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July U.S. Cattle Inventory — Jim Long

Monday, 31 July 2023

Jim Long Pork Commentary – July 24, 2023

Last Friday the USDA released its semi-annual cattle inventory. Beef is one of Pork’s major competitors. Last week the price of Beef cut-outs at $3.02 lb. vs. Pork cut-outs at $1.15 lb. clearly demonstrates consumer preference as they vote with their money. The amount of cattle (Beef) supply clearly has a major influence on Pork prices.Jim Long Pork Commentary – July 17, 2023.

It’s obvious to see the ongoing erosion over the last five years of both the number of cattle and cows (near 7%). This despite robust cattle prices but a reflection of ongoing drought in some areas cutting pasture and then compounded by high feed prices. It appears to us that this year’s cow inventory down 700,000 from a year ago is continuing the trend. Year to date U.S. Beef Production is down 4.7%. Year to date U.S. Pork Production up 0.3%.

Europe

In the first quarter this year European Pork Production is down 8%. Hog slaughter was down 4.7 million head (over 350,000 a week less) in the quarter from a year ago. The decline is across almost all countries Spain -9%, Germany -8%, Denmark -14%. As usual as supplies decline from financial losses hog prices go higher. Most of Europe currently has record hog prices. Recent data from Germany indicates sow herd liquidation continues.

Indications are Europe Pork Exports down 15% while the USA up 8% year to date. U.S. hog price is currently about $50-60 per head less than Europe. Go figure foreign pork buyers going to cheaper source of pork. Arbitrage.

China

China is the world’s largest hog producer and pork importer. It amazes us that the hog prices in China continues to be in an area of $40-50 per head loss. Our calculation China producers have been losing significant money for 20 of the last 24 months. This reality can be seen in the financial returns of the 19 publicly trades Pig companies whom over that time that have lost in aggregate several billion U.S. dollars. At the same time ASF continues to cut production. It’s not if but when the losses of the last two years lead to a rapid price increase in China. At that point the pull for imported pork will support hog prices in other countries. Our thought – sooner would be better than later, the dog hits the end of the chain.

USA

We believe the U.S. sow herd is getting smaller. Sow liquidation and lack of gilt retention is cutting the breeding herd. Producer capital reserves are severely challenged. Even though lean hog prices at over $1.00 per lb. currently are significantly better than they have been, the reality of lean hog futures of October 84¢, December 76¢, February 81¢ unfortunately indicate the possibility of losses of $30-40 per head this fall and winter. There is no optimism in this market. The price of cash isoweans of $10 reflect the grim market reality. Being usually optimistic (probably to a fault) we expect prices to be better than current futures reflect. Why? We expect fewer hogs year over year, continued low beef production, stable to lower chicken production, higher pork exports. We also believe it will rain (why not). This will lead to a record U.S. corn crop, lower feed costs and cost of pork production. “We see the manure pile, maybe there is a Pony inside.”

The hog industry has not been built by pessimists.

Last week a major 240-page analysis was released in regard to the World Swine Genetic Business. The report is by Research Cognizance New York, New York. Genesus is identified as one of the Top Players in what is titled Global Animal Breeding Service Market Research Report 2023-2030. It’s nice to be recognized as one of the Global Top Breeding Companies. Of note only Genesus is based in North America of the top five identified companies.