CIH Hog Margin Watch: January 2024

Margins improved to start the first half of January as hog futures recovered from setting new contract lows while a bearish USDA report for corn and soybeans initiated a new leg down in both markets, with fresh contract lows in corn. USDA raised yields for both the corn and soybean crops in the January WASDE report to 177.3 and 50.6 bushels per acre, respectively, while reducing harvested area for both crops by around a half million acres. As a result, final production for both crops came in higher than expected and outside the range of pre- report expectations. While corn feed use was raised 25 million bushels and ethanol demand was increased by 50 million, ending stocks still increased 31 million bushels from December and above the average of pre-report estimates. USDA raised 2023 pork production by 60 million bushels in the report from their December estimate, while 2024 production is now forecast at 27.985 billion pounds, up 240 million from the December estimate and 2.4% higher than last year. USDA also raised the pork export forecast by 20 million pounds from December for both 2023 and 2024, with last year’s exports projected up 6.7% from 2022 and this year’s exports expected to exceed 2023
by 1.5%. Export sales and shipments have slowed down recently following the holidays, but outstanding sales for the current year are up sharply from a year ago to key markets such as Mexico, Japan, and South Korea. This portends a strong export campaign in 2024,
although Brazil has expanded production and is expected to provide more competition for U.S. pork in the new year. Our clients continue to monitor opportunities to add margin coverage in deferred marketing periods with flexible strategies.

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.