Pork Commentary: June Lean Hogs Break $1.00

CANADA - This week's North American Pork Commentary from Jim Long.
calendar icon 8 February 2011
clock icon 4 minute read

The target was identified six months ago when June lean hogs hovered around 80 cents. The target as we saw it was $1.00 June Lean Hogs. We believed lower hog supply, strong pork exports, and a recovering global economy would push June lean hogs to $1.00. June closed at 100.875 Friday. The industry needs these prices!

Korea

We have further information on the foot and mouth disease in South Korea.

  • South Korea before the FMD outbreak had about 900,000 sows. There has been at least 250,000 sows exterminated but in all likelihood the number is over 300,000 sows.

  • FMD vaccination has been undertaken nationwide but there are reports of FMD breaks still occurring in herds that have been vaccinated.

  • A few days ago some market hogs were sold in South Korea for almost $1,000 each! Since then prices are dropping as pork imports began arriving.

  • Now that South Korea is vaccinating for FMD that means pork can be imported from other Asian countries that vaccinate. i.e.: Philippines.

  • Approximately 20 – 25 per cent of all the cattle in South Korea have been exterminated. The FMD vaccine is reported to be working for cattle with very few further breaks.

  • We were told South Korean producers are receiving an average of $300 per pig compensation from their Government. The South Korean Government’s compensation for 3 million pigs exterminated at that rate is $900 million dollars. That’s a budget buster.

Summary

The FMD in South Korea has wreaked havoc on their swine industry. With up to 300,000 sows or 33 per cent of their breeding herd exterminated we expect to see large amounts of pork go to their country for up to two years while their industry rebuilds. With USA – Canada providing 50 per cent of the worlds pork exports we expect the crisis in Korea will support North American pork prices.

Markets

  • Iowa – S. Minnesota closed Friday at $80.23 lean per pound. A year ago prices were around 65 cents per pound lean. We expect to see a steady increase of cash lean hog prices from now until June.

  • Last week US hog marketing’s were 2.058 million down about 100,000 from the same week a year ago. Bad weather in the US mid west last week was a major factor in lower hog numbers but we sense hog supply is tightening.

  • Chicken broiler placements are continuing to run 1 per cent higher than a year ago. Though it’s more, it’s not a significant market share push. Chicken prices of 75 cents per pound are 5 cents per pound lower than a year ago. With significantly higher feed costs this year the chicken sector is not rolling in profits.

  • The riots in Tunisia and Egypt have been partially triggered by high food costs. We have written before the 6 billion plus bushels of corn diverted to ethanol would have moral, economic, political, and social implications. 40 per cent of Egyptians earn less than $2.00 per day. 40 per cent of an average Egyptians income goes for food. The rise of higher food costs will in all likelihood lead to further global unrest. As Global events evolve will America continue to subsidize and encourage corn ethanol production? The United Nations report Global Food prices are the highest in history.

Summary

As we expected lean hog futures broke $1.00 lean per pound. Lower hog supply, strong domestic and global demand is pushing prices. The foot and mouth crisis in South Korea will lead to greater pork exports and this will support prices further.

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