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Pork Commentary: CBOT June Lean Hogs

by 5m Editor
12 October 2011, at 9:10am

US - This week, Jim Long writes about the US hog market in his latest Pork Commentary.

Last week we called the September Hogs and Pigs Report bullish. The Chicken Little Economists called it bearish. When the dust settled last Friday, June lean hogs closed at a new contract high of $100.40 per pound up from $97.75 a pound the day the Hogs and Pigs Report were released. The report was bullish! The final result: Pig Farmers 1, Chicken Little Ag – Economists 0.

Demand

Last week the US marketed 2.34 million hogs up 100,000 from the same week last year. A real reflection of the tremendous pork demand we are having is the fact despite 100,000 more hogs the lean hog price of 53 – 54 per cent lean hogs was $94.91 per pound last week compared to $79.88 a year ago. That’s $30.00 per head more per market hog year over year in the face of 100,000 more hogs per week. That’s a real reflection of the strong pork demand of both domestic and export markets.

Other Observations

  • Cash early weaned pigs jumped up $5.00 per head last week (still real low at $22.47). We expect a rapid increase in both early weans and feeder pig prices in the coming weeks as the breakevens reflect higher hog and lower feed prices. We expect feeder pigs will reach $80.00 in the next 90 days.

  • Chicken production continues to plummet with chick placement down 9 per cent last week from a year ago (approximately 13.5 million chickens less a week). Unfortunately for the chicken industry less chicken is not translating into higher chicken prices as the composite average 12 city boiler price is $72.20 a pound down from the same week last year’s $80.59. Lower chicken prices and higher feed prices are leading to ongoing chicken industry financial losses. Has chicken consumption hit a consumer consumption ceiling? Whatever is happening 13 million fewer chickens a week means less protein for pork to compete with. This is very supportive for hog prices.

Beef

We read a report this past week from Rabobank – the world’s largest ag – lender about US beef supply. The gist of their presentation is in the last half of 2012 US beef production will be significantly lower. A combination of drought and continual herd reduction will lead to extremely strong prices. As it is said ‘The dog is going to hit the end of the chain.’ No more give. If the scenario is correct the high cattle prices will pull hogs higher.

  • US sows slaughter the week before the USDA September Hogs and Pigs Report released were 64,856. That is a level that would reflect liquidation. Now we have a bullish report we will monitor if this continues.

  • We know of some empty sow barns starting up again but we know of no new sow barn construction in the US and Canada. We expect that the breeding herd number is moving little either way up or down. The big factor for ever stronger prices continues to depend on pork demand.

Summary

The US hog industry is benefiting from tremendous demand. Despite huge runs of market hogs lean cash hog prices are in the mid 90’s. As hog numbers seasonally decline over the next few months and pork demand stays robust (as chicken and beef supplies decline) we expect to see record seasonal hog prices.