54 Story Idea? Contact Paul.Nolan@Farms.com Better Pork | June 2024 MORE BEARISH NEWS FOR HOG PRODUCERS ... But Chinese pork demand remains the ‘wildcard.’ By Moe Agostino & Abhinesh Gopal On the supply side, the fundamentals remain positive as the United States (U.S.) herd has shrunk more than the U.S. Department of Agriculture (USDA) is preaching to us. For the third consecutive quarter, the USDA has continued to overestimate supplies forecasting a +2.9 per cent more supply versus 2023. The latest USDA March 1 quarterly Hogs and Pigs report suggested more of the same – a smaller breeding herd but continuing to be offset by higher productivity gains. However, year-to-date pork production is up only 0.2 per cent as U.S. hog weights are lower at 289 vs. last year at 292 pounds. The average loss of U.S. $30/head for a straight 18 months means less pork, not more! The latest data on PigCHAMP (owned by Farms.com) indicates the U.S. sow mortality is at record 15.82 per cent, up from 10.73 per cent in 2017 and 8.36 per cent in 2013. Aggressive breeding herd liquidation is believed to have been underway since at least the second quarter of 2023 as sow slaughter levels were elevated for much of last year and into early 2024. Despite the bearish USDA hog news, managed money funds have continued to go long (buy) hog futures (up 13 per cent thus far in 2023) as they near a record long position at 97,952 contracts and one of the best performing ag commodities versus the grains. U.S. pork exports remain the bright spot with a surge in December of 2023 contributing to a record-breaking year. January was up six per cent versus last year, with Mexico leading the way, accounting for 40 per cent of the total shipments, and western hemisphere nations accounting for over half of U.S. pork exports in January. U.S. domestic demand with a strong U.S. economy also is very price supportive. U.S. wholesale pork demand is expected to be supported by high relative retail prices of pork substitutes like beef and chicken, generally high grocery prices in domestic markets, and European exporters become less of a presence, particularly in Asian markets due to lower European Union (E.U.) pork production and higher prices. According to Ontario Pork, the province exported about two-thirds of the pork produced in 2023 to about 51 global destinations and countries. The U.S. continues to be Ontario’s main trading partner and that is unlikely to change any time soon, but major Asian buyers like South Korea, Japan, Philippines, and Vietnam remain potential growth markets. In 2023, Ontario marketed 5.5 million hogs and was instrumental in creating $3.5 billion in economic output. Despite high inflation and feed costs, continued supply chain issues, and packer capacity constraints, Ontario Pork is optimistic about the inherent advantages in the province and the strong global demand. Chinese pork demand remains the “wildcard” as they have been missing in action during the sharp climb to new record U.S. exports in 2023 and early 2024. But they could add to the U.S. export gains during the rest of 2024 as their herd continues to shrink from continued African swine fever outbreaks. As of mid-April, the CME U.S. Lean Hogs Cash Index has surged over 38.5 per cent since the start of the year and was trading above $90 per hundredweight at the start of the second quarter, signaling strong U.S. packer demand for slaughter hogs. Cutout values during mid-April were above $100 per hundredweight, which compares to about $85 per hundredweight at the start of the year. Hog values have a habit of being higher in the second and third quarters. Consolidation in the North American hog/pork industry continues to be a major story as small and scattered production is all brought under concentrated management. Since the latter part of the first quarter of 2024, average hog producer margins have turned positive. The delay in producer expansion, lower feed costs and strong export and domestic demand should continue to support hog futures and cash in 2024. BP Moe’s Market Minute MOE AGOSTINO & ABHINESH GOPAL Maurizio (“Moe”) is chief commodity strategist with Farms.com Risk Management and Abhinesh is head of commodity research. Domestic demand should support hog futures and cash in 2024. ahirao - stock.adobe.com photo
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