Lean Hogs Dec '24 (HEZ24)

Description

Hogs are generally bred twice a year in a continuous cycle designed to provide a steady flow of production. The gestation period for hogs is 3-1/2 months, and the average litter size is nine pigs. The pigs are weaned at 3-4 weeks of age. The pigs are then fed to maximize weight gain. The feed consists primarily of grains such as corn, barley, milo, oats, and wheat. Protein is added from oilseed meals. Hogs typically gain 3.1 pounds per pound of feed. The time from birth to slaughter is typically six months. Hogs are ready for slaughter at about 254 pounds, producing a dressed carcass weight of around 190 pounds and an average 88.6 pounds of lean meat. The lean meat consists of 21% ham, 20% loin, 14% belly, 3% spareribs, 7% Boston butt roast and blade steaks, and 10% picnic, with the remaining 25% going into jowl, lean trim, fat, miscellaneous cuts, and trimmings. Futures on lean hogs are traded at the CME Group. The futures contract is settled in cash based on the CME Lean Hog Index price, meaning that no physical delivery of hogs occurs. The CME Lean Hog Index is based on the 2-day average net price of slaughtered hogs at the average lean percentage level.

Prices - CME lean hog futures prices (Barchart.com symbol HE) in early 2023 traded sideways to lower and fell to a 2-year low of 71.50 cents per pound in April. Hog prices were under pressure as robust Chinese production of pork reduced China's demand for imported US pork. China's Q1 pork output rose +1.9% y/y to 15.9 million tons, the highest level in five years. Reduced US pork exports boosted domestic supplies as the USDA's June cold storage report showed stocks of pork in US cold storage as of May 1, 2023, rose +6.3% yr/yr to a 3-year high of 567.4 million pounds. Hog prices then trended higher and posted a 1-1/2 year high of 104.95 cents per pound in July. A drought in the Midwest boosted corn prices, which increased feed costs and squeezed profits for hog producers as operating margins for pork processors fell to a 1-1/2 year low in June. The shrinking profits forced them to reduce production as the Q2 USDA Hogs & Pigs Inventory report showed the US hog herd on June 1 fell to a 1-1/2 year low of 73.551 million hogs. US domestic pork demand also increased, prompting the USDA to raise its US 2023 pork consumption estimates in July. However, hog prices tumbled and sank to a 3-year low of 65.40 cents per pound in October. An increase in hog supplies weighed on prices after the Q3 USDA Hogs & Pigs Inventory report showed the US hog herd on September 1 unexpectedly rose +1.1% y/y to a 3-year high of 75.323 million hogs. Hog prices ended 2023 down sharply by -22.5% yr/yr at 67.975 cents per pound.

Supply - The number of hogs on world farms as of January 1, 2024, fell by -4.0% yr/yr to 746.961 million head. The number of hogs in the US as of January 1, 2024, remained unchanged yr/yr to 74.971 million head. The countries with the largest number of hogs as of January 1, 2024, were China with 56.7% of the world's hogs, the European Union with 17.9%, the US with 10.0%, and Brazil with 4.4%.

Demand - The federally-inspected hog slaughter in the US in 2022 rose by +2.1% yr/yr to 127.333 million head.

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