Pork Commentary – January 12, 2015- US Hog Market Lowest in Nearly Two Years!

Pork Commentary

Jim Long President – CEO Genesus Inc.

info@genesus.com

January 12, 2015

US Hog Market Lowest in Nearly Two Years!

Last week the US Lean Hog Market for 53 – 54% hogs was 77.50 /lb. a year ago it was 81. We are now trading hogs at the lowest prices in nearly two years. The lean hog price has come down $40 plus per head in the last three months.

In the meantime, Packer margins appear to be non–existent. The bloom has come off the rose? The best year ever, The Year of The Pig Farmer – 2014 has come to an end. We are back to a grinding commodity business where margins are slim, where productivity and cost management will be the difference as Darwinian capitalism rears again in what is truly a commodity business.

National Direct Feeder Pigs

The US cash price for early wean pigs last week averaged $66.81 ($50–78) down $10 per head from the week before. Cash 40 lb. feeder pigs averaged $84.76 (71–92) last week down $2.00 from the previous week. To get a push higher for small pigs we need stronger lean futures – lower feed costs or both! The next couple of weeks could be key to the direction of the small pig market. Prospects the EU Agricultural Markets and Income 2014 – 2024 The European Commission just published their market thoughts for agriculture over the next ten years.

Some highlights:
  • EU has about twice the Pig Production of North America.
  • Marginal increase in EU pork production over the next ten years of 2%. Lower per capital consumption but increased exports.
  • Environmental concerns, animal welfare rules, and charges in consumption patterns are among the factors limiting the expansion of pig meat production in the EU.
  • Global demand for pork will remain strong, but grow at a slower rate than seen in the previous decade (1.7% rather than 4.1% per year). It is expected to reach 8.7 million tonnes by 2014. A large part of this growth will be in China, with the proportion of total world pork imports doubling from 2014 – 2024 (from 10% to 20%), equivalent to almost 1 million tonnes of additional imports.
  • 1 million tonnes of additional pork imports projected to China using 100 kg carcass equivalency would be 22 million market hogs. The 8.7 million tonnes imported around the world is approaching about 200 million market hogs.
  • Hog prices over the next ten years for EU are projected 1.46 Euros per kilo (78₵ US per pound) to 2.360 Euros a kilo ($1.26 US a pound) due to uncertainties related to the Macroeconomic environment. The ten year prices will in the most part be stronger due to overall world demand increasing.
Projections are just that, but if the EU commission is correct, hog prices should be reasonable over the next decade. They recognize the huge opportunity that is pork to China.

Exchange Rate

A challenge the US pork industry has is the rapid rise of the US dollar compared to many currencies making pork more expensive to import. The US dollar index measures the performance of the US dollar against a basket of currencies. Euro, Japanese Yen, Great Britain Pound, Canadian Dollar, Swiss Franc, and Swedish Krona. The US index has gone from 80 in mid-summer 2014, to 92 last Friday making all US products (pork) a higher cost to purchase whether pork, corn, soybeans, beef, etc. this factor can lead to lower demand and lower domestic prices.

Summary

US cash hogs are trading at a level the lowest in nearly two years. The US dollar value increase is making all exports including pork more expensive for importers. The EU Commission expects Global Pork Trade to continue and China’s pork import needs to continue to grow.
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This post was written by Genesus