CIH Hog Margin Watch: August

Hog margins fell throughout the first half of August as a strong pullback in lean hog futures more than offset weakness in the corn and soybean meal markets. Domestic slaughter rates continue to rise, signaling a potential seasonal top in cash hog prices as we enter the fall. Official trade data through June was released August 9. On a carcass weight basis, June exports were 6 percent lower than the previous month but 10 percent higher than a year ago. Year-to-date, exports are 10 percent higher than a year ago with gains to nearly every major trading partner. Mexico and China have led the pack in volume gains through the first half of the year. Exports are running about 80 million (cwe) pounds behind the historical pace needed to meet USDA’s annual forecast. Pork imports are 24 percent lower year-to-date. The largest reductions in imports from a year ago have come from Canada and Denmark. The current import pace is slightly ahead of the historical pace needed to meet USDA’s annual forecast. Global hog prices have generally trended higher over the past month, potentially providing a tailwind to U.S. pork exports. USDA on August 11
released its monthly WASDE report. Meat production in 2023 was reduced on lower beef, pork, and broiler forecasts. Hog slaughter through the end of the year was raised albeit with lower carcass weights. For 2024, pork production was unchanged from last month and is expected to increase 0.3 percent year-over-year. Per capita disappearance of pork was lowered marginally from last month for 2024 but is expected to be largely unchanged from 2023. Weekly sow slaughter has been tracking higher since the beginning of June, partly due to an increase in imported sows from Canada. Sow prices have also trended higher after bottoming in late-May. Live hog imports totaled 3.3 million head in the first half of the
year. Most of these animals originated from Canada. Three-quarters of the Canadian hogs weighed less than 110 pounds. Recent rainfall and lack of export demand have taken risk premium out of the feed markets after a spike early last month. Our clients continue to monitor for strategic adjustments to existing positions while evaluating forward margin opportunities, emphasizing the need for flexibility in all coverage.

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.