Margins recovered over the first half of June as higher hog prices more than offset the impact from rising feed costs. The hog futures market has been supported by a sharp, seasonal rise in National Negotiated cash hog prices along with a complimentary strengthening in pork cutout prices. Both series seasonally peak in mid-June to mid-July, so there could be further strength in the market although tight packer margins, particularly for vertically integrated operations are worrisome if demand begins to wane. Much of the recent increase in the pork cutout has been tied to the belly primal as we move into the peak period for demand, and pork grilling features should be prominent over the 4th of July holiday due to competitive pricing relative to beef and poultry. USDA’s ERS released April export data which showed pork shipments increased 10% from 2022, with gains led by China, Taiwan, South Korea and Mexico. This is the fifth straight month of year-over-year gains in pork exports as U.S. product is competitively priced in the global market. Traders are eagerly awaiting the month- end Hogs & Pigs report for direction on the breeding herd and farrowing intentions given the extreme margin pressure the industry is currently under. While feed costs have come down, they are beginning to rise again as drought concerns grow across the Midwest. New- crop corn futures have surged 70 cents off recent lows while soybean meal prices are up about $20 since the beginning of the month. Our
clients have been scaling into increased protection with the recent margin recovery, especially further out on the curve, with flexible strategies to allow for continued improvement in forward profitability.
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.