The U.S. hog market situation is currently very bullish. Futures prices are in triple digits, with the June 21 lean hog contract trading at $112.85 on 05/09/2021. That is 56% higher than this time last year. The Hog prices are so high that a common joke is that hog futures prices are in a race trying to catch live cattle prices. With prices at these levels, many ask the questions such as “How did we get here?” “How long will these prices last”? and “How can I take advantage of these high prices?”. This article will be an overview of the hog situation. It will address how lean hog prices have done the climb to the enormous triple-digit summit we are at today, how long they will stick around, and what this means to South Carolina pork producers.
- Cutout
Lean hog futures prices are not the only contracts seeing these high prices. Rising cutout values and tighter supplies in the United States and Europe are the primary culprits driving hog prices. Figure 1., Illustrates the climb that cutout and primal cuts have seen (Livestock Marketing Information Center 2021). Since the Chicago Mercantile Exchange (CME) released the new Pork Cutout Index contract on November 9, 2020, the May 21 pork cutout contract has risen 37% from $80.34 to $110.425. USDA’s National Pork Report designed the cash-settled pork cutout contract to represent wholesale prices paid for pork cutout. The Pork Index, calculated using a 5-business day moving weighted average of pork prices, is complementary to the existing lean hog futures. This contract has added another piece of visibility to the pork industry encouraging natural market competition.
Figure 1. Pork Cutout Value (LMIC 2021)
- Production
USDA NASS released the most recent Hogs and Pigs report on March 1. This report indicated that the U.S. breeding herd was 6.215 million head, tighter than expected and only 16% of the FAS reported beginning stocks. (LMIC 2021). Although FAS predicts global production to increase by 4.9% to 101.5 million MT CWE, global pork exports are forecast to decrease by 0.5% to 11.5 million metric tonnes (Livestock Marketing Information Center 2021).
Pork production has been on the decline in South Carolina since 2016. Production has decreased from 49,924,000 Lbs. to 40,077,000 Lbs. in 2019. That is a total decrease of 9,847,000 Lbs. and nearly 20% since 2016. Overall production in the United States has increased 13% since 2016.
- Global market & China
China is commonly in the pork production spotlight along with many agricultural commodities. China, known for being responsible for half of the world’s hog population, is responsible for much of the 15.1% increase in global swine ending stocks. Global ending stocks are currently forecast at 752.5 million head according to USDA Foreign Agriculture Services (FAS). FAS forecasts that China will be responsible for as much as 54% of the 2021 global hog population. As China’s herd continues to rebuild, we can expect their pork imports to fall. FAS forecasts that even with China’s herd rebuilding, they will still import an estimated 4.9 million metric tons carcass weight equivalent (MT CWE) of pork. Figure 2 Illustrates U.S. exports of pork muscle cuts. The blue line indicates exports to China, while the red line indicates total U.S. exports. Taking a closer look, U.S. total exports and exports to China are much more significant than last year. According to the Livestock Marketing Information Center, March U.S. beef and pork exports are the largest single month on record with solid gains to all the largest buyers of U.S. meat products. The change in exports includes improvements to Japan, Mexico, and the Caribbean and pullback from China. Overall, U.S. pork exports increased 4%, even though China came in 10% below this time last year (Livestock Marketing Information Center 2021).
Figure 2. U.S. Exports of Pork Muscle Cuts (LMIC 2021)
- Summary
Most pork producers in South Carolina are contract producers. Lean hog futures in the triple digits are looking to provide contract producers with more profitable price floors for 2021.
Many factors are contributing to the current situation with lean hog prices and cutouts at astoundingly high levels. ASF decimated the global breeding herd, more importantly, China’s herd, which claims over half of the world’s breeding hog population. Supplies will be tight while China and Europe rebuild their herds. As a result, the U.S. will continue to be a desirable source of pork for other countries. The affects of hog liquidation during the pandemic are becoming apparent in tighter U.S. hog supplies. The domestic market shows high demand for primal cuts like ribs and bellies, which is helping the cutout value. Production supply is shrinking just as demand is beginning to increase. These factors should provide producers with a very bright future for 2021.
References
Livestock Market Information Center, 2021. Livestock Monitor, “Beef and Pork Surge in March.” 05/07/2021. Retrieved from: https://lmic.info/.
Livestock Marketing Information Center, 2021. “Hog-Prices-Weekly”. 05/03/2021. Retrieved from: https://lmic.info/members-only/Graphs/Hogs.
Livestock Market Information Center, 2021. Livestock Monitor, “MARCH 1 HOGS & PIGS REPORT”. 04/09/2021. Retrieved from: https://lmic.info/system/files/memberonlyfiles/monitor/mon040921.pdf.
United States Department of Agriculture, Foreign Agricultural Service, 2021. Livestock and Products Semi-annual. Retrieved from: https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Livestock%20and%20Products%20Semi-annual_Brasilia_Brazil_02-15-2020.
Submitted by Bernt Nelson, Agribusiness Agent, Clemson Extension
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