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Jim Long Pork Commentary: US slaughter numbers continue strong

17 December 2020, at 9:30am

The U.S. market continues to maintain weekly hog marketings similar to a year ago with last week at 2,776,000, a year ago 2,772,000.

These current slaughter numbers appear to be at capacity with the current limitations due to coronavirus issues. Packers have a good incentive to maintain rapid slaughter rates with U.S. pork cut-outs averaging $79.71 lb. last Friday while the average 53-54% hog price was 65.45₵ lb.

Unfortunately, it appears we have backed up some hogs relative to a year ago. Our estimate looking at current slaughter weights is about 500,000 – 800,000 head. We expect to catch up over the coming weeks.

Other Observations

The U.S.D.A released its December Crop Production and World Agriculture Supply and Demand Report.

World ending stocks
2020-2021
(Million metric tonnes)

Corn

289.0

11,137 billion bushels

Soybeans

85.6

3.144 billion bushels

Wheat

316.5

World ending stocks 11.137 billion bushels of corn, 3.144 billion bushels of soybeans. No wonder most analysts called it neutral.

Interesting observation by a commentary reader who has traveled Western, Midwest for a number of years says “never saw so much corn piled up”. U.S.D.A estimates corn to average $4.00 a bushel until next crop.

Robert Hunsberger with Wallenstein Feeds in Canada does a report weekly, calculating profitability using current lean hog futures and future corn-soybean prices plus other logical costs. Last week the next twelve months has zero total profit. Not exactly a scenario to create bullishness.

The depreciation of the U.S. dollar to the Euro is supportive to U.S. pork exports. March 2020, Euro was 1.07 to the U.S. Dollar. This past week 1.21 Euros to the U.S. Dollar. A 13% change, making U.S. products more competitive globally.

U.S. Pork cut-outs last Friday $79.71 lb. with almost 2.8 million hogs slaughtered. When we look at normal summer marketings, they usually are 300-400,000 less per week. Assuming similar current demand seems to us lots of upside to cut-outs to jump pulling lean hogs higher.

Mexico

Mexico is the U.S. largest pork importer in volume terms. The hog prices currently in Mexico is around 70₵ U.S. lb. liveweight. We expect the current price will continue strong U.S. export sales.

China

China hog Price has jumped higher to 31.34 RMB/kg. ($2.15 U.S. lb). Back up from 29.55 RMB/kg.
This tells us China continues to be short of pork and recovery of supply won’t happen anytime soon. Price of hogs is the one truth in the worlds hog market.

Germany

ASF in Germany continues in wild boars. A week ago 55 were found positive in one day. Currently, 254 have been identified as of December 4.

The loss of Germany’s Asian market due to ASF (China, South Korea and Japan) has impacted Germany and Europe prices. For example: Spain prices have dropped from 1.30 Euro/kilogram at the time of German ASF break to 1.10 Euros/kilogram last week.

United States

The U.S.D.A feeder pig price jumped $2.00 to $55.83 last week. Current price is the same as a year ago. A reflection of the recovery from the disaster of prices from the 4 months of April to August, when the average 40 lb. feeder pig was under $20 per head. When we look at feeder pig pricing over the last twenty years nothing comes close to the debacle of this year.

Reports tell us lots of empty finishing barns looking for pigs. With PRRS and PED a factor, we believe current lean hog futures and the U.S.D.A. overestimating the supply of hogs coming in 2021. As we commented last week, “cash feeder pig prices are the Canary in the Coal Mine of what’s coming”.

Europe

In Europe, feeder pig prices are following the opposite trajectory. The last 52 week average for same quality 30 kg feeder pigs from Denmark 412 Danish Krone ($66 U.S.); last week 140 Danish Krone ($22.40 U.S.). A reflection of the collapse of demand as ASF backs up hogs and drops demand, coupled with higher feed prices, decreasing margin.

Summary

  • Lots of market hogs coming to market.
  • As we head into 2021 we expect fewer.

In our opinion; lean hog futures for 2021 are undervalued.