U.S. Futures Rebound
Markets many times move with few if any people expecting. Last week was a case in point. From Friday to Friday October Lean Hogs jumped $7.43 and December $7.80. That’s an increase of $16-18 per head. A huge number. The jump has been attributed to Chinese – USA trade discussions and reported progress on U.S. – Mexico NAFTA negotiations.
The futures increase can be totally attributed to psychology of market sentiment not reality. Tariffs on U.S. Pork from both China and Mexico are still in place. The mere thought they might be gone moved the market almost $20 per head.
Both China and Mexico hog markets are almost $100 per head higher then U.S. If tariffs are removed there is quite the margin between U.S. prices and China – Mexico.
Last week Hormel Foods a major U.S. pork processor and brand and Wholestone Foods announced plans for Wholestone to takeover Hormel Hog Packing Plant in Fremont, Nebraska. Wholestone has an agreement with Hormel to sell them the meat. It appears to us Wholestone comprises a shareholder group of producers that are tied to Pipestone System. A Global Mega Producer. Interesting world, hog producers become Packers. Packers become hog producers.
There has been speculation in the past that Hormel would divest the Fremont plant. This deal does that while continuing to get Pork for Hormel to use in their added value products, which we imagine, has a higher return on capital.
With this acquisition of the Fremont plant by Wholestone, we congratulate the Pipestone group fulfilling the goal of many producers to be integrated. If the model is similar to the one put together by Triumph producer a few years ago it could be a very successful venture.
African Swine Fever (ASF)
Lots of speculation on the outbreak of African Swine Fever in China. It appears by some reports there has been a couple more breaks in the last few days. We have had several calls on this for our opinion. To some extent some think it could be a Black Swan event that affects World Pork markets. Maybe but keep in mind China has over 450 million pigs in inventory. We have been doing business in Russia for several years. They continually fight ASF. ASF in a market like Russia and like China that don’t export Pork don’t have the market price like in a country that exports Pork. ASF gets to Germany that exports large volumes of Pork we will have a much greater effect on the German and the global markets.
This week we will be in Russia. We will report our observations on their hog market in next weeks commentary.