Despite the bearish USDA hog news, managed money funds have continued to go long (buy) hog futures (up 13 percent thus far in 2023) as they near a record-long position at 97,952 contracts and one of the best-performing agricultural commodities versus grains.
US pork exports remain the bright spot, with a surge in December 2023 contributing to a record-breaking year. January was up six percent versus last year, with Mexico leading the way, accounting for 40 percent of the total shipments, and western-hemisphere nations accounting for over half of US pork exports in January.
US domestic demand, with a strong American economy, is also very price-supportive. US wholesale pork demand is expected to be supported by high relative retail prices of pork substitutes like beef and chicken, generally high grocery prices in domestic markets, and European exporters becoming less of a presence, particularly in Asian markets, due to lower European Union (EU) pork production and higher prices.
According to Ontario Pork, the province exported about two-thirds of the pork produced in 2023 to about 51 global destinations and countries. The US continues to be Ontario’s main trading partner, and that is unlikely to change any time soon, but major Asian buyers like South Korea, Japan, the Philippines, and Vietnam remain potential growth markets.
In 2023, Ontario marketed 5.5 million hogs and was instrumental in creating CDN$3.5 billion in economic output. Despite high inflation and feed costs, continued supply chain issues, and packer capacity constraints, Ontario Pork is optimistic about the inherent advantages in the province and the strong global demand.
Chinese pork demand remains the "wildcard,” as it has been missing in action during the sharp climb to new record US exports in 2023 and early 2024. But they could add to the US export gains during the rest of 2024 as their herd continues to shrink from continued African swine fever outbreaks.
As of mid-April, the CME Group’s US Lean Hogs Cash Index has surged over 38.5 percent since the start of the year and was trading above $90 per hundredweight at the start of the second quarter, signalling strong US packer demand for slaughter hogs. Cutout values during mid-April were above $100 per hundredweight, which compares to about $85 per hundredweight at the start of the year.
Hog values have a habit of being higher in the second and third quarters.
Consolidation in the North American hog and pork industry continues to be a major story, as small and scattered production is all brought under concentrated management.
Since the latter part of the first quarter of 2024, average hog producer margins have turned positive. The delay in producer expansion, lower feed costs, and strong export and domestic demand should continue to support hog futures and cash in 2024.