COVID-19 is the issue when it comes to the global hog market right now, John Payne, author of The Swine Times, told AgDay TV host Clinton Griffiths.
“Obviously, the U.S. is moving past its problems, at least we hope we are. But in the case of China, it’s obviously going through major spikes across most of the country. We haven’t seen Beijing locked down yet, but I would imagine that’s coming,” Payne says.
How does that work with the processing margins there?
“We’ve heard that they’re going to be buying for state reserves here as far as frozen pork supplies go from the U.S., so I think prices are somewhat steady. The problem for us is on the buy side – how do you justify paying a $15 premium on June?” Payne says.
Manage Risk
As well, there’s no question that high gasoline prices are weighing on food demand, especially protein, as well.
“Packer margins are there. I think you’ll see these guys continue to participate. But in the long run, I wonder if we’ve got a wreck coming, especially in October,” Payne says. “Look at October as a way to hedge it.”
He thinks if the industry gets above three figures for October contract, that’s where he would look at some sort of government protection just in case there’s a big resurgence of COVID-19.
“You’ve got to manage that risk somehow, especially at prices where they are,” he says.
Grain Prices Pressure Livestock Producers
Grain prices are putting a lot of pressure on livestock producers right now, Payne says.
“When you have higher prices at the back end of it, it helps,” he says. “I think from a hedge perspective, if you sell hogs, you’re buying corn. So, when you look at the corn markets rallying really strong, you’re probably going to see hogs limit down, at least that’s what we saw this week when we were really strong on corn.”
He says it’s a difficult thing for him to tell people to go out and buy physical right now.
“I think you have to use the curve, in the way that the producers would have used the curve two or three years ago,” Payne says. “You have got to price ahead to get the best price. Same on the buy side.”
Listen to the full interview on AgDay TV.
