This past week we saw a major adjustment down on the Lean Hog Futures Market. Summer futures declined about $7.00. A drop of about $14.00 per head.
Our Observations
Cash lean hogs gained about $3 on the week with Iowa - S. Minnesota averaging $105.84 last Friday. A reflection of continued good demand relative to supply.
U.S.D.A. Pork Cut-outs stayed strong closing Friday at $112.09. A reflection of continued good demand relative to supply.
U.S.D.A. cash 40 lb. feeder pigs averaged $101.31 last week. A year ago they were $15 each. No one pays more than they have to.
Then we get to Lean Hog Futures. If you like Las Vegas with no rules, you should like Lean Hog Futures.
Let’s consider the insanity of July Lean Hogs, they closed at $99.70 Friday. Last week Friday hog’s Iowa - S. Minnesota were $105.84 lb. So are we to believe July hogs are going to be $6 lower ($12 per head) than April?
Not sure anytime in the history of U.S. hog markets April was higher than July, let alone $6 lower.
Hog supply will be less in July than now, it’s seasonal. Lean Hogs will not be lower priced in July than they are now.
Pork Demand is affected by other options i.e. Beef and Chicken.
Last Friday choice Beef Cut-outs closed at $276.05 (up from $225 a couple months ago), over $150 higher than Pork.
Last week the National Composite Chicken Price was $99.95- In March it averaged $86.68 and a year ago it was $50.
Prices have increased significantly for not only Pork, but Chicken and Beef.
Strong Demand for all indicates it’s not a Pork one-off. This is a real bull market in meat and poultry.
U.S.D.A has been chasing its tail on Projected Pork Production for months. Like the Chicken Littles, they were predicting more Pork in 2021 than 2020. As if? Now Abracadabra, U.S.D.A. has revised 2021 Pork Production down 400 million lbs. from March in their April guess for 2021. Now prediction has Pork production lower in 2021 than 2020. U.S.D.A- welcome to the Party. Better late than never!
Hog Supply
There is in our opinion next to no new sow units under construction.
We have been in the business for a long time. We sell swine Genetics and have several salespeople spread across the USA, their job - to sell gilts. We need to pay attention where there are new sow units. Our observation- never seen such a low level of sow barn construction. This in itself will limit more pigs in the future.
Why no sow barns? Our Thoughts?
The Industry hasn’t had any real significant profits for 6 years. Then we had last year which was train wreck.
Banks not really interested and some looking for 45% equity to finance. Question; if you were to invest $10 million in new sow barn, would you put $4.5 million in as equity? The answer is out there, not anything happening.
Other points limiting new sow barns- high feed prices, labour issues, many families next generation are having a hard time seeing a future when there has been little swine profits. Nicer to drive a fancy tractor and work hard 16 weeks a year versus the 365 days a year obligation of a sow farm.
Last Friday U.S. Pork Cut-Outs
Some things are obvious but sometimes we don’t see the forest for the trees. Last week Pork Cut-Outs tell us a story.
It doesn’t take an Ag-Economist to recognise the highest valued products have the most fat or marbling. Consumers vote with their money and it’s driven by taste. 20 plus years ago Loins and Hams were of higher value than Ribs and Bellies. Then we decided on “The Other White Meat” program that pushed to leanness and we destroyed the taste and flavor in both loins and hams.
It should be studied in a Case Study at Harvard on how stupid a plan it was, branding to a cheaper product, Chicken, and then destroying the value of half the pigs' carcass.
We live for the day that we as an industry realize the missed opportunity. Produce Pork that tastes better, chase Beef not Chicken. It’s obvious in the Pork Cut-outs there is enhanced value that will increase our industries profitability. We need to think more like marketers than farmers.
Yevgen Shatokhin, Genesus Official Representative in Ukraine and Kazakhstan:
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+380 (50) 444 2633 |
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shatokhinyevgen@gmail.com |
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genesus.com |
