U.S. Hog Market Continues Strong
Another week of strong seasonal prices in the United States. 53-54% lean hogs 68¢ lb; a year ago, they were 50¢ lb. That’s almost $40 dollars per head higher! Who would have thought. A few weeks ago, when we wrote that lean hogs would stay above 55¢ lb this fall, we had no clue how this market would defy all forecasts. Indeed, hog producers are getting profits from $10 to maybe $20 per head.
A reflection of the optimism that has come with higher cash and lean hog futures, is the USDA average cash price for 40-pound feeder pigs. This past week averaging $53.78 US. A year ago, they were averaging $23. It doesn’t take a computer to see the $30 per head difference. On Friday last week the Feeder Pig breakeven calculations on DTN was $62.62 per head. The market always moves to breakeven. Expect further feeder pig price increases in the coming weeks reaching at least $80 per head. Not a tough prediction as last year they went from $23 per head to $77 in March- April
US hog slaughter this past week, was 2,453,000, down 80,000 from a year ago. We see slaughter weights increasing. We suspect some Packers are cutting kills to try to lower hog prices to improve margins. It will be interesting if this will work. With increased daily kill capacity from the new slaughter plants, the challenge for each Packer is the risk of market share loss which could include retail shelf space or export orders being taken by a competitor. It’s a game of chicken (but in hog industry). Packers have got used to gross margins reaching at times over $50 per head. They, like anyone in business, would like to sustain that wonderful return. Currently estimates range from $10 to $25 per head, packer margins, a long way from $50.
We expect as the new packing plants get to full production and hog supply seasonally declines, packer margins will be even lower; some below breakeven.
Take home message – All good things must come to an end –
New grade system
We have had many comments over the last few days from producers who see the merit pf the USDA’s projected new grade system. They see it as outstanding, that finally the focus will shift from producing even leaner pork with no good eating attributes, to focusing on higher marbling-color and deliver a better eating experience.
Similar to the USDA successful Beef Grading system, the Prime and Choice Grades will identify the very best Pork for marbling and color, so that consumers can knowingly get Pork that will have the best taste and flavor.
You only have to look at current beef prices to see were Choice compares to Select.
Why the higher price? Choice has better eating attributes which leads to enhanced demand and then receives higher prices from the final consumer.
This U.S.D.A game changer announcement makes us so happy that finally there will be a push for our industry to produce a premium product that consumers want. Its once in a generation industry initiative.
This post was written by Genesus