Cash Market Hogs surge Higher

Last week the U.S. National lean hog price pushed to over $1.04 per pound (53 – 54% lean).  This is a welcome respite to an industry challenged by unprecedented high feed costs.  This cash prices is $20 per head higher than August lean hog futures were indicating on June 20.  That $20 is the difference from breaking even as a producer and making money.

            I have to say, we get some real satisfaction with not only the benefit from the higher prices but from knowing last August when 2011 lean hog futures were 80 cents a pound we projected $1.00.  We were out there and we took some arrows for our opinion.  The Chicken Little economists were projecting 80 cents lean at the same time we were at $1.00.  They just didn’t know what was going on in the rest of the world.  Armchair academics with no skin in the game and have never left North America doesn’t get global dynamics.  After all, 92% of all pigs in the world are not in the U.S.  When the U.S. exports 25% of its pork production and Canada 50%, market conditions in the rest of the world really matter. 

            We expect the pull of global pork demand will continue for months to come.  China is approximately $1.33 U.S. per pound live weight, Russia is $1.56 U.S. per pound live weight, South Korea is $1.95 U.S. per pound live weight, Japan is $3.25 U.S. per pound live weight, and Mexico is 85 cents per pound live weight.  It doesn’t take a rocket scientist or an economist to realize these countries as large importers of pork have price point’s way beyond the North American domestic price.  There is little wonder pork importers in each of the above countries can and will pull pork to their markets.

            It’s August again and we see no reason why U.S. lean hog prices next year will not be in the $1.00 plus range next summer.

            *We see little sign of breeding herd expansion, indeed U.S. sow slaughter in June was 268,000 up 21,000 from June last year.  Year to date tot eh end of June the U.S. sow slaughter is 1.468 million up 6,000 from last year.  We expect the increase of 21,000 in June would indicate a liquidation level.

            *If sow prices are any indication, the sausage makers are getting all they need.  On average 500 – 550 pound sows are 63.99 per pound, the same time last year they were 67.65 per pound; this despite market hogs at $1.03 while at the same time last year they were $82.00.

            *It’s been hot but market hogs keep getting pushed to market.  It appears hog weights are still coming down with average U.S. lean hogs last Thursday 198.49 down 2 pounds from Thursday the week before.

            *We expect that some of the sow herd liquidation in June we saw is related to the freefall prices in small pig prices.  Last week’s cash early wean price averaged $15.58 and 40 pound feeder pigs $36.99.  There are lots of stories of small pig buyers running away from their contracts.  It seems to be a never ending story.  When small pig prices are high finishers want to buy pigs on a contract usually lower than cash.  Then when cash drops below the contract price too many buyers can’t or won’t live up to the deal.  The $20 per head loss on the cash small pig prices is too much for many to handle after the cash and equity crater of the last four years.

            *On the Global Feed Prices the huge drop of $2.00 a bushel for wheat since the end of May ($8.75 – $6.72) could keep upward pressure on the corn price limited.  Russia after a year of no exports, is now on the market again and offering wheat about 75 cents a bushel cheaper than the rest of the world. (That’s how you get business back).  Wheat can and will flow into swine rations to replace corn.  Just last week the CEO of Cargill blamed much of the jump in World Grain Prices on Government policy and interference which included Russia Grain Embargo. The U.S. corn ethanol policy is also Government interference but we expect the U.S. debt ceiling issues will in all likelihood not play out well for the corn ethanol lobby.

            Pfizer Improvac for Chemical Castration of pigs was approved last week in Canada.  We are not saying anyone will use it.  If Michael McCain CEO of Maple Leaf says no as Canada’s leading personality in the packing industry it will be dead on arrival.  We could expect Maple Leaf will not want to risk a consumer and export market backlash from using chemical castration as a risk of damaging their brand.

Road trip

            As we wrote earlier you can’t get a feel for the global pork markets sitting in a university or corporate cubicle, with no skin in the game.  The next 19 days we are on a road trip to Russia, China, Thailand, and India.  You will get our reports on what we are finding out on the ground in the grain and swine markets.

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This post was written by Genesus