CIH Hog Margin Watch: February 2022

Margins weakened over the second half of February as an ongoing rally in both corn and soybean meal more than offset a slight increase in hog prices. The hog market remains supported by lower hog slaughter and pork production compared to a year ago, although the surge in prices also seems to be cutting into export demand. Hog slaughter for the week ending February 25 of 2.507 million head was down 5.4% from the comparable week last year, with cumulative year-to-date slaughter running 8.0% below 2021. Pork production for the week ending February 25 totaled 548.2 million pounds which was down 4.7% from the same week last year with year-to-date production down 8.1% from
2021. Pork export sales last week of 26,200 MT were up 45% from the prior week but still down 8% from the four-week average with China absent from the list. Pork exports of 30,200 MT were down 3% from both the prior week and the four-week average. The USDA’s February WASDE report projects 2022 pork exports down 3.13% from last year at 6,810 million pounds. January pork in Cold Storage totaled 428.5 million pounds which was down 6.3% from last year and 22% lower than the five-year average. Boneless hams of 49.3 million pounds were down 21% from a year ago while bone-in freezer supplies of 24.4 million pounds were up 12% from 2021, highlighting the ongoing difficulty processors are facing with labor issues on boning lines. Meanwhile, feed prices have soared in response to Russia’s invasion of Ukraine, with the latter country supplying 17% of global corn exports. This adds a major new risk dimension to an already tight global supply/demand outlook. Our clients have been adding coverage in deferred marketing periods with flexible strategies that will allow for further margin improvement over time.

he 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.