The top in lean hog futures occurred roughly in tandem with the expiration of the June lean hog contract in the middle of June. While the bullish fundamental of tight hog supplies and sharply lower hog weights remains intact, bearish forces have emerged and encouraged the selling. Bearish forces at play include the expectation that exports are beginning to slow, pushback by consumers and retailers to rapidly rising prices, the competition of food service re-stocking and the recent court ruling that allows the new inspection rules to go into effect forcing packers to slow the chain speed. Another bearish force at work is Prop 12 out of California dictating that only pork raised under “their specified conditions” be allowed to enter the state. As ridiculous as this seems, the weak lobby effort on behalf of the nation’s pork producers has allowed this to become law. Worse yet, the industry has failed to comply to the specs. So, starting January 1, 2022, the state of California will be mostly without any pork available to residents of the state and the rest of the nation will have 15% more pork to absorb. Painfully, the U.S. producer will bear the burden.
The victory by the trade unions in forcing the slowing of the chain speed, in effect, reduces the capacity of the industry by around 3-5%. Producers should all work together and keep contraction of the herd intact, reducing total tonnage and preventing the supply of hogs from ever exceeding capacity. Let the U.S. consumer pay the bill of the union victory.
The trade union deal is totally out of the control of all U.S. hog producers. The Prop 12 rule is not totally out of the producer’s control. The industry could confirm and meet the standards. Thus far, however, I’m not aware of any concentrated effort to do so. The rise and fall of exports is also completely out of control of hog producers. The weather is also out of anyone’s control. Did you ever get the sick feeling that you have very little control of your future?
So, now that the spaceship ride is complete, it’s time to make a concerted effort at controlling those variables which you can control. Have you locked in feed costs for a large portion of your needs for the rest of 2021? Assuming the board is profitable, are you preparing to lock in profits for a portion of your production for the remainder of the year? How about other input costs such as propane, fuel, etc. Lock them up.
I’m anticipating a seasonal high timing into the middle of July. The tops are likely already in place. However, a secondary rally may occur into the high timing, allowing the educated producer to lock in profits. Need help? Feel free to contact me.
Finally, the situation around the world remains highly uncertain. African swine fever continues to spread in China. However, according to the Chinese, they’ve been highly successful in re-building, very rapidly, their hog herd. Lower hog and pork prices would tend to confirm this information provided by the Chinese government. However, things are not always as they appear, especially when dealing with the Chinese.
What are the odds that they’ve mastered this disease in as little as two years? While not in the news recently, be aware that ASF continues to spread in Europe. This situation is not finished; it’s not run its course. If it’s ever detected in a commercial herd in Germany, a major disruption will occur. On Thursday, July 1, rumors surfaced of a possible case of ASF on U.S. soil. It was never confirmed. Extreme uncertainty merits hedging. Let someone else assume the risk.
Source: Dennis Smith, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.