September U.S.D.A. Hogs and Report – BullishSome of the wizard economists have called the last weeks USDA bearish, we don’t see that. This summer while we had U.S. lean hogs around $1.00 the U.S. breeding herd did not expand with the September breeding herd at 5.806 million, only 3,000 head greater than the 1st of June. No expansion despite prices at historical highs. A breeding herd that is not expanding will not produce significantly more hogs over the next 10 months. Write $1.00 lean plus on the wall for next summer! On the market hogs and pigs inventories we look at the inventory below 180 pounds. As most over 180 pounds on September 1st have already gone to market. The USDA reports that below 180 pounds September 1st was 49.917 million just a bit over 200,000 head higher than last year’s 49.682 million. That is less than ½ of 1% difference year over year. The bottom line is the breeding herd and hog and pig numbers show little significant change. Going forward hog prices will be more affected by demand than supply variation. We are bullish, the U.S.D.A. report is bullish. Demand is strong. How strong is pork demand? Last week despite marketing 2,250 million hogs U.S. pork cut outs were 98.06 per pound, while the National 53 – 54% lean hogs averaged $92.20 per pound. Both unprecedented high prices at market numbers that are 250,000 head a week more than we were selling weekly in the summer. As we have been continually writing, hog prices in the major import markets of Japan, Mexico, South Korea, China and Japan are significantly higher than U.S.A. – Canada market prices. These price points will continue to pull pork to these markets. This pushes U.S. hog prices higher. Throw in the high likelihood of less U.S. beef in the coming year and U.S. chicken supply that egg sets reflect 10 million fewer chickens per week year over year, it doesn’t take a rocket scientist that a growing U.S. population will have to pay more for their meat protein as total supply declines. The combination of supply and demand, we reiterate is bullish.
The Surest Cure for High Prices is High PricesWhat a Eureka moment! Friday, the U.S.D.A. discovered that $7.00 plus corn cut demand and increased supply. Friday’s U.S.D.A. report indicated 164 million more bushels in storage than the experts’ guesses. By the end of the day corn had dropped 40 cents a bushel on the Chicago Board of Trade. On August 30, December corn was $7.75 a bushel with some ‘experts’ talking $12.00 per bushel. On September 30, a month later corn closed at $5.92 a bushel. That is almost a $2.00 per bushel decline. Also, on August 30, soy meal was $383 per ton while last Friday, September 30 it closed at $304 a ton. Almost $2.00 a bushel on corn and $80 a ton on soy meal translate into about a $25 per head decline in farrow to finish cost of production. That’s big money going in the right direction.
Margin IncreaseThe DTN Agdayta breakeven for 45 pound feeder pigs was $61.44 on Friday up $30.00 per head from a month ago. This is a reflection of the margin improvement in the industry mostly due to the big drop in feed prices. Unfortunately for feeder pig sellers the increase to $61.44 per head has not been reflected in the market place with the U.S.D.A. weekly price calculation for 40 pound cash feeder pigs averaging $35.73. That is a huge difference. Over the years we have watched the small pig cash market and it usually follows the DTN Livestock Margin. Consequently, we expect a rapid increase in small pig prices in the coming weeks. 90 days from now we expect feeder pigs will be $80.
SummaryThe September U.S.D.A. Hogs and Pigs Report indicated a status quo for supply and when combined with strong pork demand domestically, and globally we expect this will lead to lean hog prices historically high for the next twelve months. We hope that the recent drop in corn and soybean prices continues, if it does, some fantastic hog margins will be captured in the next twelve months.
Categorised in: Pork Commentary
This post was written by Genesus