Margins continued to erode slightly over the second half of March on lower hog prices, mostly in nearby contracts, while feed costs held relatively steady heading into the Prospective Plantings and Grain Stocks report at the end of the month. In addition to those two big reports for the corn and soybean markets, USDA also released the quarterly Hogs and Pigs report which was considered bullish given the limited supply growth projected based on updated hog inventory data. In particular, the December breeding herd was lowered by 49,000 head in a rare adjustment with the revised figure implying the sow supply was down 1.7% year-over-year versus the 0.6% reduction initially reported.
The March figure at 5.892 million head likewise implies the breeding herd is 1.5% lower than a year ago, suggesting that any forthcoming gain in market hog supply will have to come from further productivity gains. Along with an increase in slaughter weights, it will be difficult for domestic pork supply to grow significantly and leaves the market more vulnerable to disease outbreaks. The farrowing figures were all below market expectations, with Dec-Feb farrowings down 1.5% from last year when on average traders were expecting a 1.6% increase. Farrowing intentions for March-May and June-August were projected even with last year and down 2%; respectively, both over 1%-2% below the
average trade estimates. USDA’s Cold Storage report was also bullish as total frozen inventories of pork at the end of February were 403.5 million pounds, down 4.7% from last year and 13.1% below the five-year average as well as the lowest end of February cold storage supply in over 25 years. Our clients have taken advantage of the recent weakness in hog prices to lighten delta on production hedges while adding downside flexibility on feed hedges following a rally in corn prices.
The Hog Margin calculation assumes that 73 lbs of soybean meal and 5.3 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $44 per cwt for other feed and non-feed expenses.
Hog Margin Watch reports are provided by CIH. Click here to see CIH Hog Services.
