CIH Hog Margin Watch: September

Margins continued to firm over the first half of September as feed costs moderated in response to a bearish USDA WASDE report while hog prices held steady. Lower hog slaughter over the past two weeks with the Labor Day holiday combined with lighter carcass weights have helped to support the pork cutout, although both slaughter and weights are expected to start trending higher over the second half of September into Q4. The pork cutout has held steady around $98/cwt. over the first half of September, with support from bellies, ribs, and hams. USDA reported July pork exports totaled 170,959 MT, up 8,178 MT or 5% from a year ago although the lowest monthly figure so far this
year. Declines in shipments to Asia were led by decreases to South Korea and Japan of 25% and 10%, respectively, followed by a 14% reduction to China. Shipments to Mexico however were up 12.4% from last year at 68,589 MT, and Mexico now accounts for almost 40% of total export shipments. Through July, total U.S. pork export shipments were up 9.5% from a year ago and in line with current USDA estimates for the year. Pork export demand is expected to increase over the fall due to increased U.S. production as well as competitive pricing relative to the EU. Sweden announced the first incidence of ASF in the country, with seven dead wild boars detected with the disease north of Stockholm. While ASF has remained out of Spain and Denmark for now, this also could potentially be supportive for U.S. pork exports. On the feed side, USDA cut both the corn and soybean yield projection in the September WASDE, but this was offset somewhat by an unexpected
increase in harvested area for both crops. Our clients continue to monitor forward margin opportunities in deferred marketing periods while evaluating adjustments.

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.