Margins deteriorated over the first half of August as hog prices declined while the feed markets held steady. While hog futures appear to have stabilized and possibly found a near-term floor, there remains concern over demand moving forward with pork production continuing to trend above year-ago levels.
Last week, hog slaughter was 2.372 million head, just slightly above the same week in 2023, although the prior week’s production of 2.455 million head was 4.6% above a year ago and well above expectations for the last week of July. In addition to actual slaughter, weights of producer-owned hogs are also up 2% from last year, adding to total pork production and are expected to move higher over the next few weeks due to cheaper feed costs.
USDA increased their forecasted yield and production for new-crop corn in the August WASDE report, and producers are still holding on to significant old-crop stocks ahead of harvest, which may further depress cash corn prices heading into harvest. Export demand has been a saving grace for the industry, although there are headwinds on the horizon.
Recent dollar strength against the Mexican Peso has been a concern since Mexico, as our top market, represents 36% of total U.S. pork exports. Year-to-date (YTD) through June, U.S. pork exports are up 3% from 2023 at 3.6 billion pounds, with exports to Mexico up 4% to 1.3 billion pounds. During the same period, U.S. pork exports to other key destinations—Japan, Canada, and China—have declined 3%, 3%, and 37%, respectively. Pork exports from Brazil to Japan have increased 123% from 2023, while U.S. exports were down 4%. Meanwhile, exports to China/Hong Kong have increased 4%, even though their total imports from all destinations are down 40% YTD. Brazil is also starting to export more pork to Mexico.
Our clients have added new coverage in deferred marketing periods recently to protect against potential margin deterioration.
The Hog Margin calculation assumes that 73 lbs of soybean meal and 5.3 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $44 per cwt for other feed and non-feed expenses.
Hog Margin Watch reports are provided by CIH. Click here to see CIH Hog Services.
