March 4, 2013 – Pork Commentary – Lean Hog Price = Losses

Lean Hog Price = Losses

At the beginning of March the USDA National 53-54% lean hog price average was $87.09 a lb. and was moving close to the breakeven area in the low 90’s. At the end of last week the 53-54% National lean hog price was $77.78, a $20 per head decline. We expect many farrow to finish hog producers will be losing up to $30 per head at this price. Last year same time 53-54% was averaging $86.28 and feed was cheaper.

Why is this happening?

  • Paylean issues with Russia and China makes pork exports more challenging and hurts demand and optimism.
  • Seasonal trends are a factor but last year with about the same amount of pork production, prices were $20 per head higher.
  • Secretary of Ag, Vilsack’s continual discussion on meat inspectors being cut because of the US government sequester with their subsequent budget cuts. This does not help confidence in general and we wonder if foreign buyers begin to distrust the US ability to deliver and look for other sources?
  • Possible lower domestic pork demand because of lower disposable income from increased gasoline prices and increased income tax deductions.

Last Week

Last week we attended the 30th annual Bethany Swine Health Services Production Meeting. Bethany under the guidance of Charlie and Mike Schelkopf DVMs and their team operate and or manage approximately 35,000 sows farrow to finish. We were there as many of the herds use Genesus Genetics. Every year the Production meeting ranks sows and finishers while showing trends in production. It is very interesting to see the gains made over the years in all production characteristics. This year the cost of feed and how to best utilize was a paramount discussion. Like all production groups there is variation from top to bottom. The real good thing is all involved know where they rank and see what is possible. At the meeting Steve Meyer, President of Paragon Economics gave a talk “Economic Trends in the Swine Industry” There was no text but this is what we think we heard from the talk:
  • If it rains – we will have cheaper feed – Below $5.00 a bushel – If it doesn’t rain $8.00 or more.
  • We will plant lots of corn – probably will rain
  • Paylean issues are hurting pork exports – China – Russia
  • Currently breakevens are in the low 90’s per pound, producers not liquidating sows hoping to get to cheaper feed and subsequent dropping break evens.
  • US oil and gas supplies increasing while gasoline demand has dropped significantly – This could affect corn for ethanol demand overtime.
  • Expect lean hogs to get to $1.00 lean a lb. this summer.
  • US Country of Origin labelling (Cool) has continually lost all court challenges. At the end of May Canada – Mexico can legally impose retaliatory tariffs. US wants to encourage global free trade for pork but Cool flies in the face of this. Retaliation could be on pork imports damaging US Pork Price. US Pork industry didn’t want Cool but got it anyway.
We enjoyed Steve’s presentation as it was thoughtful and concise. None of us knows for sure what the future is, but it’s good to hear smart people like Steve speaking of our possible destiny.

Summary

Lean Hog Prices have taken a big hit over the last 30 days both cash and futures. The industry is losing money at a rate of maybe $75 million a week. It’s ugly. We do believe that both cash and futures will recover. Like Steve Meyers we believe Summer hogs will get to $1.00. Unlike Steve we see more upside pushing to near $1.10. Less Beef, Less Pork in the summer months will push prices higher. As far as consumer acceptance $1.00 / lb. gets us almost to, but not quite to China, Russia and far lower than Japan-Korea in hog prices. Their consumers with far less disposable income voting with their money to buy pork.
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This post was written by Genesus