CIH Hog Margin Watch: March 2022

Margins improved over the first half of March as continued strength in the hog market more than offset the impact from rising feed costs as both corn and soybean meal increased in price. USDA lowered their 2022 pork production forecast in the March WASDE by 65 million pounds to 27.33 billion pounds, down 1.3% from last year as both hog slaughter and pork production continue to trail year-ago levels. USDA will also update their quarterly hog inventory at the end of the month which should provide more guidance on the degree to which the industry is contracting. Import and export data was also released for the first two months of the year, with a continued slowdown in the pace of exports to China affecting both U.S. pork imports and exports. Total pork exports in January were estimated at 510.2 million pounds, down 95.8 million or 15.8% from last year with the reduction entirely due to lower exports to China which were over 100 million pounds or 71% lower than the
previous year. Preliminary data meanwhile show that cumulative January and February pork imports were up 58% from 2021 as a surge in imports from Canada which is likewise experiencing lower Chinese demand is helping to shore up domestic supplies. Imports from Canada increased 51% from last year and represented 62% of the overall increase in imports. Last year’s imports of 1.18 billion pounds on a carcass weight basis was an all-time high, so pork imports in 2022 are off to a very strong start. On the feed side, both corn and soybean meal continued to trade higher in response to the ongoing war in Ukraine and uncertainty surrounding global feed grain supplies. Our clients have been adding coverage in deferred marketing periods with flexible strategies that will allow for further margin improvement over time.

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