Hog Margin Watch: September

Margins deteriorated significantly over the second half of September due to a sharp decline in hog prices as projected feed costs were flat to slightly lower. USDA’s Quarterly Hogs and Pigs report was bullish relative to market expectations, although deteriorating economic
conditions are raising concerns over forward demand. All Hogs and Pigs on September 1 was reported at 73.8 million head, down 1.4%
from last year when on average traders were expecting a 0.8% decline from 2021 with a range between 0.4% to 1.2% less hogs. Market hog inventories declined in all weight categories, with the total inventory of 67.648 million head down 1.5% from last year and below the range of pre-report expectations. The breeding herd at 6.152 million head was down 0.6% from last year and within the range of
expectations but slightly below the average expected decline of 0.4% from 2021. The June-August pig crop declined 1% to 33.581 million
head, the smallest since 2017 while Sep-Nov farrowing intentions down 2.5% from a year ago were well below the range of expectations
and Dec-Feb intentions on the low end of the pre-report range. A decline in both pork cutout and negotiated cash hog prices over the past
two weeks have pressured the futures market, although seasonal weakness at this time of year is quite typical. Pork supplies in Cold Storage at the end of August totaled 532.04 million pounds, up 5.6% from last year but 5.4% below the five-year average. Our clients are taking advantage of the recent decline in hog prices to add upside price flexibility to existing positions, while targeting levels to add new margin coverage in deferred marketing periods.

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