MARCH MADNESS in the Hog Industry? By Kent Bang from Compeer Financial

March of 2021 has set up to be a pivotal time in the U.S. swine industry. There are so many conflicting indicators that it will be challenging to know how to manage through this month and into the future. Many will be thinking that, with $100 pork cutout values, the future is bright and I hope they are right. Serving pork producers across the country (or most of it anyway) gives us a fairly good feel for some of the issues impacting profitability. Pig prices have been moving higher since late January, with much of the growth coming in the first half of March. Cost of production, or rather feed cost, is very high but has tempered a bit since mid-January in the case of meal, and over the past few weeks in the case of corn.

Higher Pig Prices
Pork demand has been on fire in recent months. With pork supplies close to year ago and prices surging since the beginning of the year, it is clear that demand is stronger. Retail prices remain very strong for pork at 7% above last year in February, as published by USDA. Wholesale pork prices are up 24% so far this year, with the average for the week ending March 13 at $97.49 per cwt. Primal pork prices have increased broadly year-to-date, led by belly prices up 37% and both ham prices and loin prices up 17%.

Lower Pig Supplies
It appears based on reported daily harvest numbers that Saturday slaughter is falling a little sooner in 2021 than in prior years. Likely there are a couple of factors that driving that. First, we had 195,000 (3.0%) fewer sows based on the December U.S.D.A. report and 74% of those were culled in the first half of 2020. Another factor is likely the impacts of PRRS in the last several months, which seems to be causing higher mortality in growing operations, in addition to farrowing impacts.

Higher Feed Costs
While they have dominated soybean imports for many years, China has also become the world’s largest importer of corn. Chinese corn imports have increased from around the globe as they rebuild the swine herd lost to ASF, eliminate the plate waste fed to pigs and recover from 2020 flooding damage and crop losses. The belief is that China has had a setback in the swine herd recovery recently, but long-term, their goal will be to rebuild the herd. While rebuilding, China has gone from importing 1.0% of their corn use in 2016/17 to importing 8.3% in 2020/21.

Volatility continues to be high in our industry, and 2021 will not be an exception. This industry has a lot of tailwinds today, a big shift from headwinds we faced over the past 12 months or much longer. The opportunity to make some good margins exists, at least for a period of time. Rebuilding working capital and equity is critical for many today. The point is, hog markets are offering opportunities to lock in some profits or protect a floor price with options, and so what is your strategy to protect those profits?