Jim Long, President-CEO, Genesus Inc.
2020 was one of the most challenging if not the most challenging ever in the U.S. hog industry. The slowdown and closing of slaughter plants in the early parts of the pandemic collapsed hog prices.
We are now moving into 2021. Our industry needs a recovery to profitability. What are some of the factors that we see affecting our life in 2021?
Covid vaccines are here.
Now depending on the ability of governments’ timeliness to get people vaccinated at some point Covid issues will get minimized. U.S. packing plant employees have been deemed one of the first groups to get vaccinated. Sooner rather than later would be a good idea.
In Canada it appears Quebec slaughter plants employees need vaccinated as soon as possible. Their problems are backing up hogs and pushing feeder pigs and slaughter hogs to U.S. that normally wouldn’t go there.
Feed prices have jumped significantly over the last two months.
Seems a little strange if USDA December Global supply levels of corn-soybeans led USDA to project 2021 U.S. corn $4.00 bushel and soybeans 10.55 bushel, why the market has blown past these numbers. One thing for sure the current grain prices will encourage huge acreage increases globally in 2021.
Chinas hog production – the wild card in hog prices
One of the wild cards in hog prices and feed prices is Chinas hog production. Last week Chinas hog prices surged to 35.40 rmb/kg. ($2.41 U.S. liveweight lb.). This was up from under 30 a few weeks ago.
There is much speculation on where Chinas hog supply is at as they rebuild after ASF. We believe price is the true reflection of supply and demand. $2.41 U.S. liveweight lb. tells us China is still very short of hogs.
The Pig Feed Price in China last week was 3.4 rmb/kg. or $468 U.S. ton. Expensive and despite high hog price will slow down expansion. If you use 700 lbs of feed to raise a pig, it’s $164 U.S. of feed cost of production per head.
Europe Hog Market 2021
Europe really benefited in 2019 and early 2020 with political issues between U.S. and China. Hog prices were very strong. Since March when Covid struck and then ASF in Germany in September, prices have dropped significantly mostly created by Germany’s ban from China and other Asian markets.
Germanys market in March when Covid struck was 2.02 Euros/kg. – Sept 2, just prior to ASF it was 1.47 Euros/kg. – last week dealing with the effects of ASF bans 1.19 Euros/kg. A drop from March of about 80 Euros a hog (almost $100 U.S. dollars).
A similar decrease can be seen throughout Europe hitting producers hard while at same time feed prices are increasing. We expect to see significant liquidation in Europe’s breeding herd over the coming few months.
U.S. pork exports have increased
Since the ban of pork from Germany to China, Japan and South Korea in September, it appears to us that U.S. pork exports have increased by at least 5,000 tonnes a week. We expect this trend to continue in 2021 as the ban on Germany continues. This is price supportive for U.S. producers in 2021.
The Canary in the Coal Mine
We like to use the term Canary in the Coal Mine to describe what U.S. cash feeder pig prices mean to what’s coming. From the first part of April until the end of August 40-50 lb. cash feeder pigs were under $20 per head. The longest time on record of such low prices and a disaster for feeder pig producers. The price under $20 was a true reflection of supply-demand- and industry attitude.
Last week U.S. Cash feeder pigs average was $68 with some expecting soon it will reach $80. What a turn of events. Obviously, something is going on, no one pays more than they have to.
We believe the sow herd liquidation, significant PRRS and PED have cut supply even more than you expect seasonally. Lots of empty pig spaces are chasing fewer pigs. Results – price goes up. In our opinion even though lean hog futures have pushed back up, they are still undervalued relative to what’s coming. Fewer hogs year over year and higher prices.
The latest weekly sow slaughter of 69,699 is in our opinion, a sign of continued liquidation. If correct we will see continued lower hog numbers in the coming months.
We don’t know what hell looks like but maybe we got a glimpse in 2020. We try to keep in perspective such as “well I am not living in Syria.”
The challenges we all faced were real. It took perseverance and determination to push forward. So as we stand at the beginning of 2021 we are optimistic. We see lots aligned re supply-demand that should push the industry to a profitable year.
Let’s also believe the hog cycle is alive and well and things get balanced out.
Have a good 2021!
“Life can only be understood backwards, but it must be lived forwards”Soren Kierkegaard
This post was written by Genesus