US Hog Market Shows Some Rebound
Last week the US hog market showed some rebound, 53-54% lean hogs, going from 51.95¢ to 56.13¢.
A year ago, 53-54% lean hogs were 59.99¢. Market seems to be next to terrible (losses $30 per head) But put in context of year ago prices and they don´t look as bad. A year ago, summer hog prices went well into the 80´s.
Of course, most of the market is expecting a price rebound. May lean hog futures closed Friday at 69.950 ¢ and June 77.550 ¢. That would be an increase of well over $40 per Hog the next few weeks.
US gross packer margins have been good the last few weeks (years), well over $30 per head. There is a sentiment in the industry that packers will continue to have good returns because of discipline they have now developed. Maybe so, but we doubt it.
Historically, until the last couple years, US pork cut-outs or gross packers’ margins were in 92-94% range compared to market hogs. Recently it has been in the mid 70’s. Good for packers, not so much for producers.
New packer capacity has come on, daily capacity at least 20,000 per head higher then a year ago. Seaboard-Triumph has now announced the beginning of a second shift at the new Sioux City Iowa Plant, increasing capacity with 10,000 more per day. We understand the plant ownership already controls the hogs to fill this; meaning, other packers will lose these hogs.
Hog supply always decreases seasonally in summer. The lean hog futures reflect this reality with a $40 plus hog premium from April to June.
Pork production and its prices go much beyond the ability or capacity to slaughter the hogs. The dynamics of shelf space in retail, competition in retail, export demand, and competitive market share maintenance etc., are all factors in hog prices discovery and gross packer margins.
On top of all above, we will make the observation that Packers don’t much like each other. They are competitive. When hog supply drops relatively to shackle space and demand, none will wish to lose outlets for pork to their competitors due to lack of supply.
We expect due to all the above to see Gross Packer Margins to be in the 92-94% range in the summer market and benefit will be to producers.
We met a large Chinese production company this past week. They told us most producers in China are losing in the $30 US per head range. You have to ask why such losses when the China hog price is 11.01 RMB/kg (79.53¢ US lb. liveweight). One reason is high price of feed; corn is now 1900 RMB a tonne – $300 US a tonne or $7.54 US a bushel. We have been told several planned swine expansion projects in China have been put on hold.
Another observation of Chinese producers losing $30 per head, it probably means pork supply is adequate. Putting a 25% tariff on US pork is a way to support Chinese hog farms.
African Swine Fever
Last week we discussed the fear in Europe of the spread of ASF and the potential lost of Pork Export Markets.
This link below will show the spread of ASF in Europe
It is interesting that Belarus has had next to no breaks. Also last week we reported Denmark was looking to build wall on German border to keep ASF out. We need to report that Denmark has not demanded Germany to pay for it.
US hog prices rebounded. We expect summer months to be quite profitable. We still expect US lean hog prices to get to 90¢ lean lb. Maybe optimistic, but we believe producers will benefit from lower gross packer margins.
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