Pork Commentary

 

Jim Long, President-CEO, Genesus inc.

September 19th, 2022

 

June Lean Hogs 2023 Set New Contract Highs

 

Even the trading players in the Lean Hog Futures are starting to realize that lean hogs have an upside in 2023. June hogs have risen from a contract low of 92.85 to a close last Friday of 104.875, a new June 2023 contract high.

 

We believe June and other 2023 months are still undervalued.

 

Why?

 

·         No more hogs in the USA – sow herd smaller than a year ago.

 

·         Less U.S. beef in 2023 – USDA projects 7% less beef in 2023.

 

·         Less hogs in China and Europe – a combined 65% of global hog production.

 

·         Avian flu in Europe and USA – decreasing poultry production.

 

·         Less, less, less. The only way to ration lower supply is higher prices.

 

Our rationale we had $1.20 plus lean hogs this summer. Who would believe June 2023 would only be 104.875 with less global meat protein supplies in 2023? Our thought $1.20 plus is the reality for summer 2023.

 

Pork

 

Was in a retail store last week. Have to say it was upsetting.

 

·         Boneless Loins - $2.25 lb. Advertised as everyday price.

 

·         Lean Ground Beef - $2.95 lb.

 

·         Prime Rib Roast - $17 lb.

 

What a sad testament to our industry as we observed a pile of white loins devoid of marbling. The packer of loins is a proud user of the world’s largest genetic company. The Prime Rib is 8 times the price of loins. It tells us without a doubt what consumers are willing to pay.

 

If we hear one more time that consumers won’t pay for better-tasting pork we will scream. One thing is for sure “The Other White Meat” program successfully created loins that have a lower value than lean ground beef. Job well done. We will continue to fight for our industry to make better-tasting pork. Sometimes seems like pushing a chain uphill but we will keep pushing. It’s how our industry will find a path to higher prices and demand. Prime Rib 8 times the price of Loins – Taste trumps all.

 

China

 

In the first half of 2022, the four largest public swine companies in China lost a combined 18.6 billion RMB ($2.66 billion U.S.) selling 50.98 million pigs. A loss of $52 per head on average.

The losses in the last half of 2021 were quite similar.

 

Let’s assume the four largest public companies losing $52 per head on average are a reflection of the whole industry.

 

Let’s do farmer arithmetic: total China industry losses on 600 million market hogs in the last twelve months. Loss of $52 per head = $30 billion U.S. total loss.

 

When losses mount producers do what’s necessary to cash flow. Zhengbang is one of the four largest producers. In January 2022 they reported the average weight of market hogs was 105 kg (231 lbs.) July 71 kg (156 lbs.). A huge drop of 75 lbs. January to July. When you read reports the reason price of hogs has increased in China because producers are holding hogs back. As if. Producers need cash to survive. Zhengbang weights explain China’s hog slaughter numbers but hog prices are up. It’s not only heads of hogs but tonnes of pork produced that drive price. Lighter carcasses indicate pull-ahead hogs and less in inventory.

 

The Chinese government has announced they were releasing pork reserves to dampen hog prices. Last week China’s hog market averaged 23.72 RMB/kg ($1.53 U.S. lb.). The highest price this year. The mid-March price was 85¢ U.S. lb. On a 270 lb. hog now $413 U.S. per head. March was $229 U.S. per head. An increase of $184 U.S. per head. No reason this can happen but from less pork in the system. The huge losses from last year and the first part of this year have no doubt cut millions of sows.

 

The Chinese government doesn’t want higher pork prices driving inflation. That’s why they are releasing pork reserves. The next option to hold down China's pork prices is increasing pork imports. It’s not if but how fast does China's pork imports increase to a major extent? Market hogs of over $400 U.S. per head leave lots of room for China importers to make money importing pork. Profits and need are great motivators and incentive.

 

genesus.com