Pork Commentary – US Expansion Hog Gycle is Still Alive

Pork Commentary

Jim Long President – CEO Genesus Inc.

info@genesus.com

December 29, 2014

US Expansion Hog Cycle is Still Alive

What does the most profitable year in US swine production ever lead to? Simple answer – Expansion! The US breeding herd on December 1st was up 4% versus a year ago according to the December 1st USDA Hogs and Pigs Report. What is startling is we do not believe real aggressive sow herd expansion has started yet. The new sow units planned for 2015 will give the breeding herd another jolt higher. Total Market Hog numbers are up 2% year over year (plus 900,000), while the pig crop September – November increased 4% (plus 1.1 million head). All indications point to more pigs. Every time in history the hog cycle has been true. Profits lead to more pigs. More pigs lead to financial losses, which leads to liquidation, which then leads to profits. It is the circle of life for hog producers. Every time there is down part of cycle, we end up with less producers and consolidation. Darwinism capitalism. We expect at some point the higher the high will lead to lower the low. Good time to pay down debt, load up on cash and get ready, it’s not if, but when all hell will break loose! Where’s the Expansion?
State Breeding Herd Expansion State Breeding Herd Expansion State Breeding Herd Expansion
Iowa +40,000 Missouri +45,000 North Carolina +10,000
Indiana +10,000 Minnesota +10,000 Oklahoma +20,000
Kansas +10,000 Nebraska +15,000 Texas +20,000
  Obviously Iowa, Missouri, Texas, and Oklahoma are leading the way in expansion with a combined 135,000. Almost zero expansion in the Eastern Corn Belt. No doubt expansion is west of the Mississippi. What Can Save Us From Ourselves?
  1. PED – if there are large PED breaks this winter it could lead to fewer hogs in the summer and fall which would cut supply and strengthen hog prices.
  2. China – the massive liquidation of 6 million sows in China the last twelve months could very likely lead to significant pork exports from US – Canada which in turn would support hog prices.
  3. Beef Supply – good chance US beef supply could be the smallest in recent memory next year. Less beef that will also be extremely expensive will support hog prices.
These three points could give support in 2015. If we expand the sow herd throughout 2015 the hog numbers that might come in 2016 could be daunting. If that’s the case, we will need a Hail Mary in 2016.  
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This post was written by Genesus