Hog Margin Watch: December CIH

Margins continued to weaken slightly over the last half of December as a significant increase in projected feed costs more than offset the impact of higher hog prices. The USDA released their much-anticipated quarterly Hogs and Pigs report at the end of the month which included revisions to past reports to account for discrepancies between estimated pig inventories and actual slaughter levels. As a result of these revisions, the March 1st all hogs and pigs estimate was cut 1.45 million head to 76.179 million, the June 1st inventory was lowered by 2.27 million head to 77.364 million, and the Sep 1st figure was reduced 665,000 head to 78.434 million. The December 1st all hogs and pigs inventory was estimated at 77.502 million head, down 0.93% from last year and in line with expectations. The kept for breeding figure of 6.276 million head was the main surprise in the report, down 3.02% from last year and lower than the 1.8% reduction that the market was expecting on average. If correct, this should limit farrowings through the winter, particularly given the surge in feed costs producers are currently facing. Another supportive feature for the market is monthly Cold Storage data that confirms much lower pork inventories. November month-end pork inventory totaled 414.1 million pounds according to USDA, down 28% from last year and 22% below the five-year average. Corn and soybean meal prices meanwhile have been soaring due to adverse weather in South America
which is heightening concerns over supply availability amidst strong export demand from China. Our clients have responded to soaring prices by adding downside flexibility to existing feed hedges while maintaining upside protection.

The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses. The information contained in this publication is taken from sources believed to be reliable, but is not guaranteed by Commodity & Ingredient Hedging, LLC, nor any affiliates, as to accuracy or completeness, and is intended for purposes of information and education only. Nothing therein should be considered as a solicitation to trade commodities or a trade recommendation by Commodity & Ingredient Hedging, LLC. All references to market conditions are current as of the date of the presentation. Futures and options trading involves the risk of loss. Past performance is not indicative of future results. Please visit www.cihmarginwatch.com to subscribe to the CIH Margin Watch report.