Jim Long, President-CEO Genesus Inc.
February 21, 2017
U.S. Hog Market Getting Stronger
On October 21, April Lean Hog Futures were at $0.56/lb. Last Friday, April lean hog futures closed at $0.7075/lb. That’s over $30 USD per head increase. It’s about the difference between losing $15 per head to making $15 per head. It’s going in the right direction. The reason is very strong pork demand. High pork cut-out values led by bellies (bacon) that have both packers and producers now making money. We expect further strength in lean hog futures, as the reality of increased packer capacity will lead to competition that will push hog prices higher.
- This week, we attended the Ohio Pork Congress, held in Columbus, Ohio. According to the December 1st USDA inventory, Ohio has 200,000 sows.
- There is sow herd expansion ongoing in Ohio. Much of it driven by producer shareholders of the new packing plant under construction in Coldwater Michigan, in conjunction with Hadfield Packing.
- The three state area of Ohio (200,000 sows), Indiana (270,000 sows), and Michigan (110,000 sows) has 580,000 sows and is a battleground for hogs with the new Coldwater plant under construction (minimum 10,000 head a day capacity). All the main packers in the area, JBS, Swift, Tyson, and Indiana Packers were all present at the Ohio Pork Congress working their relationships. Obviously conscious that at least 2.5 million hogs a year will be coming from the area and going to the new Coldwater plant when it opens.
- At the Congress, we had several conversations with participants about our writings the last few weeks on the quest of PIC to use gene editing and our subsequent fear of the consumer backlash. It is interesting, even though producers and packers both see the benefits of PRRS being minimized, the stark reality of pork market access is making many wonder if the costs would far outweigh the benefits.
- We already see that since the U.S. federal government had made PED reporting mandatory, that reporting of PED is down to next to nothing. While there are lots of other reports of PED happening currently. The U.S. Federal Drug Administration (FDA) has now said they are requesting oversight on all Gene Editing or Altering on livestock. How many hog producers want the FDA to be involved in their day to day operations resulting from Gene Altering or Editing? Indeed, our take is most producers want to minimize government involvement as they don’t trust their intentions and subsequent reach.
- Last Friday, USDA pork cut-out calculation was 85.20/lb while the CME Lean hog price was 76.66/lb. The farmer arithmetic packer margin is around $0.08/lb. Down from almost $0.25/lb a few weeks ago. As we move into seasonal hog supply decline and new packing plants coming on stream, we expect the Golden Age of $50 per head packer margins will be gone for quite a while. Producers will benefit from both happenings. Indeed, we are already seeing this reality.
- A year ago, U.S. 53-54 % lean hogs were $0.65/lb. Last Friday they were $0.76/lb plus. That’s over $20 per head better. This despite more hogs to market and a stronger US dollar. There is no doubt we have better Pork Demand.
- “I’d be a bum on the street with a tin cup if the markets were always efficient.” Warren Buffett
This post was written by Genesus