Margins were flat to slightly weaker over the second half of April as the feed markets firmed while trade in hogs was volatile. Unfavorable biodiesel margins have slowed or halted expansion plans for several soybean processors which has forced traders to recalibrate their expectations for soybean meal production over the medium term. Commodity fund short covering has been a recent feature in the soymeal market as funds have bought over 60,000 contracts in the past 3 reporting periods and are now net long around 20,000 contracts after holding a record short position for this point in the year. More modest short covering has been noted in corn although funds still hold a sizeable short position in the market for this point in the season. The hog market has been volatile over the past couple weeks, posting sharp declines after advancing in the middle of the month. USDA’s monthly Cold Storage report showed frozen pork inventories of 464 million pounds at the end of March, up 1% from February but down 13.1% from last year. While the total supply of pork is near the multi-decade lows of March 2021, belly inventories were up 18% from February and well above the seasonal 6% average increase between February and March. Strong belly prices in Q1 which were up $31/cwt. or 33% from a year ago helped support the pork cutout around $90/cwt.; itself up 9% from 2023, with 2/3 of that
strength attributed to the belly primal. From April 10 to May 1 however, belly prices have declined $21/cwt. or 16.7% which has pressured both the pork cutout and lean hog futures prices. Our clients have benefited from newly added coverage in deferred marketing periods and are actively evaluating strategic adjustments on existing positions to add flexibility for potential margin improvement over time.
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.
