Pork fundamentals are bullish

If prices do indeed move higher into summer, hog producers need to be prepared to use the board actively to hedge future production.

Dennis Smith

April 1, 2024

3 Min Read
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I consider the just released Hogs and Pigs Report neutral. However, a neutral report, a report that is not bearish, in the face of a rising demand situation, must be considered a bullish report. The report confirmed that liquidation of U.S. breeding stock remains in force.

Breeding numbers are down 130,000 from one year ago. What happened over the last year is that all the least efficient sows have been culled, resulting in a huge jump in pigs saved per litter. The report just issued shows that pigs per litter is up 5% from last year.

There are two things to realize at this moment. First, the cull continues and it likely will continue for several more months. Second, I suspect the rapid rise in pigs saved per litter will soon hit a wall.

The market hog supply is projected to remain stable going into summer, perhaps up a half percentage point from last year. This projection matches up closely with year-to-date slaughter trends. The Y-T-D slaughter is up .5% from last year through the first quarter. Producers are current in their marketings. They’ve been pulling hogs ahead to the extent that packers are complaining about short loads coming in. We also have clear evidence that packers are warning truckers that far fewer loads are going to be available down the road.

Many in the industry, including me, believe that the USDA is likely underestimating the degree of the cull. If correct, it means fewer hogs will be available for slaughter in the second quarter than expected.

On the other side of the equation, demand, the evidence is overwhelming that there has been an increase in demand for U.S. pork. Cash hog prices have appreciated 80% since January first. The value of the hog carcass is up $8.56 since Jan. 1, or up 10%. Compared to this time last year the hog carcass is up 18%.

U.S. pork exports are up 6% to 7% so far this year and rising. Frozen pork stocks, approaching the summer drawdown season, are tight and in some cases extremely tight. Total frozen pork stocks, as of March 1, are down 12% from last year. Ham stocks are down 18%, bellies are down 10%, loin stocks are down 4%, ribs stocks are down 24%, butts are down 23% and pork trimmings are down 9%.

Mexico has become our most important export market. They buy mostly hams. The ham primal makes up a large percent of the hog carcass and ham prices are highly correlated with hog prices. In other words, if ham prices are moving higher then hog prices are moving higher.

The hog carcass value peaked last year in early summer just above $114.00. This year, barring some unforeseen negative event, I’m projecting that the hog carcass will appreciate toward $120 by early summer with potential to move even higher. Current summer hog futures contracts are priced just above $100. Look for a substantial rally in lean hog futures prices into early summer.

If prices do indeed move higher into summer, hog producers need to be prepared to use the board actively to hedge future production, especially for next winter. Why do I say this when the U.S. is culling the herd? Because of the potential political hazards.

Be aware that Mexico has become a vital part of U.S. pork exports. Mexico (almost all hams) is currently responsible for 40% of total exports. They import close to 10% of total U.S. production. If Trump is elected president in November, there is likely to be trade wars develop with tariffs tossed around like stones. If he picks a fight with Mexico and they slap a retaliatory tariff on U.S. hams, like they did in 2018, hog prices will drop hard and fast. Currently it appears highly likely that Trump will indeed win the election. Be warned.

Dennis Smith publishes his widely followed evening livestock wire daily. For a free 30-day look at this information please send an email request to [email protected].

About the Author(s)

Dennis Smith

Archer Financial Services Inc.

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