Pork Commentary, Sept 10, 2018
Jim Long, President-CEO, Genesus Inc.
Where we at? Some Observations
It doesn’t take a rocket scientist or ag. economist to see that USA-Canada hog market sucks. Losses per head are ranging from $25 to $40 US. With US and Canada hog marketing of up to 2.9 million a week. The losses per week – from $72.5 million US to $115 million, depending on which loss per head you use. It’s not pretty.
When we were in Russia a couple of weeks ago we were asked what profits were like in USA-Canada. When we told them, losses were in the range of $25+ US per head, the first question was “Why do people produce pigs if they can’t make money?” Good question.
Our answer was – It is what happens when you become an exporting nation.
One piece of good news is that US pork cut-outs are just under 70¢ lb. although market hogs are in the 45¢ range. The 70¢ reflects that domestic consumer and export demand is staying ok.
Packers have benefited from the market chaos caused by tariffs and overall panic to sell hogs as the price was dropping every day. US packers’ gross margins are in the range of $40-50 US per head. Once again, good time to be a packer.
An indication of the producer panic is the slaughter weights – we believe producers moved hogs to get ahead of prices that were dropping daily.
Indicator #1 – Iowa-Minnesota slaughter weights
*Average weight has dropped one-pound week over week and 3.2 lbs. lighter then a year ago
Indicator #2 – National Daily Base Lean Hog Carcass
Usually slaughter weights are rising through August. We believe hogs are very current relative to last year.
The trade war with China-Mexico is hurting both US-Canada producers. The tariffs are costing us at least $25 US per head. At some point should get sorted but, in the meantime, it’s really hurting an industry that has successfully created export markets.
US cash early weans averaged $26.16 US each last week, up $3.00 per head from the week before. A major marketer of early weans told us they expect to reach $40.00 US each by the first part of October. For sellers that were getting $15.00 US per head a few weeks ago, something to hope for.
There have been positive moves in the lean hog futures.
In the first part of August – December got down to 44¢ US – Friday, December closed at $56.80 US. That is more than $25 US per head increase.
June 2019 got down to 69¢ in July – Friday, it closed at $80.525 US, again about an $25 US per head jump.
Maybe there’s light at the end of the tunnel, and not a train coming at us.
July Pork Exports were up 1.5% despite tariffs from China and Mexico. The lower prices for US pork helped increase shipments to Korea, Japan etc. That’s the “fun thing “about a commodity, it always moves but at a price. Sometimes, like now, is moves but at a loss.
So far, pork has always found a home at a price, we have never dug holes to buried it. It’s just whether you go broke feeding the world.
Last week the amount of US pork in cold storage at the end of July was announced. Pork was down 2% from the previous month and down 1% from last year. So, despite low hog prices, pork storage levels are not expanding.
- Current losses are terrible, but lean hog futures reflect a believe that there will be rebound.
- Tariffs are hurting – pork still being exported at a price.
- US pork cut-out price and packer gross margin leave room for a rapid price rebound