Jim Long, President-CEO Genesus Inc.
January 23, 2017
U.S. Hog Market Continues Rebound
In November, U.S. market hogs touched $0.45 lean/lb. By the end of last week, 53-54% lean hogs were $0.66/lb. A month ago and a year ago, they were $0.57. Pork demand is strong. The extra money producers are getting is stopping financial losses.
Minnesota Pork Congress
Last week, we attended the Minnesota Pork Congress held in Minneapolis, Minnesota. Our observations:
- There was an ice storm which limited the number of attendees.
- Producers feeling better. Lean hog prices in mid-60’s, many are not losing money. Heck of a lot better than the $40 per head losses that were in the fall.
- We sense that the huge losses in the fall have dampened enthusiasm for sow herd expansion. You have to look far and wide to find any new sow barns being built currently.
- Lots of discussion on the difficulties of getting approval for new barns, most of it associated with the environmental and local opposition.
- It appears banks are expecting higher levels of equity for barn financing. New sow barn farrows to wean (5,000 sows $2400 per sow)
- Prime Pork, the new slaughter plant under construction in Windom Minnesota, generated lots of discussion. Producers look forward to start date to help alleviate supply pressure of hogs on existing plants. (30,000 head a week approximately)
- We understand from discussion that the huge Seaboard-Triumph plant in Sioux City Iowa is on schedule for mid-summer start up. (80,000 head a week one shift)
- In conversations at the show, the price of U.S. pork cut-outs holding in high 70’s through the fall debacle is a recognized miracle. No one guessed that the pork price could hold with weekly marketings of 2.5 million head. Real strong demand.
- Packer margins are eroding. Last week, U.S. pork cut-out 79.71 cash lean hogs $0.67. A $0.12/lb spread. A week ago, spread was $0.20. As packers need to chase hogs to keep their obligations, we expect spread to stay narrower as seasonal supply of hogs decline.
- We had predicted packer margins eroding when supply adjusted seasonally. Last week, U.S. marketed 2,324,000 hogs. In November-December, it was over 2.5 million many weeks. Less hogs, packers lose leverage. The new plants under construction will prevent huge packer margins in the foreseeable future.
- We visited with Genesus customers from Korea this week. Korean cash market hogs are currently $350 U.S. per head. Avian Influenza has torn apart the Korean Poultry Industry. Approximately 30% of the Broiler and Egg Industry Inventory has been destroyed. Producers being compensated, but in the meantime, consumer demand for chicken is down from fear of getting sick. An egg is $0.30 US each. The result is big demand for pork. $350 US market hogs. This is what could be called a Black Swan event. If Avian Influenza ever got to China and rolled like it has in Korea, it is incomprehensible what it would do to global hog and pork prices.
- At Minnesota Pork Congress, lots of talk on the inauguration of the new President Trump. There is no doubt he is popular with U.S. pork producers. They have great expectations.
Iowa Pork Congress
This week, we will be at the Iowa Pork Congress. We will give our observations next week. Genesus will have a reception Wed. night at the Iowa Events Centre (rooms 304-305), starting at 4:30pm. You are invited. Come visit. Talk to other producers and industry people. Business needs to be fun or it’s not worth it.
This post was written by Genesus