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North Mountain Ag Services

WEEKLY UPDATE APRIL 20, 2015

NORTH MOUNTAIN AG SERVICES WEEKLY UPDATE

April 20, 2015

Will Hog Producers Lock in 2015 Profits?

Hog producer profitability has been a popular topic that past week as the onset of warmer weather points to grilling season and much-anticipated increases in pork prices.  With a historically strong market in 2014, and speculation concerning industry expansion in 2015, it is worth taking a moment to think about targets for covering 2015 fourth quarter market hogs.

As in every conversation we have in regards to hedging livestock, we want to start by taking a look at input costs.  Grain stock numbers tell us that with current stocks, this year will likely require planting of corn to be on time with fair weather conditions to keep end users on track to purchase fall 2015 corn below $4 per bushel.  While soybean planting intentions are not necessarily as high as some of us anticipated, the logistical picture for this year looks very much improved over 2014.  Commitments on railcars have increased significantly in the US, and basis is expected to reflect the improvement.

Factoring in these assumptions on grains, it is now time for hog producers to take the opportunity to begin covering hog marketing in September and October of this year with the October 15 lean hog contract.  Currently trading at $70.82, the opportunity to begin locking in $1.38/live cwt in profit exists for client base.  With the December 15 lean hog contract trading at $67.87, our clients now have the opportunity to begin locking in break-even prices for November and December marketing intentions.

With US export opportunities currently looking bleak, we are advising producers to cover market risk in the anticipation of cash hog prices being at risk to drop from current levels by $6 to $8 per carcass cwt by the end of the calendar year.  Combining export concerns with current US live hog expansion, it will be important to also focus on the first quarter of 2016 when the May and June 2015 lean hog contracts expire and investors begin to roll positions.

It will be critical this summer for hog producers to focus on historical profitability expectations and not fall victim to unrealistic cash hog price expectations.  While risk managers has gotten used to covering lean hogs at contract prices over $90, it is important to focus on managing exposure to an environment of soft global pork demand and increasing domestic inventory.

 

As always, please call us for specific pricing targets that maximize your opportunities to protect and manage profit margin.

  • Brian Yingling

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