Hog Margin Watch: May Margins deteriorated further over the first half of May due to a combination of lower hog prices and steady to higher projected feed costs. A continued weakening in the pork cutout is weighing on the hog market as heavier slaughter weights and reduced export demand pressures hog prices. It appears that large premiums in the June futures board relative to spot hog prices caused producers to delay marketings
which is being reflected in current slaughter weights. Weights on producer-owned hogs are currently running about 1.3% above year-ago levels while those for packer-owned hogs exceed last year by 2.3% and are near all-time highs, including the Covid-related backup in
2020. Meanwhile, export demand slumped in Q1 led by a slowdown in sales and shipments to China. U.S. pork exports in Q1 totaled 522,069 MT, down 20.8% from last year with exports to China of 39,296 MT down 119,733 MT or 75% from a year ago. While exports to
Mexico in Q1 were up 38% from 2021, exports to other key markets including Japan (-15%), Canada (-17%), Columbia (-19%), and South Korea (-6.6%) more than offset this so that total exports to markets other than China trailed last year by 3.5% in Q1. Meanwhile, the nearby June pork cutout futures have lost about 20% of their value since mid-April which has negatively impacted hog prices. The corn market continues to trade firm as planting progress at 49% complete although up by 27% from the previous week lags the five-year average by 18% with significant delays in both Minnesota and North Dakota. Our clients continue to take advantage of the current weakness in the hog
market to make strategic adjustments which will add upside flexibility on existing hog hedges in margin management strategies.
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.
