, while USDA cut – outs averaged $78.50. Producers are losing money. Breakeven is approximately 80 cents lean. US hog marketing’s last week were 2.257 million head, up 22,000 from a year ago. The big difference year over year is that carcass weights are averaging 208 pounds; a year ago they were 202 pounds. Those 6 pounds extra carcass weight is obviously putting extra pork tonnage on the market. Lean hog prices are now only 5 cents more than a year ago when as an industry we were still playing defense with H1N1 (swine flu) being trumpeted by the Government and the media (maybe we should sue for damaging our industry).

Other Observations

  • Cash early weans averaged $50.51 last week ($39 - $58) while cash 40 pound feeder pigs averaged $60.11 ($50 – 69.50). A continual increase over the last few weeks in these small pig prices is a reflection of lack of supply and strong demand which is flying in the face of high feed prices.

  • While lean hog prices are 5 cents per pound higher than a year ago. Sow prices are 13 cents per pound higher year over year. This year (500 – 550 pounds) $51.50 last year $38.25. Strong demand for the sausage trade and fewer sows going to market is allowing gross revenues per sow to be $65 a head better than a year ago. The revenue per sow of over $250 is allowing gilts to be purchased for very close to even money.

  • The USDA came out with projections last week that US pork production will increase from 22,346 million pounds in 2010 to 22,591 million pounds in 2011. We will see, but we find this increase hard to believe when our production base has a 100,000 fewer sows than a year ago. In our opinion, $5 corn is and will make fewer hogs over the next several months.

  • USDA is projecting total beef, pork, broilers, and turkey production in 2011 will be 91,319 million pounds and 91,320 million pounds in 2012. In our world that is same. Let’s assume a 1.5 per cent increase in USA. population continued export growth. Equal meat tonnage with more buyers we find it not hard to assume meat prices at minimum equal to 2010 with upside of 5 – 10 per cent in prices year over year.

  • DTN Ag Data had a chart last week which estimated gross pork packer margins. The chart showed packers have had around $35 per weight of carcass the last eight weeks. The three year average was $20 over the same 8 weeks. Bottom line: Packers have been doing fine. As an industry we want strong packers to have money to re – invest into their facilities, resources to get retail shelf space and pound into export markets. One of the greatest strengths of the US hog industry is the financial strength and production capacity of packers. It appears to us, packer margins have begun to narrow as hog supply begins to seasonally decline.

  • The European Union produces about double the pork of North America. It produces approximately 20 per cent of the world’s production. EU sow herd is about 14 million sows. Recently a survey by producers by the United Kingdom’s National Pig Association came up with an estimated 2.9 million tonne decrease over the next 3 years. In the EU a 14 per cent decrease in pork production in the three years. A huge decline.

Reasons given are:

  • Many producers losing money for nearly half a decade.
  • Loose housing is mandatory legally in 2012. The cost is prohibitive for many producers.
  • Higher feed costs.
  • Lack of bank confidence in swine production sustainability.

The projected EU decline if fulfilled in the next 3 years is equal to 6,380 million pounds or a US production decline of 28 per cent! It is hard to believe such a decline is likely. If it happens the EU will not be a factor in global pork export markets. Such a decline would lead EU hog prices that would be record breaking.

Summary

It continues to be a harsh time to be a hog producer. Market prices are lower than break evens. It is discouraging. Feed prices have been surging with the underlying concerns of potential further price gains. On the plus side, lean hog futures are strong reflecting prices $20 - $40 per head higher than they are now. We expect prices to move higher than they are now. We expect prices to move higher in the coming months. Profits are on the way!