Pork Commentary June 30 2014 – Bullish Hogs and Pigs Report

Pork Commentary

Jim Long President – CEO Genesus Inc.

info@genesus.com

June 30, 2014

Bullish Hogs and Pigs Report

Last Friday the US Swine Industry was gifted with the USDA June 1st Hogs and Pigs Report. Bottom line: 3 million less pigs in inventory year over year and a breeding herd smaller than the same time a year ago. This all but guarantees farrow to finish profit margins for the next year of over $60 per head. The very best twelve months in the history of the US hog industry.

The USDA Facts

June 1 Inventory (1,000 Head) 2013 2014 2014 as a % of 2013
All hogs & pigs 65,188 62,128 95
Kept for breeding 5,884 5,855 100
Market 59,304 56,273 95
Market Hogs and Pigs by Weight Groups 2013 2014 2014 as a % of 2013
Under 50 pounds 19,315 17,999 94
50 – 119 pounds 17,078 16,071 94
120 – 179 pounds 12,414 11,931 96
1880 pounds and over 10,678 10,271 96
Pig crop (1000 Head) 2012 2013 2014 2014 as a % of 2012 2014 as a % of 2013
Dec – Feb 28,038 28,099 27,316 97 97
Mar – May 29,780 28,921 27,361 92 95
Dec – May 57,818 57,020 54,677 95 96
Pigs per litter 2012 2013 2014 2014 as a % of 2012 2014 as a % of 2013
Dec – Feb 9.97 10.08 9.53 96 95
Mar – May 10.09 10.31 9.78 97 95
Dec – May 10.03 10.19 9.65 96 95

 

Our Observations

  • Despite record per hog profits in the last 3 months the US breeding herd has not expanded. June 1st breeding inventory was 4,000 head higher than on March 1st and 29,000 lower than a year ago. Treading water. We believe PED challenges and the need to replenish lost equity has been a damper on expansion. We expect to see sow herd expansion beginning in the fall of 2014.
  • There is no doubt PED has had a major effect on mortality. The 3 million fewer market hogs in inventory are directly attributable to the PED mortality. In the coming half a year we expect at least 100,000 fewer market hogs a week year over year. The current strength in lean hog futures through the fall and early winter are sustainable with upside at the production levels.
  • The market inventory of under 50 pound pigs on June 1st of 6% fewer year over year clearly indicates PED had not slowed down in April – May time frame when the June 1st inventory under 50 pound pigs were born. If PED continues at that level through the summer and fall, summer 2015 market hog prices will be the same or higher as this year. The bizarre reality is PED has made the US swine industry massive levels of profit by restricting hog supply.
  • Pigs per litter for the six months Dec – May this year 9.65, last year 10.19. That’s a half pig per litter, and the PED effect.
  • Market experts? Whatever that means? Expected a significant increase in the breeding herd. We didn’t think there was. In our previous report we wrote that next to no new sow buildings were being built. We don’t believe we can get significant expansion without new sow buildings. We sell breeding stock it’s our business to find new barns and existing empty sow barns being restocked. We are stocking two empty barns currently, a total of 6,000 sows. We know of 3 other empty sow units being restocked by competitors currently. It’s happening but these are in both USA and Canada and in the big picture not a lot breeding animals in the total inventory.

Summary

No expansion, 3 million less market hogs. Throw in 6% less US beef and the red meat sector is restricting supply. We expect hog prices to reflect margins of over $60 per head average for the next twelve months. On the first week of January we called 2014 – The Year of the Pig Farmer. Looks like The Year of the Pig Farmer is not only 2014 but half of 2015. Pay some bills, put some money away, awe all know that there is a huge cycle.
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This post was written by Genesus