Pork Commentary

Jim Long President – CEO Genesus Inc. info@genesus.com

US Hog Market Languishes

March 16, 2015

  We went to the United Kingdom and Spain, and we hoped when we returned we would see stronger lean hog markets. So much for that! What we had last Friday was life of contract lows on all future lean hog contracts. There is an extreme negative in our market with bountiful hog supply relative to last year (this past week year over year up 9%). Pork exports have been slowed by not only the Pacific Coast Pork issues, but also by a US dollar index that has risen 25% since last July compared to the average of major foreign currencies making US pork more expensive for foreign buyers to purchase. The negative tinge to the market creates momentum to lower prices. When we were in Spain last week, which is the fourth largest hog producing country in the world, with substantial pork for export. The producers we met were positive about Euro devaluation to the US dollar. On July 15, 2014, the US dollar was $1.36 to the Euro. Last Friday, March 13, the US dollar was $1.06 to the Euro. Our farmer arithmetic tells us that an almost 30% Euro devaluation makes Spain’s pork producers more competitive in export markets. From what we gathered in Spain, producers are near breakeven (similar to US) at 1.148 Euro/kg liveweight or 55.19₵ US liveweight. The US market liveweight price is about 47₵/lb. Bottom line is the rapid appreciation of the US dollar has inflated costs for all foreign buyers of US product and most importantly pork. Where is their hope?  


The China hog price last week was 12.2 rmb/kg liveweight or 89.79₵ US liveweight. China has liquidated up to 6 million sows over the last fifteen months due to huge economic losses. This obviously has and will cut production. China’s hog price is nearly double the US price in US dollar terms. We suspect that the US dollar appreciation only matters relative to what the pork price is in the importing country. Even with the huge appreciation of the US dollar, a market hog in China is worth about $100 US dollars more per head. We believe with the Pacific Port strike now settled it will take some time to get pork flowing properly as buyers have lost confidence in the US supply reliability and we need the logistics to get shipping up to full speed. A $100 US per head spread tells us there will be sharpies in China that will figure out how to buy pork and make money. WH Group, Chinese owners of Smithfield Foods (115,000 US hogs per day in plant) are poised to roll pork to their home base. Capitalism will be alive and well. Farmer arithmetic again. China 6 million fewer sows x 14 hogs per sow per year = 84 million fewer hogs? The US figures out how to send an equivalent of 5 million to fill the void, 100,000 a week supply out of US domestic food chain. US hog market rolls higher as domestic supply is pulled down to PED induced supply levels.  

Other Observations

  • Looking at hog supply no doubt PED has run its course. Like many viruses that ran through the production, system then almost disappears i.e. Tge. We find it hard to think of much of any other reason. It is not as the industry changed overnight to eliminate PED. If everyone is so bright, why haven’t we eliminated Prrs? A different virus and way worse than PED. We continue to believe PED was one of the most profitable events ever in the US hog industry. “Dead baby pigs at low value, problem over 3 – 4 weeks, cut supply, and lead to record profits.”
  • The appreciation of the US dollar is also making corn and soybeans more expensive for foreign buyers in their current terms. March corn closed Friday just above the lowest price it has had in four months at $3.74/bushel. March soybeans are similar at $9.68/bushel, near the four-month low. The high dollar is keeping grain prices lower.
  • National Lean carcass slaughter weights are now lower than a year ago. This time last year 216.05 pounds, this year 214.8 pounds. After continually heavier weights, the trend is going the other way. With weights coming down, we expect hogs have been pulled ahead increasing US weekly marketings and putting more pork in the supply chain.
  • US Pork carcass cut–out $67.74 US; Beef carcass cut – out $244.07. It appears to us beef is almost four times higher than pork at wholesale carcass level. No way will this last. Beef will hold up due to record low beef supply. At some point, pork will move closer to beef prices. No way will this spread continue.
  • In addition, a wakeup call for those in the pork industry that do not see value in darker, well-marbled, tender pork. It appears the consumer sees more value in beef; smart marketers figure what is needed and produce that product. White, low marbling and tasteless pork is hampering our industries growth and demand. The problem is they call us Farmers not Marketers.

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This post was written by Genesus