Jim Long President – CEO Genesus Inc.
July 7, 2014
Bullish Results of Hogs and Pigs ReportLast week the bullish June Hogs and Pigs Report resulted in lean hog futures rocketing higher. October up $6 per pound, December $7 per pound, and February was 8₵ per pound. The move up in just 4 days of Chicago trading was nearly $15.00 per head for the fall and early winter time period. Fewer hogs and strong pork demand are leading to the highest profits in the North American hog industries history. In the same four days last week September and December corn dropped 33₵ a bushel with November soybeans down 94₵ a bushel. The combination of higher lean hog prices and lower corn and soybean potentially improved hog margins about $20 per head in the fall and early winter time frame. After years of being in an industry that was profit challenged, record profits of $100 per head are very real. Christmas in July and beyond! Last July we spoke at the National Pork Industry Conference at Wisconsin Dells (we are speaking again this year). At the conference we projected farrow to finish margins would average $20 per head for the twelve months July – June. We were wrong. If you didn’t get PED and you didn’t hedge early (around $1.00 which many did), you probably had a profit of $50 per head over the last twelve months. Usually we are told we are too bullish, at the time last July $20 was considered bullish. The corn crop was still being questioned but we expected it would be good (Corn was $7.20 bushel). Lower corn worked out but we underestimated last July PED devastating supply. We had expected pork demand domestically and globally would stay strong from our observations travelling in many of the pork importing countries.
Carcass WeightsFarmers have a great ability to adjust to the market. With lower hog supply there is more finishers available and or more space per hog. Feed prices have dropped in the last year. Hog prices are higher. What it has led to is a huge increase in carcass weights. Last week the average National Base Lean Hog was 216.02 lbs a year ago the same week it was 204.90 lbs – 11 pounds higher. Producers have figured out you can make more money per hog at these higher hog prices and lower feed costs. Packers have adjusted also, simple arithmetic. It’s kind of like Government farm programs, they are announced and in a matter of days farmers have figured out how to farm the Government at the maximum. Hog Producers are great adapters.
Pork DemandRemember we heard consumers wouldn’t pay high prices for pork? The economists had it all figured out. We wrote several times pork is cheaper in USA – Canada than in many parts of the world. Most of the world does not have the disposable income of US consumers. We did not expect price resistance. Pork cut – outs last week were $134.20 per pound (record high prices). It really, really appears consumers will pay higher pork prices if they have no choice. The myth of price resistance was just that, the Chicken Little economists were wrong again (they did predict 91 – 93₵ lean hog futures this summer)! They seem not to get people want meat, they will pay for it, and they are now and will pay what they have to. If they have to they can eat at home. Restaurants are not a necessity.
SummaryIn a week we will be at the National Pork Industry Conference in Wisconsin Dells and we will be speaking on the Global Swine Markets and How They Affect North America. We look forward to seeing you. It’s Independence Day as we write this, a time of celebration for a special society that embraces capitalism and democracy. A powerful winning combination. As we look forward to the next twelve months we take note of a friend of ours Bob Hunsberger’s hog margin calculations that he does weekly. He projects this week a profit farrow to finish of $77.24 per head in the next twelve months. At these times it’s great to be a capitalist.
Categorised in: Pork Commentary
This post was written by Genesus