CIH Hog Margin Watch: February

Margins were mostly flat over the first half of February, with limited movement in the hog and feed markets. USDA released the monthly WASDE report which updated supply and demand estimates for corn, soybeans, and pork. Commercial pork production for 2023 was
reduced slightly from last month by 45 million pounds on lighter expected carcass weights in the first half of the year. Total production of
27.435 billion pounds would still be up 440 million or 1.6% from last year, with much of the increase backloaded as Q4 production is
expected to exceed last year by 4.3%. This puts much of the onus on demand which has been lackluster thus far in Q1 despite some large
weekly export totals. Fears over a looming recession later in the year combined with competition from other proteins may hurt demand as we move through 2023. USDA’s Economic Research Service (ERS) released January retail sales data and retail pork prices were $4.79/lb. during the month, down 0.9% from December but up 0.7% from last year. Pork chops were $4.14/lb., down 4.0% from the prior month’s record value of $4.31/lb. but up 3.0% from the previous year. The all-ham price continues to remain elevated at $4.30/lb., up 10.5% from last year but the bacon retail price of $6.81/lb. was down 5.7% from a year ago. USDA only made minor revisions to the domestic corn balance sheet, lowering the ethanol demand projection by 25 million bushels causing a similar increase to ending stocks. Argentina’s corn crop was cut 5 million tons from last month to 47 million, with concerns that additional cuts may be forthcoming. Our clients continue to target levels for adding new margin protection in deferred marketing periods with flexible price strategies.

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.