Pork Commentary

Jim Long President – CEO Genesus Inc.

February 23, 2015

US Hog Numbers Pushing Higher

Last week the US marketed 2.285 million hogs, up 174,000 from the same week a year ago (+8%). A big jump considering the USDA December 1^st inventory report indicated no more than 3% more hogs year over year. Big supply is keeping lean hog prices low with 53 – 54% National hogs $59.93 at the end of last week. In all situations there are winners and losers. One winner in lower lean hog prices are packers. At the end of last week USDA pork cut – outs averaged 71.50 while lean hogs were 59.93. The spread of 11 would if farmer arithmetic is correct makes packer gross margin over $20 per head. A good number for them. The positive for farmers is the good packer margin will have packers wanting to maximize kill, which they are. We might be overly positive but we see the light at the end of the tunnel (hopefully not a train coming)! The aggressive pull of hogs by packers and their good margin reflects a good demand for pork despite the major obstacle for exports due to the West Coast port issue.

Pork cut – outs $71.50

Beef cut – outs $246.12

Beef is three times the price of pork – no way this spread won’t narrow. We expect beef will pull hogs higher in the coming weeks as consumers buy more pork! Indeed if we aren’t exporting pork due to the port issue, who is buying it? We expect US consumers are picking up the pace. Packer margins reflect some decent demand.

Cattle on Feed

US Cattle on Feed report for February 1^st indicates the same number on feed as a year ago. No more is no more. This is supportive for hogs in the coming months as cattle numbers are at historic lows.

Pork in Storage

US pork in storage as of January 31^st was 596,532 (1000 pounds) versus 618,746 a year ago. In January, the US added 93,000 (1000 pounds) a good size jump reflecting in our opinion the West Coast port issue. You certainly wonder as the West Coast pork issue drags on how a small number of companies and employees can be so reckless in their behavior to affect not only the pork industry but many other trade interactions. It is a form of economic blackmail and you would wonder at what point it affects the long-term trade patterns. You would think leadership by Government, Industry, and Labor would facilitate a resolution. It is probably not a reach that pork export issues have lowered lean hog prices to the point it’s costing producers in total $40 – $60 million a week.

Small Pig Prices

Big jump in US early wean and feeder pig prices last week. Early weans up $11, Feeder pigs $5, last week the average price for Cash Early Weans $47.06 – Feeder pigs $72.66. Why the price jump? Surge in demand and faith in future?

Summary

Seems we are trading dollars right now. We are optimistic low beef supply, seasonal hog number decline, and exports when the ports get back to normal will move hog prices higher. We still believe $1.00 lean is not out of the question this summer.

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