Jim Long’s Pork Commentary – U.S Cash Hog Price Continues to Rise (May 15, 2017)

May 15, 2017

U.S Cash Hog Price Continues to Rise

U.S Hog Producers are getting the benefit of rapidly rising prices. In the last week 53-54% hogs went from 62.50 to 69.94. A gain of $15 U.S per head. The market has added nearly $25 a head in the last two weeks. We expect lean hogs continue to rise with U.S pork carcass cut-outs $83.29 last Friday. There is still $30 per head gross margin for Packers. We expect the seasonal decline of U.S hogs marketed per week to continue to decline which will push pork cut-outs higher and with less hogs marketed per week for Packer margins to decline. Both factors will lead to lean hog prices increasing and we still expect lean hogs in the 80’s this summer.

Saying 80¢ in summer which we have said consistently for months is not a big risk when July lean hog futures closed Friday at 78.60, but we were saying 80 when July futures were 70¢. Time will tell if we are right. We believe seasonal hog supply decline, strong export sales, lower packer margin and new packing capacity coming on is the recipe for 80¢ plus lean hogs.

Other News

The first of the major new U.S packing plants to be started this year has begun production. Prime Pork in Windom, Minnesota, a state of the art plant has begun harvesting hogs with all targets of production being net in the first two weeks of running. The plant at full capacity will harvest 6000 head per day.

Prime’s focus is on producing the best tasting – flavorful pork. Genesus is proudly associated with Prime and its goal to be a brand leader in quality pork.

After Prime, Seaboard – Trumph in Iowa and the Hatfield’s in Michigan will come online. No doubt U.S packing capacity is expanding, only good news for U.S hog producers and the opportunity for margin enhancement.

Vietnam

This past week you might have read in Genesus Global Market Report the collapse of prices in Vietnam. With a cost of production near 70¢ U.S lb. (high feed prices). Vietnam hog market is 37¢ lb. losses per head are near $100 U.S per head. A while ago Vietnamese farmers were getting $1.07 U.S per pound. Then China cut off live hogs going there = market collapse. We expect massive herd liquidation will be underway in Vietnam. Its what happens when hog producers lose $100 per head. Vietnam is the sixth largest hog producing country in the world.

China

As reported by Hu Song CSEA in the past 10 weeks the China national hog price declined from 17.02 Yuan/kg ($1.12 U.S lb.) to 14.95 Yuan/kg, 98¢ lb. U.S. which is the lowest since 2015. Hog production is still profitable 340.63 Yuan per hog $49 for farrow to finish. Cost of production in China is roughly 80¢ U.S lb. live weight. Certainly is not a low cost producer. If U.S producers got 80¢ lb. live weight they would be dancing for joy.

Hog production is similar to real estate. Location, Location, Location.

Genesus Press Release: TQLS and Genesus Contract Signing

TQLS was formed by Mr. Lei Wenyong (Thunder in English name) 25 years ago. It is one of the China National Agribusiness Flagships designated by the Ministry of Agriculture with three business lines including livestock feed, livestock and poultry farming and food processing. There are over 6,000 employees working for its 51 subsidies across the country with annual turnover near USD $ 2 billion. The Company currently has an inventory of about 3 million egg layers, 600,000 breeding ducks and 20,000 sows. The future expansion of business will focus on production and marketing of branded pork with an projected capacity 4 million hogs in four major locations-Santai County of Sichuan, Liangshan Region of Sichuan, Tongren prefecture of Guizhou and Shihezi prefecture of Xinjiang. Genesus will provide registered purebred swine breeding stock from Canada. These new genetics will contribute to above TQLS business strategy by lowering the hog production cost and improving meat quality through the supply of swine genetics and technical service.