By: Brian Stevens, President of Big Stone Marketing
We have concluded our first quarter of 2015 and I have to say there wasn’t much to write home about as it relates to our pork markets. Experts predicted that we’d see pork supplies grow 1%, but the reality was our supplies soared and caught everyone off guard. Federally Inspected Slaughter for the first quarter was 28.52 million head which was up 5.85% over last year. Not that this isn’t bad enough, but for the last 4 weeks we have seen over a 10% increase in hog numbers! While carcass weights have been coming down we still averaged above 2014 at 214.9 lbs. up .6% for all hogs and barrows and gilts were 212.67 lbs. up .75%. So when you combine slaughter with weights total pork production for the quarter was 6.68 billion lbs. up an astounding 6.5% from 2014! No one expected to see these huge numbers and unfortunately the market reacted. It is truly hard to fathom that we could have hogs at $130 / carcass cwt last summer and now we are under $60.
At the same time Pork Exports for January and February were 725 million lbs. which was down 15.9% from the same time year ago. The West coast port labor dispute definitely contributed to our poor export performance since roughly 50% of our pork exports go out of the West coast. Perhaps more concerning about this situation is that countries like Japan purchased pork from others like the EU and Canada during our slowdown and so now let’s hope we can get that business back. Just to give you an idea how important the overall export business is you only have to look at what has happened to the pork drop credit values where we have lost $13/head or down 45% since last July. Exports are extremely important because they purchase many of our by-product items and this adds significant dollars to our carcass value so it hurts when we lose that opportunity.
We can’t blame the entire export situation on the West Coast port issue however, since the value of the U.S. dollar has strengthened significantly versus other country’s currencies since the middle of last year. This has made U.S. pork not as attractive to foreign buyers since they literally don’t get as much bang for their buck and this is reflected with now 8 straight months of exporting less than 400 million lbs. of pork which we had been doing on a fairly regular monthly basis before. With that said now we have hog prices at such a low level that buyers should have plenty of incentive to purchase our products as they are a real value now. The old adage of “low prices cure low prices” rings true at times like this.
So what does it all mean and what will the markets do from here? There is no doubt the number one issue weighing on the markets is simply too much supply. Well my opinion is that much of the unexpected supply was a result of several key things. The first is that many producers I’ve talked to overbred expecting PEDv to be a major issue again like it was last year and that just didn’t happen so the result is many more pigs coming through their finishers. Then add in that PEDv has been nothing like last year with the number of infected farms way down and the farms that have gotten it have reported much lower death loss. The combined result is many more market hogs available for sure through the summer months compared to last year. The other major factor is that with the drop in the markets the economics have signaled for lighter weights and so we’ve seen both producer and packer owned carcass weights trending lower (about 3 lbs.) since the first of the year. This would certainly indicate that we’ve pulled some hogs ahead and should result in less market ready hogs sometime soon. So I’m optimistic that the low is in and we’ll see some seasonal strength as we head into May and summer time frame. With that said it appears we are still going to have significantly more hogs than last year for the remainder of the year so look for forward pricing opportunities as the markets move up. While we have many uncertainties in this business the one thing you can count on is volatility in the markets so take advantage when the opportunities present themselves.
For questions, call Brian Stevens at Big Stone Marketing at 507.825.7011.