Pork Commentary
Jim Long President – CEO Genesus Inc.
September 16, 2013
US Cash Hog Prices Continue High
It’s mid-September and US Lean hogs are hovering around 93¢/lb. A year ago they were 68¢/lb. That’s an astonishing 25¢/lb. or at least $50/head to the better year over year. Huge difference – over $100 million a week better for the industry. It’s what happens when you are marketing fewer hogs year over year. Last week the US marketed 2,172,000 a year ago 2,427,000. We took many arrows last winter and spring for saying there was no Sow herd expansion underway. It appeared pundit sheep herd knowledge kept saying there was expansion. We didn’t agree. It appears either we knew what the industry was doing or were lucky, but the fact is there wasn’t expansion. Expansion happening was like an urban myth (rural myth) perception but no reality. We couldn’t see it, corn a year ago was around $8.00 a bushel (many thinking it was going to $10), a year ago early weans about $8.00, feeder pigs $18.00, hog to corn ration 9.7, market hogs were about $40.00 under cost of production. Obviously an ideal recipe for expansion? Wasn’t happening despite what the tenured “Chicken Little” economists predicted from their cubicles. Never has there been expansion in such dire financial circumstances and never will be. The idea that if it was happening was wrong. Now we are benefiting from the tight supply of hogs and good domestic and export demand for pork. It’s not magic it’s the law of economics.FEED
The USDA last week’s crop reports predicts a harvest of 13.84 billion bushels corn. The largest annual crop ever. Cash Corn a year ago was near $8.00 a bushel, the average US corn price last week was around $4.80. We are all in the commodity business. We know supply can really hammer prices. The largest crop in history? When the combines start rolling we expect cash corn could move to $4.00 a bushel. Sure wonder why anyone would have held old crop grain of any type. The train is coming and its lower prices. Wheat last week was $5.98 a bushel a year ago it was closer to $10. The USDA last week adjusted world ending stocks up 3.4 million metric tonnes (173-176.4). Soybeans on the other hand have very low ending stocks according to the USDA of 150 million bushels. Soybeans last week of $14.85 are still lower than last years $17.50.EXPANSION
We believe there is slight breeding herd expansion underway. In the breeding stock business like we are at Genesus, that’s what we pay attention to. In our opinion there is some expansion ongoing but it’s limited. It’s real hard to get sites or even get existing empty sow barns fired back up. Financing of barns, operating capital, labour, environment, state of repair of buildings etc. are all limiting activity. It’s real hard. We don’t see any way we can have significant expansion before next spring from all prior factors plus winter. We believe lean hogs over $1.00 next summer are in the cards. Why? No big change in swine numbers, with what we expect will be strong domestic and export demand. Throw in record high beef prices. We see the $1.00 plus.
Categorised in: Pork Commentary
This post was written by Genesus