After a horrific spring and a scary late summer, hog producers faced better than expected markets in late 2020.
And the set-up for 2021 is looking much better than feared. U.S. hog producers appear to have thinned their herds, and that relieves pressure after years of expansion.
At the end of December, U.S. Department of Agriculture found the U.S. breeding herd was almost one percent smaller than on Sept. 1. U.S. hog producers held back six percent fewer gilts than a year before.
If so, that “probably represents a trend change,” said Tyler Fulton, director of risk management for Hams Marketing agency, which represents many western Canadian independent hog producers.
“The futures definitely represent that.”
Indeed, summer 2021 Chicago lean hogs futures are at about $84 per hundredweight now, compared to $74 for the same 2021 contract last summer. That’s a profitable price for most producers.
Nearby prices of about $68 per cwt. are much better than producers feared a few months ago, especially in mid-summer when prices unexpectedly plunged in a counter-seasonal bear market.
Many worried that if the late third quarter was bad, the fourth quarter — almost always the bottom of the yearly market and sometimes the time of sickening plunges — would be horrific.
However, as much as the third quarter was a surprise in being negative for hog prices, the fourth quarter turned out to be much better than expected.
Instead of plunging, most cash and futures markets prices continued the recovery that began in September and pulled prices well up from the July lows.
Now the futures markets are looking ahead to a U.S. herd that doesn’t look likely to drown the market in pork.
“We think that the reduction in the breeding herd is a much more significant indicator of future supply and it points to the fact that producers may keep the lid on production, be this due to ongoing market uncertainty domestically, uncertain export demand and the effect of higher feed costs,” said the Daily Livestock Report on Dec. 24.
“The lower breeding herd will help to reduce overall farrowings.”
The wild card in the markets today and for the past couple of years remains Chinese demand. Huge Chinese demand for pork imports has sucked pork off of world markets as the country rebuilds and restructures its domestic hog herd.
“China is the story,” said Fulton.
Optimistic stories from Chinese state media suggest China’s hog herd is rebounding faster than expected and that African swine fever is being eradicated quickly. Many non-Chinese observers are skeptical of those claims.
Fulton thinks Chinese demand will remain strong in 2021, and probably beyond, and its ability to pull back from importing large amounts will be incremental.
“It’ll probably be a factor for at least another couple of years,” said Fulton of the ASF-based Chinese demand.
While futures appear to have built-in lower pork supplies from the reduced breeding herd for summer months, that reduced supply might not be obvious for a couple of months.
Many producer herds and packer-owned pig herds have let their pigs grow big, swelling the amount of pork being produced. On average, pigs are 3.5 pounds heavier than the year before.
“There’s no getting around the fact that some very heavy hogs are currently coming to market, further adding to the supply of pork available,” said the Jan. 4 Daily Livestock Report.
However, the number of sub-50 lb. pigs found by USDA in the December report was 1.4 percent lower than a year before.
By summer, markets and many analysts are expecting the supply and demand situation to become more favourable for producers, as long as Chinese demand remains steady.
Fulton said his agency is encouraging farmers to incrementally price their pigs into this market, which most are doing.