Pork Commentary, Aug. 13, 2018
Jim Long President – CEO Genesus Inc.
USDA Projects Record Corn Yield
Last Friday the USDA came out with a yield prediction of 178.4 bushels per acre. If this is correct it will be a record yield. After the announcement corn fell 11.5 cents per bushel on the CME. DTN’s National Cash Corn Index closed at $3.38 a bushel. USDA estimates 14.586 billion bushels for 2018 crop year.
The USDA also projects a record high soybean crop of 4.586 billion bushels, based on a higher then expected yield of 51.6 bushels an acre. DTN’s cash soybean index closed at $8.23 a bushel, just off the nine-year low.
Certainly the hog price sucks and right now there isn’t much if any good news for pork producers. One small positive it seems to us is there will be no price surge in feed costs in the next few months. If misery loves company grain farmers and swine producers have much in common, neither is making much if any money.
Pork cut outs and hog prices have been in free fall. It was good last week to see U.S. Pork cut outs mostly hold – last week 71.07 week before 72.62. Pork cut outs have to hold to gain any strength in the hog market.
Unfortunately the hog price declined from 67¢ to 60¢ over the same time frame. Packer Gross Margin improved significantly over the last week.
In Canada the hog price tracks close to the U.S. (usually lower). Canadian Pork has no tariffs to China or Mexico. This benefits Canadian Gross Packer Margins. Robert Hunsberger a Canadian market analyst is estimating Packer Gross Margin at $43.42/hog. The saying in adversity there is opportunity comes to mind.
In mid June CME December Hogs were 60.625 they closed Friday at 47.475. It’s been since mid June the China – Mexico tariffs have hit the market. The drop of 13¢ lb. is about $25-28 per head. We believe hogs today and on the futures would be $25 a head higher if there were no tariffs.
Compared to the U.S.hog price both Mexican and Chinese producers are receiving close to $100 more U.S. a hog. With no tariffs on U.S. pork the price gap would narrow.
U.S. Pork Exports were higher in June then the year before. The trouble isn’t that Mexico and China aren’t buying product. The trouble is the tariffs are coming off the price of hogs to get it done.
For hog producers in USA and Canada the trade issues and tariffs are taking a terrible toll. If the market is $25 per head lower then it would be if no tariffs its pushing $125-150 million a week in loss income for producers. The U.S. government has promised financial aid to U.S. producers. So far no details. In Canada nothing from the government. The Canadian government seems to care mostly about protecting in all trade talks the Dairy and Poultry industries who are afraid of global competition. The Canadian Pork Industry, which has managed to be globally competitive, is left on its own to suffer.
Its above our pay grade to understand global trade but so far much of what’s happening is hurting U.S. – Canada swine producers.