Hog margins were weaker over the first half of January, with most of the deterioration due to lower hog prices. While nearby hog futures prices have been under pressure from the larger slaughter runs and increased pork production coming to market, deferred futures prices have held up better due to concerns over ASF spreading in China. This is now starting to change as traders express less optimism over the potential for China to purchase large quantities of pork in the near to intermediate term. While the market risk from ASF has arguably become worse over the past several weeks, there hasn’t been much indication that China is in immediate need of pork supplies from exporting countries. Domestic prices in China continue to reflect a bifurcated market, where producing provinces are experiencing lower prices as smaller operations liquidate herds while consuming areas experience stronger prices due to restrictions in supply movement across provinces affected by ASF. Until prices start to rise universally across the country, the market will not be signaling that there is a supply shortage. Moreover, a slowing domestic economy in China may also be negatively impacting demand. Meanwhile, the pork cutout is currently down about $9.90/cwt. from last year, with much of that decline due to lower ham prices which are down about 24% from a year ago. This accounts for about $3.70/cwt. of the lower cutout value, and observers note that U.S. packers have had to lower prices by roughly the value of the current tariff to maintain sales volume to Mexico. Our clients continue to focus on strategic adjustments to existing positions that allow for greater participation in higher hog prices over time.
The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses.
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