Margins continued to improve over the second half of January as hogs rallied while projected feed costs held steady. Hog slaughter and pork production have started the year well below 2023 which has caused shortages in the spot market and forced packers to bid up for available hogs to fill orders. While hog slaughter this past week rebounded to 2.7 million head, for the four weeks ending January 27, slaughter was down 234,000 head or 2.3% from a year ago. Harsh weather in the first half of January forced processing plants to close as workers could not drive to the plants and hogs could not be shipped. As a result, slaughter for the week ending January 13 totaled only 2.174 million head, down
19% from the same week in 2023. Lower pork production resulting from the reduced slaughter has been supportive for the pork cutout, particularly the belly primal which has increased by $40/cwt. or 41% since January 3. The strength in pork cutout and negotiated cash hog prices have been supportive to lean hog futures and has allowed margins to recover back above the 80th percentile of the past decade through Q3. USDA reported inventories of pork in Cold Storage at the end of December totaled 427.3 million pounds, down 6.4% from last year and 9.3% below the five-year average but up 2.8% from the previous month when on average pork inventories seasonally decline 0.1%. While the month-over-month build could be construed as bearish, it may represent more supply being staged for export. Pork export sales this past week were very strong at 42,900 MT, up 18,800 from the prior week with shipments totaling 30,100 MT. Our clients have been scaling into new coverage following recent hog strength in deferred marketing periods with flexible strategies to allow for further margin improvement.
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.
