CME: What Was Behind Pork and Hog Market Trouble This Winter? 0 0

US - Livestock and meat markets have reminded us lately of the Anne Murray hit song of the ‘70s entitled “Sure Could Use A Little Good News Today.“ And the pork and hog markets got some yesterday as Russia announced that it would begin the process of accepting some pork products from France, Hungary, Italy, Germany, Denmark and Netherlands.
calendar icon 28 January 2015
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That move will certainly help US exporters’ market position as it will redirect some of the product that has largely entered Asian markets in direct competition with US product since early 2014.

Beginning just under a year ago, about 40,000 metric tons per month of EU pork had had to find a different home due to Russia’s import restrictions over African Swine Fever. Those restrictions, of course, expanded when Russia retaliated over economic sanctions regarding Crimea and Ukraine.

The reality is that Russian processors have not been able to find alternate sources of product in the face of Russian bans against the EU and the US.

The announcement was the primary driver for the $2.00 to $2.80/cwt rally in Lean Hogs futures.

So what has been behind the trouble in pork and hog markets this winter? That question is circulating at state pork producer association gatherings this month and there are not many clearcut answers. It appears that the negative pressure comes from a number of factors, any one of which might not be huge but the sum of which have been burdensome to say the least.

First, let’s realise that today’s prices — and, indeed, those we have seen since October — are a lot more “real world” than virtually anything we saw last year. It reminds us of that feeling you get when you come back from a nice vacation: The trip was fun but getting back to life is a bummer!

Our Production and Price Summary table in yesterday’s edition indicates that pork production was 5.8 per cent higher than one year ago last week and that Iowa Minnesota pig prices were 12 per cent lower. Other prices were down roughly six per cent , the cutout was down 2.7 per cent.

Those price declines are, if anything, small relative to the change in production. Now that production change is larger than in some recent weeks but prices are right in line with supplies. In fact, they generally represent solid demand relative to those supplies. But we think there are three definite negative factors at play here:

  1. The West Coast port slowdown is beginning to have an impact on domestic supplies. This thing started in November and, like these actions in the past, took a while to be felt. We started hearing talk of cancelled shipments week before last and the talk became much more common last week. Just a few loads of product initially destined to China or Japan on top of 5.6 per cent more output can exert significant negative pressure. Federal officials apparently cannot intervene yet in the dispute since it is neither a strike nor a lockout at this point in time.

  2. The steadily rising dollar is raising the prices of US product relative to those or export competitors and, except for China, domestic product. The China exception, of course, is due to their pegging the yuan to the dollar. Dollar Index futures traded above 95 for the first time since September 2003 last week. The nearby March contract is trading just below 95 this morning but deferred contracts are over 96. We do not see much talk of this rally being a “flight to safety” such as those we have observed when various EU countries were forced to face serious debt issues. This appears to be a more fundamental — and lasting shift for the dollar and one that is not at all merely coincident with lower oil prices. How long will those last?

  3. PEDv case numbers continue to lag far below last year and what most observers had expected this winter. Though PEDv case accessions jumped to 115 and 118 the weeks ending January 10 and 17, those numbers compare to 185 and 215 one year ago. The production systems participating in the University of Minnesota’s Swine Health Monitoring Project reported 4 and 2 sow farms with PEDv breaks in the most recent two weeks. Those compare to 11 and 14 one year ago. There are rumors of more serious problems with porcine respiratory and reproductive syndrome (PRRS) but he UM data do not reflect larger case numbers and, in fact, indicate that PRRS is, as it was last year, much less widespread or severe than in past years.
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