US Hog Industry – Dark before Dawn

Jim Long Pork Commentary
calendar icon 8 August 2023
clock icon 5 minute read

In our opinion US herd liquidation is ongoing. The last two weeks US sow slaughter averaged 70,000 head. A year ago, the average was 58,000 a week. The extra 12,000 a week is a sure sign of the herd getting smaller. With cash isoweans averaging around $10 a piece since the first part of April (4 months) the losses are leading to the herd getting smaller.

To maintain the inventory of any sow herd you must be adding gilts on a regular basis. We believe gilt entry has not kept up to the combination of sow slaughter and sow mortality. The US average sow herd has a mortality of close to 15% per year. Farmer Arithmetic 1% per month sow mortality and don't add gilts. Sow herd decreases 1% per month. The sow herd decrease is just not herd liquidation but also gilt retention and sow mortality. Many producers don't have the capital to purchase gilts.

  • A reflection of the hog market losses are the financial returns of major pork producing companies in USA and Canada. The second quarter results are coming out and the losses are aggregate in the 10’s of millions. In our opinion a reflection of the whole industry. Last week we pointed out Iowa State University projects the farrow to finish losses in the last year (June-June) at $36 per head. The financial returns of the major companies reflect these numbers. Doesn't matter how big you are, you need corn, soymeal, labour, etc. There is really no such thing as volume discounts to make up the price of hogs versus all costs. Being bigger in this market might just mean you lose more money.
  • Europe went through much the same as the US market is going through with huge losses in swine for several months. What happened in Europe which had about 12 million sows they liquidated about 1 million sows. For the last few months Europe has had record hog prices. Currently, about $1.00 US liveweight a lb. (in Spain $1.00 equivalent for 4 months).

Wouldn't you be happy at a $1.00 lb. That's $70 per head higher than we are now, despite US hog prices now the highest so far this year (75¢ a lb. liveweight).

In a bizarre way we're liquidating while hog prices are at a historically high level in the US. It's the combination of high feed prices, low future prices (October to April) and general lack of capital and courage. There is next to no bullishness in this industry. We are in a sense marooned, there is no swell exit strategy. There is no new money rushing into our industry to share its misery.

To us is the Darkness before the Dawn. Why?

  • The liquidation is making fewer hogs.
  • Feed prices will be lower than in the last two years decreasing cost of production.
  • Cattle prices are high and their inventory low. Beef cutouts $3 a lb. Pork cutout $1.15 a lb. Even the pork that doesn't taste good is competitively priced to Beef. Better tasting pork will do even better.
  • Europe pork price record levels and with no sign of expansion (supply -8%). Will be easier to sell you U.S. pork with Europe more expensive and less supply.
  • US chicken industry is hurting too. Chicks placed are down from a year ago. Less chicks in - less protein supply - supports pork.
  • We believe lean hog futures October on are undervalued. We don't believe the market realizes the lower supply coming.
  • We also believe that the ongoing billions of dollars in losses in China’s hog industry is going to cut their supply. China will be looking for more imported pork. In the last two weeks the price has gone from 13.95 RMB to 17.35 RMB or 89¢ to $1.09 and that’s an increase of $50 per head and you go off the basis that nobody pays more than they have to, a massive jump.

This is a tough industry. It's not for the faint hearted. If there was a war, we would want to be in the trenches with pork producers. It seems a group that’s tough to kill and will fight to the very end. Resilience.

It's the dark before dawn. This industry will recover, it always will.

One of the best parts of being in the hog industry is our ability to work with family. I am glad to work with mine. The link below is an interview on Swineweb with one of my sons, Spencer.

2023 World Mega Producer New Fashion Pork – Triumph Foods

From its beginning in 1998 a lot has changed for the company. Today operations operate in seven states, including, Minnesota, Iowa, South Dakota, Wyoming, Illinois, Indiana and Wisconsin with International business diversity. Having a sustainable strategic plan, Land/Crops, Nutrient supply and Pigs, has always been a company goal. New Fashion Pork has 57,000 sows and are part of Triumph Foods.

Today 30% of the company needs are supplied within. Maintaining and achieving high health herds is also part of the plan.

“You must continually be improving your plan to have success in the pork industry… Being part of the Triumph ownership group has been very important. Working with like-minded owners helps everyone achieve more success”. states owner Brad Freking.

New Fashion Pork is part of Triumph Foods which has 435,000 sows in total between the five companies. Triumph Foods processes 5.5 million hogs annually.

Jim Long

President - CEO at Genesus Genetics
© 2000 - 2024 - Global Ag Media. All Rights Reserved | No part of this site may be reproduced without permission.