How’s the best way to describe the current hog market, including supply and consumer demand? It’s complicated.
Experts Dave Delaney and Billy Polovin with Partners for Production Agricultures by Ever.ag, confirmed the complexity of the hog market and dissect the challenges seen in 2023 in a recent AgriTalk conversation.
“When is the supply going to catch up?,” Polovin says. “We’ve been running a lot larger as far as bills go than anyone, I think, has expected for at least the first five months of this year.”
The demand right now is not terrible, he adds, it’s just worse than 2021 and 2022. But when you put that on top of supply, it all turns into the scenario that we’ve seen with prices.
It could be a matter of the fact that we have reverted to a more normal demand, with a little bit better production, Polovin explains.
However, as host Chip Flory notes, we can’t single out pork. “It’s beef. It’s poultry. It’s the consumers pocketbook and the inability to spend as much on protein as what they have in the past.”
Recalling a recent conversation, Delaney says, “We’re starting to see a shift. Sometimes we’ll see shifts from beef to pork to chicken within the protein case, but right now we’re seeing them shift out of the protein case to the pasta aisle, and that’s driven by economics.”
Polovin adds that while this year’s demand is not that much different that what is considered average, the supply issue should be the focus.
Also on AgriTalk, Flory notes, “The [daily] slaughter levels just continue to come in bigger than what the trade was expecting because USDA underestimated the number of slaughter hogs market hogs in the system back to back and maybe back to back to back.”
Don Roose, president of U.S. Commodities, Inc., agrees there is a challenge in hog inventory reporting with only four reports each year. Additionally, he says the liquidation phase has hit the industry, which will impact inventory.
“I don’t ever recall where we see the liquidation phase, which we’re in and usually affects some medium and small guys, but we’ve had the large guys liquidating, which was really a shock for me,” Roose adds. “I don’t know if it was just the economics of it, or Prop 12. I think it was a little bit of everything. But you know, what we’re seeing from the producers is that they’re trying to hunker down. Look at the future, looks like we have better times ahead with liquidation.”
Along with liquidation, Delaney believes producers are going to drop their weights drastically to try to lower costs.
Hog Markets and Risk Management
Considering the structure of the futures markets, Polovin says, “The way the market was holding on to a premium for such a long time, it was trying to predict that things were going to be better ahead. As fundamentalists, we try and predict what the future actually is going to be and how we can use that futures structure to in the idea of risk management.”
In the wake of some decisions, including California’s Proposition 12, the market released the premiums, he adds.
“Now, we have to start here and look at the futures market and say, ‘what’s the next move,’ ‘where are the fundamentals heading,’ and ‘are there going to be a lot more weaknesses coming at us?’ If so, the futures are still giving you opportunity. And we have to see, ‘does that opportunity make sense for us to be in the futures market?’ What are the other tools that we can use to say, we need to have some protection to the downside? And I think that’s where we’re at right now with the futures market,” Polovin explains.
Polovin notes how the decision making process is extremely important when numbers get tight. Depending on the situation, establishing floor coverage or other insurance-type coverage that leaves the producer with very little upside risk may be a great option, he says.
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