Pork Market Grind Continues
Unfortunately, the hog market continues to run below cost of production. If breakeven is about 92¢ lb. carcass and the U.S. average slaughter hog is bringing 76¢ lb. the spread of 16¢ lb. is creating an average loss of $32-35 per head. Multiply that by the recent weekly slaughter of 2,649 million head. Current lean hog futures indicate these losses will continue another six months. Farmer Arithmetic comes up to an industry loss of about $85 million per week. Going the wrong way and unfortunately a trend that’s been going on for many months. We expect the U.S. industry as a whole will lose between $3-4 billion in 2023 (average over $25 per head). The USDA’s current projection is there will be increased production in 2024 compared to 2023 – 27,232 million lbs. in 2023 increasing to 27,745 million lbs in 2024. The USDA believes that despite billions of dollars of losses and all indications of further losses continue the U.S. industry is expanding production must be a core USDA belief economic conditions do not apply to the pork industry. Maybe? Real market conditions are less realizable by government bodies and bureaucrats, and it affects their calculations.
Observations
- U.S. Chicken industry has been losing money. They are cutting back production about 4%. Recent Chicken slaughter and chick placement down about 7 million per week. I.E., lose money, cut production. USDA is projecting Chicken production to increase in 2024. 2023: 45,714 million lbs. – 2024: 46,151 million lbs. – projected increase 450 million lbs. Chick placements down 4% currently. More Chicken from less Chicken? A new kind of magic.
- Last week China government announced sow herd in October decreased about 520,000 sows from the month before. Not sure how accurate information is but is an indicator of continued financial losses in China industry. China producers losing about $50 per head currently. If misery loves company China and U.S. hog producers should have been in San Francisco summit last week with U.S. and China officials.
- European swine production in first 9 months has declined considerably in 2023 compared to 2022. 2022: 177,027 million head – 2023: 145,716 million head. Down about 12% and about 22 million head. It’s what happens when an industry loses lots of money as Europe did a couple years ago. This year Europe has averaged their highest prices in history. Low prices beget high prices, always have always will. It’s not if but when.
- U.S. packers should be making some money now on the hogs they purchase but not necessarily on the hogs they own. U.S. pork cut-outs Friday closed at 88¢ lb. average, hogs purchased 76¢ lb. = spread 12¢ lb. = Packer gross margin $25. Not great but way better than current producer scenario or losses. The challenge many packers have they own hogs, and they are losing money.
- The U.S. average cash early wean price has creeped up to $28.75 the highest prices since April and certainly better than $10 it was for many recent weeks. $28 is still well below cost of production of over $40. In our opinion cash early weans are a reflection of supply-demand attitude. It will be interesting in the coming weeks to observe their movement. A strong price increase could be the indicator of fewer pigs and potential hog price rebound.
Pork Taste
Most if not all studies-surveys indicate main driver for consumers demand as desire is taste and flavor in pork.
- Taste refers to the senses inside our mouth including our tongue.
- Aroma occurs inside our noses and relates specifically to our taste of smell.
- Flavor is when taste and aroma converge.
If consumers want taste and flavor number 1 it’s’ best we deliver. First test how do you like the taste and flavor of the pork you produce? We asked a producer recently (not using Genesus) do you eat your own pork? Laughing answer was no, it tastes like crap. Question if we don’t like what we produce, how can we expect the consumer too?
Are we Producers or Marketers?
Agri-Food Industry
Brett Stuart, President of Global AgriTrends in our opinion has a real good perspective on the domestic and international agri-food industry. The following is an excerpt of Brett in a recent interview with Bruce Cochrane of Farmscape.
“If we look out at the global markets, I think there’s a real opportunity coming up and I think it’s going to be in the next decade. If I look around the world today every major livestock industry is in liquidation worldwide whether it’s Chinese hogs, Australian cattle, Brazilian cattle, North American cattle, poultry, everyone’s liquidating at the same time, I’ve never seen that happen and for those that can hang on here and get through this period I think those tightened supplies are going to be meeting with stronger demand. I think in the hog sector were losing a big piece of our biggest competitor which is Europe with their swine herd in double digit liquidation right now. There’s some good opportunities ahead it’s just a matter of surviving this current downturn.”
Categorised in: Featured News, Pork Commentary
This post was written by Genesus