Hog Margin Watch: December

Margins improved slightly over the first half of December as hog prices were steady to higher while both corn and soybean meal markets were steady to a bit lower. There has been limited feature in the market as participants wait for the results of USDA’s December Hogs and Pigs report, while the latest WASDE report made minimal changes to the South American crop outlook despite growing drought concerns in Mato Grasso, Brazil. Both hog slaughter and pork production continue to run higher than would have been expected given September’s quarterly data, with USDA widely expected to revise the March-May pig crop based on slaughter results during the September-November period. USDA estimated hog slaughter last week at 2.689 million head, up 0.6% from the prior week and 4.1% above the same week last year with total pork production estimated up 3.7% from a year ago at 579.3 million pounds based on a 215 lb. average dressed weight which is likely lower than the actual total. Comparatively, there has been more pressure recently on cash hog prices relative to the cutout, with the former down 16.6% from this point last year while the latter is only 1.6% lower than a year ago. USDA lowered Brazil’s soybean crop 2 MMT in the December WASDE to 161 MMT due to ongoing drought in Mato Grosso, although this was offset by a similar increase in beginning stocks. No changes were made to corn production estimates this month for either Argentina or Brazil. Our clients continue to monitor opportunities to add margin coverage in deferred marketing periods around the 70th to 80th percentile with flexible price strategies while evaluating strategic adjustments on existing positions.

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.