Market Hog Prices Are Good but What is Future?
It’s nice to see some profits currently in market hogs for farrow to finish operators. This after several months of losses. Unfortunately, if Lean Hog Futures are the guide it appears by sometime in September losses will return. Last Friday October 85¢, December 77¢, February 80¢, April 85¢. If correct at least seven months of losses at current feed prices. The average losses per head for the seven months would be probably $20 plus. Of note Iowa State estimates the losses from the last 12 months June 22 to June 23 farrow to finish at -$36.04 per head. If the U.S. markets 120 million hogs a year loss of about $4 billion plus in a year. The USDA average cash early wean price is a reflection of the calculated economic returns. Since April have been averaging around $10 per head delivered. Losses of about $30 per head for the sow producer, at this point there appears little sign of change, with this past week around $10 still. We were told recently by one of the major feeder pig brokers there is lots of small pigs available and no immediate sign of price recovery. The $10 pig is a reflection of what the finisher can pay and make a little money. It also indicates the losses of farrow to finish operator could be looking at.
Is there any wonder the latest weekly U.S. sow slaughter was just over 70,000 (last year averaged 58,000). Real big number and reflection of the ongoing sow herd erosion.
On top of the increased sow liquidation, we definitely see lower gilt sales and retention. You need capital and courage in this market. If you don’t have both it cuts gilt sales and retention.
The losses we have encountered as an industry over the last few months are unprecedented. A major producer and survivor of the 1998 market debacle, wondered to us is this worse than that year? The high feed costs and length of low prices in the midst of other inflationary cost increases have really hurt.
We are in a volatile market. We all see the price gyrations of the grain and hog market. Current cash hog price of a $1.05 is $60 a head higher than lean hog futures indicated the end of May.
We expect the lean hog prices will end up higher than lean hog futures reflect currently as fewer hogs will come to market due to liquidation. Beef production is running currently 7% lower than a year ago, exactly where USDA projected. Less beef is supportive for pork prices. European pork production is down 7%, they have record hog prices, there is no indication there is expansion. They have less pork to export and it’s more expensive than U.S. pork. Chinese sow base continues to erode for the same reason the U.S. is, month upon month of pig losses ends up cutting the sow herd.
This week talking to colleagues in Mexico the same economic factors affecting the U.S. are leading to sow liquidation. Mexico is the number one market for U.S. pork exports.
Call to Action?
If estimates are correct an industry losing $4 billion the last year is needing a radical overhaul. Maybe producing better tasting pork that would increase loin and ham values (half the carcass). What we have been doing isn’t working. We find it a real positive the National Pork Board is now initiating efforts to address pork demand taste. A good tasting product should not be a niche program. Every consumer deserves a good eating experience. Better product. Better demand. Higher prices.
This post was written by Genesus