It’s phenomenal the rapid surge in small pig prices. Cash USDA early weans averaged $8 in mid-September while cash 40lb feeder pigs were $15. Both prices were terrible leading to losses of $30-$40 per head. Last week USDA cash early weans averaged $55.71 and 40lb feeder pigs averaged $60.53. It doesn’t take an MBA to see the huge difference in cash flow this has brought to small pig producers.
Why the rapid price increase?
Sews are now being prices for May-June 2013 delivery. With Lean Hog futures May 99.100 and June 101.025 the small pig market reflects these higher prices. 53-54% US National Market Hog Prices last Friday closed at $77.05 – June Lean Hogs are 24% higher than current cash hogs or $50 a market hog higher
- We believe the liquidation of the sow herd is greater than most if not all analysts believe. This in itself is cutting small pig supply. As we suspect much of liquidation was in small pig producers, we have lots of finishing barns in North America looking for pigs to fill their pens. Finishing barns are a fixed cost. Farmers hate empty barns. The chase for small pigs to fill the barns is pushing prices higher. It’s simple; less supply and greater demand.
- We also believe the hottest summer on record has cut the number of pigs born. Smaller litters and fewer litters have cut small pig production. We also believe that the hottest summer on record lead to increased sow mortality. This is another factor in fewer small pigs available. Less small pigs, fewer market hogs next summer = Record high market hog prices.
- We talked to a major feeder pig broker this past week; they said more buyers than pigs are available. They expect cash early weans will reach $70 and feeder pigs $90. Long way from $8 and $15. It’s a crazy business!
- The latest US weekly sow slaughter was 64,188. Anything over 55,000-57,000 per week are liquidation levels in our opinion. We are in the swine breeding stock business. Sales are slow. We think its industry wide. Producers have been trying to maintain cash. You do that by not putting gilts in. Many herds have shrunk in inventory by less gilt retention and attrition. We expect USA-Canada sow herd will be 200-250 thousand smaller on January 1, 2013 compared to June 2012. We had hogs hit $1.00 last summer. There is a reason the sharpies in Chicago have Summer lean hogs over $1.00.
- On top of less pork in 2013, all indications are of less Beef and Poultry. Latest estimates of boneless equivalent US per capita consumption of Total Meat, Poultry and Seafood is 180.3 lbs. in 2013, down from 200 lbs. in 2008 and down almost 4 lbs. in 2012. Per capita consumption will be down mostly from total supply being lower. The lower supply will push prices higher for all consumable proteins.
- When we think of Corn markets, the conventional sentiment appears to be high prices for ever. There are many facts to prove high corn prices forever. We don’t have any clue when the corn market will collapse, but it will. No market stays at record highs forever. When it does collapse, the livestock sector will be blessed by record returns as hog profits could hit $50-100 per head. It will happen; not if, but when. The challenge is to stay in the game long enough until the chance of a generation hits us. The world will plant the crop. If it rains = lots of corn. When that happens lower corn demand caused by record high corn prices cutting livestock and poultry production will lead to corn under $4 a bushel. Maybe we are crazy and delusional but it is what we believe.
“Change is inevitable, except from vending machines!”
~anonymous
Categorised in: Pork Commentary
This post was written by Genesus