Jim Long, President and CEO Genesus Genetics
Lean hog Futures continued their rise last week with July reaching new life of contract highs of 85,875₵ lb. This is 15₵ lb. or $30 plus more a head than July Lean Hog prices were at the past summer low. Big differences with current farrow to finish profit per head now $45 in June, July and August. Some people might see this as an obvious hedge opportunity. The latest average profit calculations for the next twelve months are now $23 per head. The highest potential profit for a year out we have seen for quite awhile.
Small Pig Prices
A sign of the market confidence is the rapid increase of small pig prices, both early weans and feeder pigs. Last week both categories jumped $5.00 per head on the U.S.D.A. report. Early weans averaged $47.82 U.S. with high lots at $61 and 40 lb. feeder pigs $52.28 U.S. with high lots at $69. We expect continued price increases in both categories. Feeder pig brokers tell us the market went from a buyer’s market to a seller’s market last week, with a sudden scramble to find supply to fill orders. Speculation is $70 early weans and $90 feeder pigs will be reached. If somehow Mexican and or Chinese tariffs went away, we could expect a further surge in futures.
The Challenge for Short Term Industry
In the next few weeks is hog supply will be abundant and with market hog prices in the 50’s a losing proposition. Fortunately, the new packing capacity that have been put in place that allows about 380,000 head per day marketing appears to be preventing hogs backing up as current hog weights are running at least 1 lb. lower than a year ago.
African Swine Fever (ASF)
According to the Ministry Agriculture of China as of November 22, there are 73 ASF cases reported in 47 municipalities in 20 provinces. There has been mandatory slaughter of 600,000 pigs.
24 ASF affected areas in 7 provinces have lifted the ban on transportation of pigs including Henan and Jiangsu Provinces.
The ASF virus has been identified as Type II originated from Russia, Poland, and Georgia. ASF entree to China could have come from four paths:
- International trade or smuggled pig/pork.
- Pork products carried from foreign tourists.
- Restaurants waste from international transportation vehicles.
- Migration of wild boars. So far mandatory slaughter has only accounted for .087% of national annual hog marketing’s.
Some China industry analysts have estimated the expected decline of hog supply to be 35 million in 2019, due to ASF and if this decline is coupled with the 1.6 million sows inventory decrease that happened Sept to Sept, the combined hog supply decrease affect could lead to very strong hog prices. We would expect the Chinese Government to initiate aggressive imports to hold domestic pork prices affordable for Chinese consumers.
Market has momentum. All indications have 2019 looking good for U.S. producers.