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Jim Long Pork Commentary: U.S. Lean Hog Futures – Big Drop

15 September 2021, at 10:45am

Last week lean hog futures decreased an average of $7 Friday to Friday. A big drop. Our observations:

USDA Predictions

Seems there are thoughts of significantly increased pork production in the coming months by USDA, this is depressing prices. This is the same USDA that predicted more pork in 2020 than 2019 (they were wrong); the same USDA that June’s Hogs and Pigs Report had a 2% decrease year over year in inventory. The latest month of full data was down 13% year over year.

PRRS 144

To increase production, PRRS 144 must not raise its ugly head this fall and winter. Wishful thinking.

Pork Export to Mexico

If you look at Mexico’s import of pork from USA, they are at record levels (YTD up 28%) despite pork at very high prices. There is no reason to expect less pork exported to Mexico in the coming months.

Sow Herd Inventory

Currently, sow herd liquidation is at major levels in Europe and China due to hog prices being below cost of production. We expect total global production of pork to decrease in 2022. This is price supportive.

We question if there is significant expansion of sow herd in USA. There is next to no new sow barn construction. Some existing sow farms are being restarted but also some farms are de-popping. Net we don’t think there is much change in sow inventory.

Increasing sow mortality of over 14% will limit productivity increases. Dead sows don’t produce pigs. The continued increased sow mortality from poor genetics will hamper productivity growth. A sidebar to this is this is the farmer arithmetic. Six years ago, sow mortality was 7% now it averages 14% with obviously half the herds over 14%. Let’s assume 6 million U.S. sow herd. An increase of 7% in annual sow mortality is 420,000 more dead sows a year or 8,000 a week. As a value of $1,000 sow lost value and opportunity, that’s an industry loss of $8 million a week. Also wonder why sow slaughter is down, an extra 8,000 a week dead sows don’t get to slaughter. Increased sow mortality attributed to poor genetics is a big factor in economic loss and lack of productivity gain.

Questioning Demand?

A year ago October lean hogs were 65¢ lb. Now 82.50¢. If we had said USDA pork cut-outs would be $1.06 today a year ago, what would most of you think? - “wow! that is a great price, obviously, supply-demand is positive. This is wonderful.” Point is the experts who question demand currently are missing much. China beef cut-outs are $327, pork $106. Pork will be supported by beef prices as the only red meat alternative. Whole chicken prices are $1.06, a year ago 63¢. Chicken placements -1% last week. We don’t see much increasing total meat supply while demand is good. Most consumers love meat and will pay for it. Vegans not so much!

Summary

China production base is declining due to financial losses almost incomprehensible and continued ASF problems. In most of Europe, producers are losing 35-50 Euros a hog. This is liquidating sows. U.S. production is stable, so is Canada’s. We expect supply-demand globally to support hog price in 2022.