Pork Market – The only sure thing is Volatility

As we look at the coming months the only sure thing we see in the swine, and grain markets is volatility.  Price ranges are moving at unprecedented levels.
  • A year ago 53 – 54% lean hogs were averaging $70.45 per pound.  Last Friday they were $90.03 or about $40 per head higher year over year.  Some hogs are now trading at almost $1.00 lean per pound with premiums.
  • 500 – 550 pound sows last week were moving at $63.36 live weight a pound, a year ago it was $56.79 which is about a $35.00 per head increase.  We expect sow prices to jump another $30 – $40 per head in the next few weeks as summer barbeque season approaches and market hog prices increase.
  • The latest U.S. weekly sow marketing’s were 59,000 head.  At that level we believe there is no breeding herd expansion.
  • U.S.D.A. pork carcass cut – outs averaged $92.12 per pound at the end of last week.  With market hogs at around 90 cents per pound, packer margins have narrowed considerably.  U.S. market hogs last week were 2,128 million down 40,000 from a year ago.  As we move seasonally closer to 2 million head a week we expect not only higher hog prices but tighter packer margins as they fight over hogs for their chains and maintaining market share domestically and for exports.
  • The hog market over the coming months should get support from very strong cattle prices.  For example October live cattle came on the board at 93 cents about a year ago while last Friday October closed at a new record high $126.  On a 1200 pound steer that is about $400 per head!  There is no doubt record high cattle prices are going to pull hog prices up as consumers purchase pork as a meat alternative.
  • The U.S.D.A. released its analysis last week that the U.S. corn crop would be 4 million acres more than last year (88.19 – 92.18).  The U.S.D.A. also estimates a total increase of 9 million acres in the five major crops (236 – 245).
  • The downside for hog producers in the U.S.D.A. estimates was the 6.52 billion bushels of corn in inventory which is well below expectations.  Immediately the lower stock number pulled corn prices higher moving old crop corn up around 70 cents per bushel for May to close at $7.36 – a new high for this crop year.
  • It will be more than interesting to observe what happens globally on crop plantings this spring.  Higher grain prices will definitely increase prospective plantings.  This U.S. has already found a potential 9 million more acres to plant.  Russia and the Ukraine combined are expecting 130 – 135 million metric tonnes of wheat this crop year an increase from last year’s drought shortened 100 million tones.  There is no doubt in our mind Canada also will find potentially a few million more acres to seed.  We expect higher prices in grains will lead to maximum use of fertilizers, herbicides, improved seed, etc…  Nothing like high prices to cure high prices.
  • The Politicians in Washington are debating whether to maintain the $6 billion subsidy for ethanol. Now we read that the corn ethanol supporters see it as national security issue.  Corn ethanol protects America.  It used to be about the environment but that’s been proven mostly a joke so it’s now a new story.  Mostly we think it’s about the money.  When food prices rocket higher with record beef, pork, etc… and there is more instability in many countries due to record high food prices it will be interesting to see how the National Security issues plays out.  We would argue one of America’s greatest historical assets is the ability to produce food in excess at a low cost.  Never depending on any other country to feed it.  America’s economy and standard of living has been enhanced by the smallest percentage of disposable income (10%) going for food in the world allowing the other 90% of disposable income to drive America consumerism.
Summary Lean hogs are on track to hit the $1.00 we predicted last August.  High feed prices will continue to dampen breeding herd expansion, while domestic pork and export demand will stay strong aided by record high cattle prices.

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This post was written by Genesus