Pork Commentary

Jim Long President – CEO Genesus Inc. info@genesus.com

US Price Expectations

April 6, 2015

  We sometimes wonder how we end up thinking as we do. It is as if we are in a different universe compared to other commentators. Last week we read after we wrote our commentary the expectations of others. Last week we estimated based on the USDA’s March 1 Hogs and Pigs Report, that lean hogs would be 89-98 lean in May-August of 2015. Below are other estimates.
2015 Missouri LMIC Paragon CME
Q2 70-74 70-74 74-78 68.41
Q3 70-74 70-75 72-76 77.17
  Obviously, our expectation is between $35-50 per head higher than others (economists) are. We are not exactly following the crowd. Why do we think so different?
  • The US March 1 Market hog Inventory this year was 124,000 head less than March 1 2014: In 2013 Lean Hogs averaged 95¢ lean May-August. Same number of Hogs in inventory 2015.
  • US Pork Cut-outs were 64.44 last Thursday. US Beef Cut-outs 256.40 last Thursday. Beef Cut-outs currently 4 times Pork Cut-outs. We absolutely believe this spread will narrow as consumers up consumption of Pork due to its economic advantage. Demand increases prices. We see little reason for Beef prices to decline with US Beef Production down 5% year over year and inventory levels at a record low. IF Pork Cut-outs reach $1.00 Beef will still be 2.5 time more expensive.
  • The US population is approximately 4 million more people more than in 2013. This increases demand. More people at flat per capita consumption in itself increases demand. 4 million more people will need a minimum extra one million market hogs to meet their average pork demand requirements.
  • We also see market weights declining. A year ago, the National Lean Hog Weight this past week was 214.45 lbs., last week this year hog weights are 214.40. Lower weights will cut pork supply and help strengthen lean hog prices.
  • Sow herd expansion is ongoing but it will not effect to any degree the number of hogs going to market in the next five months as they were all born and in place March 1. What we have to sell to market until the end of August are already in pipeline. There are no more pigs than March 1, 2013.
  • We strongly expect greater exports to China to kick in. Huge herd liquidation of 7 million sows, China Hog prices double current US hog prices will push pork to China. When it happens, major market mover.
  Other Observations
  • Was at the London Swine Conference this past week. The Olymel-Quebec Packer strike was a major topic as it is causing major havoc in Ontario with the loss of 25,000 shackle spaces. We expect this will put a lid on Ontario Production expansion with ongoing worries where market hogs can fine homes. At some point the strike will be settled but it effect will linger over market consideration for a long time. (news flash – Olymel has settled with union, back to work on Tuesday)
  • Interesting video on Gestation Housing take a look it give a perspective on sow housing many in our industry will agree with. https://www.youtube.com/watch?v=oQ_XJDZrzTM
  • On the Corn front, USDA came out with predictions of more land going into Corn than expected. It appears that there will be significant Corn and Soybeans planted. The wildcard is weather. Good weather feed stays reasonable. Draught different story. All bets off.
  • Corn in China is currently 10.50 USD/bushel, Soymeal 550 USD/ton. With relatively low sow productivity, high disease levels etc. the combination of feed costs and low productivity is why China’s breakeven is around 85¢ USD liveweight/lb.
  • Not sure how this will effect hog, market but we are hearing stories of ongoing major mortalities in the Carolinas from Prrs.
Summary We are projecting lean hog prices mid 90’s this summer. This is significantly higher than other commentators. We believe market inventory levels, relative to demand both domestic and international will lead to summer prices similar to 2013. Mid 90’s. “Economists are like computers. They need to have facts punched into them: ~ Kenneth Boulding

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This post was written by Genesus