2018 – Profits?

2017 was a good year for swine producers. How does it look for 2018?

Our observations.

  1. USA

If lean pork futures and small pig prices are an indication of supply and demand, it appears to us, that US producers will have profits per head in the $20 US range for 2018. A promising scenario. There has been sow herd expansion about 1%, but when compared to the increase of the U.S. packing capacity of at least 7%, this will lead to a real chase for market hogs to fill shackle space and maintain retail shelf space, food service and export markets in 2018.

We believe lean hog futures have not factored in the lower packer margins; we expect are coming in the months ahead from the competition to procure market hogs. We believe current lean hog futures for 2018 are $10 per head lower then the reality that will happen when packers’ margins erode as weekly hog marketing decline seasonally.

A real indicator of current supply and demand is U.S Cash 40lb pigs; a year ago they were averaging $43, now $68. That is a $25 per head increase year over year. Is a big difference. No one pay’s more than they have to.

We expect U.S.D. A’s proposed new voluntary Grade system that focuses on marbling and colour will be put in place. We expect that some Packers will resist, as most people don’t like change or the concept of being dictated by the government. Some Genetic Companies will not be happy with the proposed change, as their products will not meet the Premium grade categories and will be discounted. In the end the pork buyers will decide. If they request Prime and Choice grades we expect supplier (Packers) will work to meet their needs. Usually in business the customer is always right, if not they buy from someone else.

Its hard for some packers to deal with this change as they have had a hugely profitable time.

 “When your company is hugely successful, you don’t want to see the world is changing” – Frank Vermeulen

We expect the game Changer is happening, no longer “the other white meat” branding to compete with cheaper chicken. Now its red meat and marbling. Beef is our target. Chase a higher priced product as a comparison. The idea that lean, lean and leaner is ideal is over. Taste and Flavor has always mattered in demand. Now its being targeted in an organised way  

“The meek shall inherit the earth, but they’ll never increase market share” – William G. Mc.Gowan ( 1929-93)

  1. Canada

Canada will follow the U.S. market. Little if no expansion. Exporting 70% of total swine and pork production, the strengthening global economy will lead to continued export strenght. Canada competitively benefits from a lower dollar compared to US, Canadian producers will benefit from the increase in US packing capacity as it will push hog prices higher and, we expect, lead to more live hog exports to US.

  1. Mexico

Mexican producers have benefited from higher US packer margins. As its pork that is imported to Mexico not live hogs. Last week Mexico’s hog price of 29 pesos a kilogram (68c US liveweight per lb) was $50 per head higher then the US market. Its been a good year for Mexico producers.

If US packers’ margins decline, the spread between Mexican and U.S. hog prices will too.

A spectre hanging over, Canada-USA-Mexico pork trade is current re-negotiating of the NAFTA free trade agreement. Who knows how that will end?! Mexico is a huge market for US pork, mostly hams.

  1. Europe

We expect European production to overall hold steady. A strong Euro compared to the US dollar has made Europe less competitive in the global markets. We expect Spain to continue to lead if there is production growth.

African Swine Fever is creeping across Easter Europe. If it ever got to Germany or Denmark it would be a large factor in global pork export markets.

Europe has a base of excellent producers; the question is, can they stay competitive globally with continued regulatory and rules being put on them. Over the last decade there has been millions of sows leaving production. Fortunately, Europe’s per capita consumption of pork is high, and that domestic demand is an anchor for the industry

We are seeing the phenomenon like in North America; where better taste-flavor in pork is becoming ever more important.  The chase of Asia markets and domestic demand is leading to an evolution in countries where lean, lean was King

  1. China

China is a contradiction. Lots of new sow houses being build, but lots being shut down. The Chinese Government reported this October that China sow herd was 34,87 million, down 5.3% from a year ago (almost 2 million sows lower). China hog price is 15.05 RMB/kilogram or $1.02 US liveweight/ lb. Industry is quite profitable; except packers, as over 13 million sows have gone out of production. With huge excess packer capacity, they get to work for next to nothing.

Why is the swine production still downsizing despite huge profits (over $75US/ head) for three years now? Its mostly due to new tough environmental laws, closing farms. It is estimated 5 million sows have been and will be forced out of production for environmental reasons.

We expect China’s hog price will stay very strong through 2018. China will continue to import large quantities of pork.

  1. Russia

Russia has had a very profitable run of five years. Profits are in $50 US area. Sanctions with Europe and North America have kept pork imports to a minimum. Sanctions are officially in place for 2018.

Some sow herd expansion is occurring. The key to Russia’s market (145 million people) long term is per capita consumption; it is half of Europe’s. If the economy gets stronger, we expect Russians to eat more pork. The economy is greatly tied up the petroleum industry. World oil prices have improved.

Russia’s cost of production for swine production is much higher then Europe or North America. Over time this could narrow. Feed costs are globally competitive. Unfortunately, Africa Swine Fever continues to hit, this discourages investment and minimizes export potential.

We expect Russian producers to have a good profit in 2018. They will import little pork and exports are not a factor. It’s a closed market for all intents and purposes.


2018 appears to us, to be a good year for hog producers all over the world. It’s a global market and the yin and yang of different actions and occurrences effect us all. 

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This post was written by Genesus