Margins recovered over the first half of October as hog prices rallied following the sharp decline over the last 2 weeks of September while projected feed costs were flat to slightly higher. USDA released the October WASDE report which cut both corn and soybean yield and production estimates, lowering ending stocks for both crops. This along with a slower than normal start to planting in Argentina due to abnormally dry weather is keeping a firm tone in the feed markets. The hog market remains supported by strong domestic demand as well as ideas that China may become more active in the export market. Chinese hog futures prices on the Dalian Commodity Exchange have been rallying recently, including a record daily advance earlier this month. Spot prices for hogs have also risen by 8% since late September to the highest level since March 2021. While China’s state planner has indicated that a fresh batch of pork reserves may be released to the market to cool prices, there is also hope that increased imports will likely be pursued to control domestic pork inflation. USDA’s ERS reported that fresh, frozen and cooked pork exports in August totaled 173,335 MT on a product-weight basis, down 3.9% from last year as the strong dollar impacted demand from Japan in particular. Total shipments to Mexico of 70,482 MT however were up 2.2% from last year, and the value of exports to Mexico were 26% higher than a year ago at $175 million as the peso has increased in value relative to the
USD. Overall value of U.S. pork and variety meat exports in August of $637.8 million was up $22.8 million or +3.7% from last year. Our clients have benefited from recent adjustments to add upside price flexibility to existing hog hedges.
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.
