Jim Long Pork Commentary, Can We Get Price Traction? November 22nd 2021

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Jim Long, President and CEO Genesus Genetics

 

U.S. Cash hog price is having trouble getting traction with the National Hog Price weighted average dipping below a year previously for the first time this year.

DTN calculates U.S. Packer Gross Margin. The latest week is $49. A year ago, same week it was $38. If DTN calculation is correct Packers are doing fine.

U.S. hog slaughter continues to run below a year ago last week 90,000 head fewer. Slaughter weights are running just over a lb. more year over year.

U.S. cash early wean price last week $53.43 a year ago same week it was $38. A reflection of supply and demand.

Cut-out values continue to reflect consumer preference for taste and flavor.

Which cuts have more marbling? Ribs, Belly, Butt. If about half carcass weight is Ham-Loin let’s do some farmer arithmetic:

  • 200 lb. carcass – 100 lb. Ham-Loin + increase 25¢ lb. with better taste and flavor
  • 100 lb. x 25¢ = $25.00 to carcass.

The point is consumers are voting with their money to buy pork cuts with better taste and flavor. It’s right before our eyes how to drive demand. We need to think like marketers. Produce what consumers want.

Europe

Several countries in Europe are asking the EU Commission to provide financial aid to EU swine producers. This is a reflection of large losses ($40-50 per head range). The EU herd is liquidating. Sow Cull Prices at a record low. Feeder pigs near record lows. Hog Price in combination with high feed prices leads to losses in the $40-50 per head range. We expect the EU sow herd could be liquidating at a rate of 30-50,000 sows a week.

China

Report out of China – one of the major hog-producing companies marketed 1,282,000 pigs in October. Their average selling price 10.66 RMB/kg (77¢ lb. U.S. liveweight) with average weight 109.76 kg (241 lbs. liveweight). They have reported cost of production of 19.81 RMB/kg ($1.43 lb. liveweight). Put it all together it’s a loss of about $159 U.S. per head. Put it all together and it’s a loss of $200 million in the month. Yikes! No doubt this is a reflection of the market reality in China. Multiple $150 losses x 13 million hogs = $2 billion plus a week going backwards. No wonder cull sow price is next to nothing in China.

Another observation of China when hog price was high many shipped hogs 130-140 kg liveweight (286 lbs. plus). It appears China slaughter weights have dropped by 20-30 kg (40-60 lb.). A reflection of losses and feed costs. That’s a lot less pork on 13 million hogs a week. The decline could be equal to weight of the whole U.S. weekly hog slaughter over 500 million lbs. a week.

Feed prices have led to higher cost of production around the world.

Brazil and Argentina have started their crop season. Latest reports indicate record corn-soybean crops expected. It’s amazing how Brazil has grown in production the last 10 years.

Brazil Corn and Soybean Production

In 2021-22, 42 million more acres of corn-soybeans planted than ten years ago. Lots of forest and pasture put into cropland. The 2021-22 soybean crop is up 4% year over year while the corn crop estimated to be 34% higher. Nothing like high prices to stimulate production. The Brazil crop harvest in early 2022 could dampen world grain prices.

Year to date new crop both U.S. soybean and corn exports are below USDA estimates.

Summary

We see liquidation in China and the EU. North America hog numbers were already below a year ago. We don’t believe any time before have all three major hog producing areas of the world have been down in production at the same time. In 2022 we expect a reckoning. Less Pork production in over 75% of the world’s hog production areas is going to lead to a huge increase in hog prices. We won’t be surprised to see lean hogs over $1.20 lb. and sustainable high prices well into 2023.