Jim Long President – CEO Genesus Inc.
May 6, 2013
US Cash Lean Hog Price HigherLast week the National US lean hog price increased 5.5¢/lb. or about $11.00 per head to the better ($80.40 – $85.93 53-54% lean). The right direction for sure. Some lean hogs were trading as high as 93, last Friday. The $11.00 per head gain cut losses by the same amount. We need at least another $11.00 per head gain in price to get to breakeven. Last week the US marketed 2.098 million hogs, 20,000 more than the same week a year ago. A real positive as we drill down into the data is that a year ago US carcass weights were averaging 210 lbs. at this time while currently we are 207.5 lb. carcass or about 2.5 lbs. lighter. The lighter weight reflects a more current inventory year over year. Hogs are far from backed up, indeed they are quite current. What we heard last week was Packers were looking for hogs. Packers were calling producers and it is becoming increasingly obvious there is a level of concern on the Packer procurement side that they will have shackles running empty in the next few weeks. The old adage “Who’s calling who!” rings true. Lots of Market hogs – producers call packers. Shortage – Packers call producers. When Packers are calling, it’s the Canary in the Coal Mine warning that hog prices are going higher. A year ago this week US National 53-54% lean hogs averaged 80.53. It looks like this year this week 86.87 will be the average. Last year lean hogs reached a $1.00, we have expected and still expect the $1.00 this year. When the Chicken Little Economists ran for cover when lean hogs were near 70¢ this winter we still believed $1.00 hogs were coming. Our rationale – Liquidation happened, less hogs and good demand. Both domestically and for export will pull prices higher.
Other ObservationsWe expect Lean Hog prices will be quite historically strong over the coming months, which in our mind we have little doubt. The wildcard for market profitability is what feed costs will be. To say the grain market is volatile is an understatement extraordinaire. Two weeks ago we were being inundated by drought talk, “It’s too dry”, “It won’t ever rain”. Two weeks seems like an eternity. Now it’s too wet and there are floods. Drought – Floods! We need Goldilocks to step up and get it just right! Not to be cavalier but we expect the crop will get planted soon. The rain will have done more good than harm for yields. The US Crop Moisture Index currently shows normal to wet conditions in the US Grain Belt. The old saying rain makes grain is relevant. Last year we saw what too little rain did to our feed costs.
SummaryIt’s been a long haul – losses over $30 per head for too many months. It’s real hard to be optimistic for all of us invested in swine production. Sometimes it appears the forces of nature are against our industry, feed prices, swine flu, Paylean, global economy, currency exchange, etc., etc. The question “When will it get better?” is asked by our bankers, employees, customers and spouses. By nature we are all mostly optimistic. It’s our strength and our weakness. The only thing that is clear, we are producing with pork a product with real Global Demand. 44% of the world’s lean protein is Pork. US Hog Prices are seasonally 30% more than they have historically been. Consumers have paid more for pork. Consumers vote with their money and they have consistently voted to buy pork at historically high consumer prices. A sign of real demand. We expect over the next few weeks as hog supply declines hog prices will rocket higher.
Categorised in: Pork Commentary
This post was written by Genesus