From farm to fork
Long-term U.S. pork outlook
By Dennis Smith
The USDA supply/demand report issued Monday, Sept. 12 spells trouble for livestock producers around the globe. The U.S. corn yield declined substantially from the previous month. In addition, the USDA revised downward harvested acreage by 1 million acres.
The projected corn crop is pegged at only 13.944 billion bushels. Ending stock projections of 1.2 billion are expected to be revised downward in the months ahead.
This report strongly suggests that U.S. corn prices will remain elevated for at least six months if not longer.
However, the United States is not the only corn producer facing a short crop this year.
A severe drought in Europe has really hurt their corn crop. Drought in Mexico has limited their corn production and China has faced both drought and flooding in production areas this growing season.
Contraction in hog numbers is expected to continue in Europe. While aggressive contraction may not occur in the United States, elevated feed prices should assure that zero expansion will occur and most likely some contraction may occur.
This leaves a bullish backdrop for hog prices that will possibly be enhanced greatly depending on what develops in China. The Chinese government is telling us that pork production will not suffer due to high feed prices and severe losses incurred over the last 12 to 18 months.
This is highly debatable. Pig prices in China continued to edge higher and into new recent highs with the latest quote at 23.2 RMB/KG.
My sources are telling me that if/when Chinese pig prices reach 25 RMB/KG, the Chinese will begin importing large quantities of pork. Remember that Chinese corn prices, recently quoted at $10.33/bushel, represents the cost of feed for more than half of the hogs in the entire world.
The losses incurred by the large Chinese producers over the last year have been staggering. I’m expecting ramped up Chinese pork imports to be clear and impacting U.S. hog prices by the end of this year.
The USDA projects lower pork production this year compared to 2021 but slightly higher production next year. Again, considering the elevated structure of feed prices, I suspect production next year will decline relative to this year.
Pork exports have been awful this year mostly due to a severe cutback in exports to China. The USDA is projecting slightly larger exports for next year and substantially lower pork imports.
Total pork available to the U.S. consumer will decline next year. I’m projecting strong to very strong hog prices into the spring and summer of 2023.
In other news, HPAI outbreaks have been reported since Aug. 1 and they’re increasing. HPAI is currently responsible for record high turkey prices. Another bad winter of HPAI could severely impact the availability of poultry to the U.S. consumer. This would be very supportive to pork prices.
In addition, beef prices are expected to soar higher in 2023. In this environment, it’s difficult to imagine pork prices and pig prices declining substantially.
The Supreme Court will hear the California Proposition 12 case on October 12. A ruling on the case is not expected until sometime next year. I’m expecting the court to rule that Prop 12 is unconstitutional. This is a major issue for the pork industry. California consumes nearly 10% of all U.S. pork.
In the face of a huge stock market rout on Tuesday, Sept. 13, lean hog futures closed sharply higher. The strong performance was led by the front month October with this contract settling above moving average resistance, confirming a seasonal low. The driving force proved to be a sharply higher cash hog market, quoted up $10.00/cwt.
The slaughter pace appears to be running lower than expected which is surprising given that processing margins have shifted from unprofitable to profitable. Confirmation of any change or development in the export market was not available as of Sept. 14.
Regardless, the strong technical action should confirm a rally in lean hog futures into the next seasonal high timing. This high timing could come in as early as late November or as late as early March. Smith publishes his evening livestock wire daily for clients and subscribers. For a free 30-day trial that also includes a morning livestock report and midday pork and beef update, contact him via email.
Smith is with Archer Financial Services, Inc. and has been a full service commodity broker specializing in grain and livestock trading for over 25 years. Contact him here.
