We have been writing for several months about the huge financial losses in the swine sector of China. China slaughters about 12 million market hogs a week, losses of $30 per head average over the last 18 months is in all likelihood low. At 12 million head a week the loss per week $360 million over 18 months it would be about 27 billion U.S. dollars. The China government estimates sow inventory is down 7% year over year, near 3 million less sows.
When you have less sows, you have less pigs. In January piglets in China were in the 20’s U.S. dollars. Last week China piglet prices hit 700 RMB or $100 U.S. dollars each. Estimated current breakeven to produce a piglet is 450 RMB or $65. We always work on basis no one pays more than they have too, $20 to $100 is a true reflection of supply collapse.
The current piglet sales are on pigs bred 5-months ago. Keep in mind the China sow herd has declined steadily in the same time period. There is more than a good chance pig production will decline even further.
As China hog market supply craters over the next few months the higher prices will pull pork from all exporting countries supporting each country’s domestic prices. The dog is going to hit the end of the chain.
Iowa State University (ISU) for decades has calculated the estimated returns to farrow to finish in Iowa.
Last month (March) ISU estimated per head loss at $9.82. They’re estimated breakeven price 87.80¢ lb. lean. The Iowa State data indicated there has been losses in 18 of the last 19 months. We had similar number of months in losses in 2008-09 but no month in time period exceed $30 per month. The loss average the recent last 18 months has averaged $30 plus. It’s been as long but deeper.
Last week U.S. Daily price was 91¢ lb. If ISU breakeven is a good indicator (87.80) the industry has creeped into profitable territory. We need it the industry has created an equity hole of 200 million pigs (18 months) times $30 equals $6 billion. A 3,000 sow unit 18 months times 25 pigs per sow 112,000 pigs times $30 = $3.3 million loss. A true reflection of Darwinian capitalism.
U.S. sow slaughter continues to run year over year higher with sow mortality at record levels.
U.S. Packer Margin usually erodes in the late spring – summer months. U.S. pork cut-outs were $1.00 lb. Friday – Hog prices average 91¢ – estimated packer gross margin 9¢ lb. We will need to push Pork cut ups higher to get appreciable gain in hog price. Choice Beef cut-outs still at a lofty $2.95 lb. which is triple Pork. This should be supportive Pork. Our challenge continues to be consumer reluctance to pay more for Pork.
The Ham is 18% of liveweight. The Loin 16% of liveweight. By far the highest percentage of the carcass. It’s obvious Loins and Hams languish in price to Rib, Belly, Butt. All three products with obviously more marbling which contributes to a better tasting eating experience. With 34% of the live pig Ham – Loin it is simple economics getting more value for these cuts would enhance the value of a market hog. At Genesus we are seeing higher prices for our better tasting pork in domestic and international markets. Not only more money but greater demand for a superior product. Taste for consumer should not be a niche. All consumers appreciate better taste. Beef cut-outs $2.95 lb. Pork cut-outs $1.00 lb. We need to emulate Beef and be the other Red Meat. We see in carcass now with Ribs, Belly and Butts at least 40¢ lb. wholesale over Loins and Hams. Move Hams and Loins to range of Ribs, Belly and Butts. Jump hog prices $20 per head? Farmer Arithmetic more money is a good idea. Taste matters.
