Out of the Trough: U.S. Hog Prices Make a Significant Recovery

Spend Matters welcomes this guest post from Michael Liberty, market analyst at Mintec.

U.S. hog prices reached seven-year lows in October 2016, but since then the market has bounced back, and we’ve seen a significant price recovery. Prices at the start of 2017 were trading around 46% higher than two months ago. So the question is: why have prices risen so drastically?

Prices reached the bottom of the pricing trough in October 2016, due primarily to an increase in the size of the domestic pig herd, which was up 3% year-on-year in September at 71.3 million head.

The decline in pork prices forced several U.S. producers to cut productions costs and increase slaughter rates in order to maintain their margins. One of the major cost cuts was to animal feed, which resulted in a decrease in slaughter weights, at a time where pigs typically start fattening seasonally. Hog slaughtering rose 5% year-on-year between September and November, averaging 2.4 million head a week. This continued into December, with slaughtering reaching an all-time high in the week ending December 16, up 20% year-on-year at just over 2.6 million.

However, speculation that high slaughter levels would catch up with the market and hamper future production started to weigh on producers’ minds. This resulted in the climbing hog future prices from October 2016, with speculation further fuelled by declining slaughter weights, alongside strong export demand.

Pork exports from the US reached a record high for the month of November, up 17% year-on-year to 173,700 tons, as prices remained low comparative to other major exporters, including the EU. Tight domestic supply and rising prices in the EU saw U.S. exports to Japan increase by 23% year-on-year, to 36,300 tons in November. In addition, strong demand from Mexico has also driven the surge in US exports, a result of outbreaks of the Porcine Epidemic Diarrhoea Virus (PEDV).

Looking further into January 2017, it appears increased slaughtering is likely to continue. The size of the US pig herd was up 4% year-on-year at 71.5 million in December, as producers in Illinois and Missouri increased sow numbers by 10% year-on-year, adding a combined 90,000 sows. This is expected to bring a further 10,000 hogs to slaughter each week throughout January.

For now, the market appears to be relatively optimistic as pork consumption is set to increase over the Super Bowl weekend. However, with so many factors at play, the U.S. market now leaves itself in an exciting position.

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