Pork Commentary

 

Jim Long, President-CEO, Genesus Inc.

 April 5th, 2021

 

Hog Price Momentum Continues

 

Our Observations

 

·         U.S.D.A. Pork Cut-outs last Friday were $1.09 - a very strong price for the beginning of April.

·         Iowa- Southern Minnesota Lean Hogs averaged 99.47 last Friday.

 

Don’t forget the Chicken Littles last August that encouraged selling 2021 summer lean hogs as 75₵ lb.? We understand that 40-50% of the U.S. industry have taken positions lower than today’s market with many going to miss the profit upside.

 

U.S. Pork Export Sales at 61,000 metric tonnes was the second-highest on record. China at 29,710 was the highest since September. Mexico continued strong at 15,790 metric tonnes. China exports will continue strong.

 

The second ASF wave has impacted China's hog supply by 20-50% (No one knows for sure). The Canary in the Coal Mine for China is piglet prices at more than 1800 RMB ($273.94) per head up from 995 RMB ($125) last November.

 

“No one pays more than they have to”.

 

Mexico, we expect has cut hog production due to the economic turmoil of 2020. There is no government support such as CFAP in Mexico. Now high feed prices in Mexico and general lack of credit will limit recovery. We expect Mexico imports to continue strong through 2021.

 

We reiterate our expectation the U.S.D.A. March 1 Hogs and Pigs Report over estimates the breeding herd and market inventory. Time will tell but it will be difficult in the coming weeks to measure year over year slaughter data because of last year’s chaos. The one way will be to compare the slaughter weights. Last year as plant disrupted slaughter declined weights ballooned.

 

U.S. Sow slaughter numbers continue high over 67,000 in the latest week, the week before 71,000. We calculate about 61,000 is herd equilibrium when you consider the average U.S. sow mortality was an atrocious plus 13% last year. You need lots of gilts going in to maintain the sow herd.

 

In Europe hog prices have also gotten stronger. Spain is the largest producer in Europe and its largest exporter. On Jan 28th, Spains' price was 1.10 Euro kg live (60.33₵ lb. U.S.). On April 1st, 1.46 Euro kg live (77.66₵ lb. U.S.) Obviously the price increase in USA is not a unique situation.

 

World supply and demand is pushing prices higher.

 

The current Spanish price is close to all-time high. Spain has been doing well but tough environmental rules and attitudes are limiting expansion. The breeding herd in 2019 was 2,577,000, in 2020 - 2,575,000. No change. The environmental rules will be hard for Spain to increase production significantly despite the industry's success.

 

China

 

Below is an opinion from China. Their survey of colleagues throughout China.

 

The unofficial survey is that the recent resurgence is very serious and actually worse than the 2019 outbreak when 50% of production was lost.

 

Contacts are saying in their estimations more than half the hogs lost again- quite a setback. Of course no one really knows, but says losses well under reported.

 

Expects pig prices in second half of 2021 to sky rocket even higher once the glut to slaughter (ASF dump) dries up.

 

Consequences of China in Our Opinion

 

·         U.S. hog prices to continue strong with fall lean hog futures currently undervalued.

·         The loss of 7-15 million sows doesn’t get fixed overnight.

·         China Pork Export Sales (huge last report) will stay high pulling Pork out of U.S. domestic market while U.S. pork supply has shrunk. Pushing lean hog prices to stay high.

·         The financial implications of the loss of production in China will have some real consequences on some of Chinas hog producers. Debt + no pigs + no revenue = problems

·         In China there will be winners and losers. If you can keep your hogs alive you make big money. If you can’t might be disaster.

 

It will be interesting where the capital will come from to rebuild after second wave. For bankers and investors what is cost premium to own hogs that have history of huge death toll and an unclear future re potential third wave?

 

genesus.com