Jim Long Pork Commentary, U.S. Hog Price Creeps Higher, May 30th 2022

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Jim Long, President and CEO Genesus Genetics

The U.S. hog price continues to creep higher with the Weekly National Price reaching over $1.10 lb., now higher than the same time a year ago. It was about this time last year when the price made its move to beyond $1.20. The highest net lot on last Friday’s National Daily Direct was $1.25 lb. The lowest 72¢ lb. Quite the spread.

Spain

Spain is the third-largest hog-producing country in the world. It is the major producer in the European Union. An update.

Spain’s hog price currently is 1.549 Euro/kg (75¢ lb.) touching the highest price in its history.

We understand last year Spain averaged about 1.09 million market hogs a week. Currently, Spain is averaging about 880,000. A decrease of 20% (210,000 less market hogs a week). One of the reasons for the decline is a massive PRRS outbreak from a strain called Rosalia which is very active in the major hog-producing areas of Catalonia and Aragon, areas of what can be described as wall-to-wall hog barns. Nursery-Finishing losses are in the 30-35% range with sow mortality over 20%. One major slaughter company has gone from 80,000 heads a week last December to 47,000 a week recently.

Another reason is the decline in purchases of small pigs and market hogs from other parts of Europe. High pig mortality and high feed costs increasing the cost of production is a major deterrent for importing pigs.

Spain imports 80% plus of its feed ingredients. Since September 2021 feed costs have gone from 260 Euros/ton to 450 Euros/ton, increasing cost of production to about 60 Euros a market hog ($70).

Financial losses in Spain had also cut production base with the sow herd declining as capital losses have encouraged liquidation. Some speculate even fewer hogs a week in the near future. Less Pork in Spain means less for export. This is supportive for domestic and international markets. The only way to ration limited supply is higher prices. We need only to look at grain markets to understand that reality.

Other Observations

Liquidation of Europe’s sow herd continues despite near-record hog prices, as high feed prices increase breakeven beyond current market prices. Some speculate that Germany due to ASF consequences, animal welfare, environmental regulations, generational change, and continual financial losses (high feed price) will decrease another 300,000 sows. A big decline that coupled with other liquidations will decrease the EU’s total pork production capacity down to domestic equilibrium supply-demand.

At one point Beyond Meat (Poster Boy Company for fake meat) had a share value of $234.90 per share. Last week it was $28.63 per share. A loss in market cap of $11 billion. In the last year sales of all plant-based meat have fallen in volume. We are so sad.

Next week we will unveil the World Mega Producer list for 2022. One of the companies on the list is China’s Zhengbang Group from China. Towards the end of 2021 Zhengbang Group had 1,000,000 sows. It’s a public company listed on the China Stock Exchange. Recently Zhengbang announced they now have 380,000 sows, a decline since the end of 2021 of over 620,000 sows. A huge reduction, and in our opinion, a result of the reality of massive losses per head encountered by most in China’s swine industry. Zhengbang had over $1 billion in losses.

We continue to believe that China’s hog industry has had massive sow liquidation starting last summer. China’s hog price has jumped over 20% since April 1st. In the not-too-distant future, we expect not only continued increasing China’s hog prices but China increasing pork imports to fill their inevitable pork deficit.

High feed prices are impacting global livestock and poultry production. We expect a global decrease due to the financial losses. Lots is being written about a global food shortage that could lead to not only malnutrition but social and political problems.

A quote from The Economist magazine on May 19th, “Gro Intelligence, a data firm, calculates that the calories diverted by current biofuel production and new commitments could soon be equivalent to the yearly needs of 1.9bn people. Biofuel production has increased markedly in America, Brazil and Europe as the oil price has risen; expensive crude makes the sector more profitable. Repealing biofuel mandates could lessen the damage.”

Some good news re Brazil. The country’s grain production is expected to reach 271.8 million tons from 2021/22, an increase of 6.4% over the previous year. Corn crop of 116.9 million tons up 33.4% from the year before, was significantly helped by good weather in the second-crop corn. More corn is good for the livestock industry.

Summary

Tough time for most swine producers in the world. It’s attrition to see who survives. When the dust settles, we will have the highest prices in history. If the situation in Ukraine gets tempered the price decline in world grain markets would lead to a time of good profits for surviving producers.