Corn Price Moves even Higher

This past week saw corn futures move higher with May corn a bushel closing at $7.68 up a $1.00 a bushel in the last ten days.  Using the benchmark that it takes approximately 10 bushels of corn to raise a hog in a farrow to finish system this would equal a $10 per head increase in cost of production.  Where does the corn price go from here, we have no idea.  Our observations would be these corn prices will encourage every nook and cranny of land in the Northern Hemisphere to be planted this year to some kind of grain.  This will result in millions of more acres planted.  At the same time the higher grain price will at some point lead to less usage.  Now we are reading of a commodity upturn that could last thirty years.  That this time it will be different.  There have been commodity price swings forever, we expect no different in the future.  There appears to be lots of speculated money in the grain market, when they get spooked. The market can run down as fast as it went up as the speculators head for the hills. Hog Market The U.S. Hog Market moved up last week with 53 – 54% lean hogs averaging 92.31 at the end of the week up from a week ago’s – 90.03 or a little over $4.00 per head improvement.  May lean futures closed Friday at 100.97 meaning the futures market is expecting an increase of about $20 per head in the next four weeks.  Let’s hope so, with grain prices where they are breakevens are pushing toward 90 cent lean per pound.
  • Last week the U.S. marketed 2.069 million hogs, year to date 29.802 million, down 465,000 from year to date last year.  Lean 53 – 54% hogs were 75.35 a year ago.  A true reflection of the strong pork demand we are having is the $30 per head more being received this year currently with supply down less than 1.5% year to date.
  • U.S.D.A. pork carcass cut – out values were $94.60 at the end of last week.  At $94.60 cut – out and lean cash hogs at 92.71 packer margins have narrowed considerably in the last few weeks from the $10 spread they had.  In our opinion, to reach $1.00 lean for hogs, U.S.D.A. cut – outs have to increase nearly $10.  To do that we believe weekly U.S. marketing’s have to be closer to 2 million a week.  Hopefully we will move there in the next few weeks.
  • Maybe the high cost of grain is finally pulling hog slaughter weights down.  The latest Iowa – S. Minnesota weights were 273.7 pounds up 3.5 pounds from a year ago.  Though higher the spread at 3.5 pounds is the narrowest it has been for month’s year over year.  It’s a dilemma for producers as individually they can benefit financially from heavier hogs with more pounds of pork produced.  On the flip side lighter hogs throughout the industry would probably increase hog prices and profits higher than the benefits received from heavier hogs as less pork tonnage would raise hog prices.  We expect the seasonal decline in weights will happen as it does every year.
  • The U.S. dollar index relative to other countries has decreased from above 88 to about 75 in the last year a decline of almost 20%.  This is allowing for many foreign countries to purchase pork, beef, grain, oil, etc… at what for them are discounted prices.  In turn this is helping U.S. pork exports demand.  For example, the average foreign buyer who purchased pork at 80 cents U.S. last year can pay almost $1.00 U.S. this year and it costs them the same in their own currency.  On corn it helps the average foreigner’s purchasing power nearly $1.00 per bushel.
  • Canadian Swine Producers are feeling the affect of a weaker U.S. dollar.  April two years ago the Canadian dollar averaged 81.5 cents to the U.S. dollar.  Last Friday the Canadian dollar closed at $104.49 up about 28% in the two years.  The Canadian swine market prices are mostly the U.S. hog price less trucking so it’s been in the past mostly discounted.  With the Canadian dollar gaining strength Canada’s cost of production in U.S. dollar terms has increased.  This in itself will do more to damage the Canadian industry then U.S. country of origin labeling, H1N1 (swine flu), U.S. countervail etc…  With the high cost of feed, stronger Canadian dollar and mostly negative market basis vis a vis U.S. hog prices we do not expect any expansion of Canada’s breeding herd anytime soon.
Summary Lean hog prices appear on track to get to a dollar lean in the coming weeks.  Unfortunately high grain prices will restrict profitability.  Over the coming months the lower U.S. dollar will help maintain U.S. pork exports while it in turn restricts Canada’s pork industry.  With current Cash cattle prices 30 cents per pound higher than the last three year average for cattle (90 cents vs. $1.20) this will encourage domestic and international consumers  of meat to look at pork as value option driving pork demand and strengthens hog prices. World meat consumption is 46% pork and in the coming months the demand for pork will increase as the global economy slowly improves.  Price supportive.

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This post was written by Genesus