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Expected summer highs are slipping

Pig price in USA - Iowa/Minnesota - Carcass 2015-2017
Pig price in USA - Iowa/Minnesota - Carcass 2015-2017

Much in the summer will depend on the opening of the increased market capacity (as two major new plants swing open) and the industry reacts to it.

Tuesday 4 April 2017 (3 months 16 days ago)
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U.S. pig producers are wary but optimistic as the latest USDA survey of US hogs and pigs inventory indicates huge increases from last year (up 4% in overall inventory) but down a percent from the last quarter of 2016 when crushing supplies took prices to loss levels. Productivity gains in the sow herd reached a record national average level of 10.43 pigs per weaned litter. On the smallest operations it averaged 8 pigs per litter. The total breeding herd inventory came in just above 6 million head. With population increases of about one per cent per year, these increased productivity gains keep the domestic market largely balanced with respect to supply and demand. It is the export markets that are the primary drivers of how the year will unfold and once again there is a mixed outlook.

The situation with JBS Brazil and many other Brazilian processors which involved alleged bribes to sanitary inspectors to allow meat to pass to markets that should have been condemned, has resulted in a large scale temporary shutdown by JBS of its beef facilities in Brazil. This has been done to investigate the issue and to normalize supply and demand, and is restoring confidence in export markets. Many of Brazil’s export markets closed due to the scandal but several already have reopened under new assurances. The US import opportunity remained open with testing increased to 100% of product shipped and surveillance by USDA was increased in Brazil to ensure no contaminated or spoiled meat enters the country. Depending on the length of the crisis and if new negative information is forthcoming, this could provide US exporters with opportunities, at least temporarily.

News out of Mexico is increasingly problematic but no one knows for sure if its posturing for negotiation position or whether it is real. The Trump administration has ruffled the feathers of many key constituencies and opinion setters within Mexico. The main archdiocese of the Catholic Church in Mexico is warning potential Mexican construction company bidders (for the proposed border wall) that to participate in its construction or to supply building materials would be “an affront to human dignity” and make the participant a “traitor” to their nation. The secular government is taking a little more sober and realistic view (except for the very emotional past president of Mexico who regularly slings profanity laced diatribes at President Trump). The current president of Mexico is working many channels to find a normalized footing with the new US administration as final announcements of a desire to place bids for construction of the wall were due last week.

The reaction in Mexico has resulted in much discussion regarding a “Plan B” if both the wall is built and the North American Free Trade Agreement (NAFTA) is scrapped or substantially renegotiated. There is some talk in Mexico once again of serious production expansion (by double digits) but these things tend to be dreamed about when key long term prerequisites, like the availability of feed grains at low cost are present (such as now). Since Mexico would need to import much of the feed grains to fuel a major expansion, when current prices give way to dramatic, temporary price increases due to weather or other changing conditions, the return of production to the lowest cost production areas of the world, such as the US and Canada will inevitably occur.

This is the time of the year when hog prices are expected to slump a bit. This happens several weeks ahead of the Easter holiday when the ham purchasing by processors is completed. That is underway now but seems to be a little more severe than normal, and the summer top price expectation has been sliding slowly down to match. The additional downward pressure on prices is because pork bellies and bacon have plummeted from their first quarter highs retracing about 30% of the run up we saw in January. That pretty much puts the belly primal back to where it was prior to the run up. The carcass cutout is dropping pretty dramatically and the current national hog price sits at 82% of the cutout and is likely to see more weakness in the short term. Much in the summer will depend on the opening of the increased market capacity (as two major new plants swing open) and the industry reacts to it. Holding on to some optimism but well aware that new bottoms for the year could be tested if Mexico trade is severely disrupted.

Swine markets commentaries

Unbeatable expectations04-May-2017 2 months 16 days ago

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