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Hog futures are trading mostly lower. Early-market support has slowly eroded through the morning with April contracts the only contract holding gains at midday. The remainder of the complex has started to back away from previous gains despite early-morning support. Deferred contracts have been hit the hardest. The emotional support that has driven the market aggressively higher is starting to fade, allowing traders to assess realistic fundamental moves over the near future.
Cash hog bids in early trade are called $1 to $3 higher; most bids are expected to be $1 to $2 per cwt higher. Prices are higher on the National and on the Iowa Minnesota morning reports. The morning cutout value is also higher.
The Canadian Dollar is trading lower against the US dollar at midday.
For Monday, Mar 25, the Western Hog Exchange Olymel 17 base price is $1.638/kg dressed and the Olymel 19 base price is $1.551/kg dressed. This is Kerrie Simpson reporting from the Western Hog Exchange.
Things to Consider….
The last 2 weeks have been nothing short of astonishing with most lean hog futures sky rocketing to their highest-level dating back to 2014, nearly 5 years ago. In just 2 short weeks the August lean hog contract has gained $20.00 US per cwt contributing nearly $50 Canadian per hog to the bottom line of producers across the country. On March 8th, Aug traded to a session low of $79.00 and today broke $100 reaching a daily high of $102.97 US per cwt.
There is no question that the fuel behind this fire is centered around Chinese ASF, pork production and the potential for US and NA pork exports in the weeks, months and year ahead. However, many uncertainties exist as the market attempts to navigate through this uncharted territory. To date China’s pork imports from the US have been slightly higher than previous years and are gaining volumes week by week but so far nothing on paper from the export side justifies the current rally. It is the anticipation however that exports will rise tremendously resulting in higher valued pork products abroad.
In a recently released report China’s pork production is estimated at 16% lower than it was a year ago with many suggesting that in 2019, Chinese pork production could drop as much as 20%. To put the current volume decline in context, a 16% decline in Chinese production is equivalent to 1.5X the total US annual production. It is astonishing just how much pork has been displaced which will continue into 2019, but for it to benefit Canada and US markets long-term we need to be able to supply the product. To date the EU, and Brazil have been the key suppliers of pork to China with Canada and the US representing 3rd and 4th spots shipping roughly 13-14% each of China’s imports. North American markets will need to grab market share beyond history is prices are going to maintain current levels or higher prices projected for the summer.
In regards to hedging, any previously placed forward contracts should be considered sound risk management decisions. With the new information available, producers should have some coverage in place, (max 50%) and remain open on the remainder (for now) to try and capture the benefits of what appears to be a record year for pricing.
March 19, 2019
Weekly Hog Price Recap
Cash hog pricing, particularly regional and national, managed significant increases throughout the week on good moderate cash bid volume. Regional cash was up $1.50-$1.85/cwt daily except Friday which surged $2.50/cwt. CME cash began the week more modestly, rising more each day as the week wore on. Wholesale pork primals reported good strength throughout most of the week, strengthening pork cutout $4.34/cwt over the previous week's average.
Monitored Canadian markets improved $3.50-$10/hog higher, with those based off regional pricing up the most from a week earlier. The WHE 17 jumped $10.25/hog, while the ML Sig 5 rose closer to $9/hog. The WHE 19 rose more than $5.50/hog, and pricing out of Ontario & Hylife both improved $5/hog. ML Sig 4 and Hams were each up near $3.50/hog. Remaining Canadian markets were up less than $2/hog. In the US, Tyson values were up $1/hog while values out of JM improved the most on the week - up $13/hog.
Weekly Hog Margins
Hog margins recovered some of their amassed weakness for the first time since mid-January, with monitored Canadian margins improving $1.50 to $9.75/hog from last week. Farrow-to-finish feed costs for Canadian markets rose near $0.50/hog while those in the US weakened a modest $0.35/hog.
Hog margins out of the WHE 17 strengthened $9.75/hog, followed by margins out of the Sig 5 which improved $8.50/hog. The WHE 19 margins strengthened $5/hog, followed closely by those out of Ontario and Hylife. Sig 4 margins were up $3/hog and those out of Quebec improved $1.50/hog. In the US, Tyson margins rose $1.85/hog while JM hog margins surged near $13/hog.
US Regional Margins
- Tyson $(17.99) USD X 1.3357 = $(24.03) in Canadian Dollars
- Morrell $(13.11) USD X 1.3357 = $(17.51) in Canadian Dollars
Disclaimer: Commodity Professionals Inc. presents this report as a snapshot of the market using current information available at the time of the report. These findings are for informational purposes only and should not be reproduced or transmitted by any means without permission. Commodity Professionals Inc. does not guarantee, and accepts no legal liability arising from or connected to, the accuracy, reliability, or completeness of any material contained in the publication.
Bob Fraser – Sales & Service, Genesus Ontario bfraser@genesus.com
Stats Canada January 1st semi-annual Hog & Pig Report places the Canadian sow herd at 1.24 million head. That places the Canadian herd as basically flat for approaching a decade now. Or you can make an argument that it is slowly bleeding to death by a thousand pin pricks as it approaches the inventory of two decades ago, after a peak of just shy of 1.6 million sows in the first quarter of 2005. (see graph)
A decline approaching a quarter of the sow herd. Granted productivity gains have lessened the overall production drain but still not exactly an encouraging picture.
There is a variety of reasons for this some known perhaps some unknown, but the result is a weakened infrastructure, much in need of replacement. The bulk of the new “good” barns are from the hay day at the turn of the millennium when the industry grew to its peak. Those barns are now drawing onto twenty years old, with the bulk of everything else south of that. Most could use some serious refurbishing where some should probably just go away. Lack of finishing space at least in Ontario seems chronic as I am asked constantly if I know of any space. I think many producers would agree that there is much space presently in use that might be better retired.
However, replacement of capital assets, takes just that capital (and as Jim Long would add courage). Something that has been lacking in this industry of late. For the last while margins have charitably been thin and spotty. Olymel, both Canada’s largest pork processor and pork producer reports in 2018 fiscal year both it’s eastern and western hog production divisions suffered losses bigger than the previous fiscal year. Whereas their eastern fresh pork sector saw positive results second only to 2017 that was their best year ever. The western fresh pork sector had excellent results for the third consecutive year. This would be consistent with most of the other Canadian packers and US packers for that matter in enjoying unheard of margins for three or four years now.
Although unless fully integrated a capitalist pork system struggles to figure out how to perhaps better share the margins and this isn’t without consequence. Kevin Grier in his Canadian Pork Market Report suggests the Maple Leaf Foods plant in Brandon Manitoba 4th quarter 2018 kill to be 70-72,000 weekly against an 80,000 plus capacity. Olymel in Red Deer Alberta running less than 35,000 weekly against 45,000 (single shift) capacity. This doesn’t really work, a pork plant like a finishing barn’s per head costs soar when operating under capacity. So, the question becomes who is going to blink first. The apparent easy solution to the need for more hogs certainly in producers’ eyes is just pay more. However, to date this seems to have only shuffled the deck chairs from one plant to the other, with no more hogs. Without a solution it would seem a plant is vulnerable to closure.
Conestoga Meats (3Ps) in Ontario as the only producer owned packing plant in Canada appears to be a better solution integrating up rather than down. It prices off the meat, leaving the plant always with a positive margin, with the rest going to the producer. This at least for the last three to four years has left the Conestoga shareholder/producers well pleased or certainly more so than other producers in the province. However not sure that there is any convincing evidence that it has given them enough margin for more capital investment than other producers. The Ontario sow herd like Canada’s has basically been flat for a number of years. There is no breakdown of inventory contraction or expansion by packer but at least yet doesn’t appear to be any evidence that Conestoga producers have expanded while the rest have contracted but at least keeping the herd stable.
Canada has long punched above its weight in the pork export market but in the end to remain competitive usually requires capital and profitability throughout the chain. That has clearly been lacking. Where is that likely to come from? Which brings us to China. My entire career has been filled with stories of how Canada’s (North America’s) agriculture salvation would come from feeding China. China has and continues to have some opposing views on how it is going to feed itself. Food for all countries has a different dynamic than just importing running shoes or electronics wherever they happen to be cheapest. ASF seems like it may significantly change the game perhaps permanently and Canada (North America) become permanent, significant long-term suppliers of pork to China. For most if not all producers here it can’t come soon enough. Without it hard to see how this industry doesn’t continue to see it’s slow decline by a thousand pin pricks.
Bob Hunsberger, Wallenstein Feeds, Hog Economics Summary Sheet shows continued little encouragement from eight weeks ago, with further erosion in profitability. Present producer profit projection per pig with average production is (-$34.07). However, a bottom appears in with average profit production for the next twelve months projected at $20.98
P.S. Thursday March 7 – April Lean Hog Futures $57.725 – August Lean hog futures $78.825 – USDA cutout $63.180 – Friday March 15 - April Lean Hog Futures $68.800 – August Lean hog futures $89.750 - USDA cutout $67.35 Perhaps the cavalry is showing up just in the nick of time! Let’s hope so.
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