Lean Hog Futures Continue to Push Higher!

Lean hog futures last week continued to push higher with all contract months in 2011 reaching contract highs with four summer months closing Friday at about 93 cents lean per pound average.  What’s the upside?  These are volatile times; corn and soybean prices have moved in price ranges unprecedented in history.  Cash lean hogs currently are about 70 cents per pound, while lean hog futures for May are around 92 cents per pound.  That is less than four months away!  The futures market is anticipating an almost $50 per head jump in prices in a very short time.  The $50 per head is an expected average increase of over $4.00 per head per week between now and May.  That’s moving, that’s volatile. The volatility we have in the market place whether it is grains or meat is hard on producers.  How do you plan?  What do you do to protect yourself?  The volatility is a reason we see some producers contemplating quitting.  We had one industry participant tell us last week that he suspects the high feed prices will remove as many producers in the next twelve months as we have seen in the last year.  We suspect that if corn stays above $5.00 a bushel until this fall he would be correct.  Too many producers due to age of themselves and or their buildings will quit.  Growing corn at $5.00 a bushel plus is a relatively easy play.  Having sows is hard work.  It is a 365 day commitment of resources and time.  It will be why bother as much as anything that will take out the next 100,000 sows of production if the $5.00 plus corn continues throughout 2011. Other Observations
  • It has been pointed out to us this past week that high grain costs are increasing working capital needs.  The same person observed Banks are not enamored with the hog industry.  Both points diminish expansion scenarios.
  • Last Thursday the average weight on the National Daily Lean was 210.49 pounds per carcass.  Probably the highest day average ever.  A year ago it was averaging around 203 pounds.  In our opinion for lean hog prices to appreciate the carcass weights need to start going down.  When we see that it will indicate demand and the beginning of the seasonal supply decline.
  • Genesus does business in South Korea having sent more breeding stock to that country than any other genetic company in the last 2 years.  South Korea is a country of about 50 million people; the area is approximately 180 miles by 350 miles with over 50% mountains.  Korea imports almost all of its feedstuffs.  Its economy is strong. Currently South Korea is fighting a huge foot and mouth outbreak.  So far over 1.1 million animals at over 3,000 farms have been destroyed.  The challenge for Korean authorities to control the situation will be daunting.  Unless you have been to Korea it is hard to comprehend the density of people and farms.  There is no separation.      The latest reported swine price we have from South Korea is 4400 KRW/kg which is $3.91 U.S. per kg or $1.77 U.S. per pound.  Huge liquidation of South Korea’s almost one million sow herd will lead to the need for imports of pork to feed the nation.  The U.S. – South Korean ongoing negotiation for a free trade agreement could lead to significant U.S. pork sales opportunities.
  • One other thing we need to be vigilant on is bio security in North America we don’t need foot and mouth.
  • In Russia, African Swine Fever (ASF) has been found near St. Petersburg in the North of the country.  Previously it was almost exclusively in the South Caucasus Region.  The distance between the infected areas is huge – probably 2,000 miles.  Until ASF gets under control in Russia it will put a damper on swine expansion in that country.
  • I received an e-mail this past week from a group with over 19,000 sows and finish the bulk of them in Iowa.  They are very concerned about swine dysentery.  This is a disease there hasn’t been much of an issue with for 15 years.  They speak of chronic dysentery problems going on for up to two years.  They wanted to warn producers to up their biosecurity and washing protocols.  The costs of the disease have been significant.
Bottom line:    Foot and Mouth, African Swine Fever, Swine Dysentery, and of course ongoing PRRS.  You can never have too much bio security.  This is not an easy business.

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This post was written by Genesus