Hog Market in DoldrumsThe US hog market appears to be mired in the doldrums. USDA carcass cut-outs averaged 80₵ last week while 53-54% USDA lean hog prices were 86.48₵. It is not only hog farmers that can’t produce for 86₵ at a profit but packers have negative margins also. Not a very good scenario; Lose-Lose. It doesn’t take an ag-economist to calculate that this business isn’t looking too shiny.
- Last year same time 53-54% lean National price was 85.86₵. This year 86.48₵. Unfortunately corn was $6.40 a bushel versus $7.00 (was $7.40) and Soymeal a year ago $322 a ton versus, $409 ton this year. Higher costs and no more money for hogs! Lose even more money.
- USDA 40-50 lb. feeder pigs are currently averaging $75.00, a year ago they were $85.00. The lower price a reflection of higher feed prices this year but in our opinion not from more supply.
- US Pork exports were 5.38 billion pounds last year. A new record (+3.7%). We expect continued strong exports in 2013 as global pork demand continues to increase while USA-Canada currently has the cheapest source of pork.
Over the last couple years we have written about how on our travels to Russia, Ukraine, Brazil and China we have seen the tremendous push to bring un-cultivated lands into production and increase yields. In the past when US corn hovered around $2.00 a bushel there was no incentive to bring land into production and push yields higher. Recently we saw data that indicates the world has in the last five years brought 123 million new acres into crop production. The US has shifted 20 million acres to corn from other crops on top of this 123 million.
In 2004-2005 the US produced 300 million metric tons of corn, (Approximately 12 billion bushels), the rest of the world 405 million metric tons of corn (approximately 16.2 billion bushels). In the year 2004-2005 total world production was 705 million tons or approximately 26.2 billion bushels.
In 2012-13 the US produced 10.7 billion bushels while the rest of the world produced 600 million tons (approximately 24 billion bushels). Put it together 34.5 billion bushels. So despite the drought in the US the world produced in 2012 about 8 billion more bushels of corn than 2004-05. Get a decent crop year in USA, then 2013 world production could hit 40 billion bushels without a doubt. That would be a 50 per cent increase over 2004-05.
The US dominance of world corn production has slipped, whereas the US was about 40% of the world’s production it now will be about 30%. Demand for corn to produce meat protein around the world has increased demand and pushed corn prices higher. While the massive diversion of corn to produce ethanol in the United States has not only increased corn prices but has taken US corn out of the global export markets allowing other countries to fill the void. You only have to look at this year’s free fall of the US corn exports to see that his is happening.
We have to say we are perplexed. The December USDA hogs and pigs report indicated an increase in the breeding herd last quarter. This happened despite financial losses of up to $40 per head in the Sept – Nov quarter. Expansion in the face of Armageddon? We doubt it. On the flip side have we got an industry convinced it will rain and the US corn crop will hit 16 billion bushels and combined with world production drive corn to below $5.00 a bushel? My father always told me our strength is our weakness. Is the optimism we all have that it takes to survive in the hog industry our curse that we are by nature too optimistic? We know it will rain?
Though we have some doubts. We still believe hog numbers will be lower this summer compared to last. We know the US has only five droughts in the last 42 years. None were back to back years. Despite the talk of climate change it was 23 years since the previous drought. The odds are it will rain. It appears to us we are in a majority of how hog producers see the future. More grain – fewer hogs. Much needed profits coming.
Categorised in: Pork Commentary
This post was written by Genesus