CIH Hog Margin Watch: May

Margins deteriorated over the first half of May on a combination of lower hog prices and higher projected feed costs. Massive commodity fund short covering in corn and the soybean complex following record flooding in southern Brazil caused both markets to spike since the beginning of the month. At the same time, a slowdown in pork exports and signs of increased competition on the global market is putting pressure on the hog market. USDA is currently forecasting 2024 U.S. pork production to be 28.079 billion pounds, up 761 million or 2.8% higher than last year with much of that increase expected to occur in Q3 and Q4 with those two quarters up 3.4% and 2.7% respectively from a year ago. Export demand has been a key market factor to absorb additional supply and maintain strength in the pork cutout. Q1 pork exports were up 8% from 2023 and for all of 2024, USDA is currently forecasting pork exports to increase 444 million pounds or 6.5% from last year. If this forecast materializes, it will absorb around 60% of the increased pork production this year although recent weekly data has been concerning. This week, USDA reported weekly net pork sales of only 21,100 MT, a marketing-year low, down 14% from the previous week and 22% below the prior four-week average. In addition, outstanding pork sales are currently 24% lower than a year ago. The U.S. is facing increased competition on the global market with EU pork production in 2024 forecast up 1.7% from last year due to higher sow inventories in Spain and Poland while Brazil’s production is forecast up 4.2% from last year with half of that increase expected to be bound for export markets. Our clients are making strategic adjustments on existing hog positions to add upside price 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.

Hog Margin Watch reports are provided by CIH. Click here to see CIH Hog Services.