In the latest edition of the Hog Talk podcast from Ever.Ag Insights, we chat with Taylor Coughlin, Director of Commercial Proteins on Ever.Ag’s livestock team. 

Learn more about movement in lean hog prices, international and domestic pork demand, and seasonal trends in hog and pork markets. Tune in now!

Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].

(Transcript auto-generated)

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Future trading involves risk and is not suitable for all investors. Content provided in this segment is meant for educational purposes and is not a solicitation to buy or sell commodities.

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Hello and welcome to Hog Talk, brought to you by Ever AG Insights. On this podcast, we talk with subject matter experts on news and topics affecting the swine industry and hog markets. I’m your host, Phil Plaut. We could start today with a quick market recap. As of yesterday, Monday, November 25th, nearby lean hog futures were 8198 per 108, up 2% from the week prior.

00;00;29;16 – 00;00;51;14

Today, it’s our pleasure to welcome Taylor Kaufmann to the show. Taylor is the director of Commercial Proteins on the livestock team. Welcome, Taylor. Thanks for joining us today. Thanks for having me. So in kind of interesting in the Lean Hog futures marketplace the past few weeks, typically prices start sliding into year end. We haven’t really seen much slide in the futures market.

00;00;51;14 – 00;01;00;28

The physical market for hogs has been holding up quite well as I understand it. What’s up with all that? What’s going on that we’re seem to be avoiding some of the seasonal slide?

00;01;00;29 – 00;01;21;28

Yeah, absolutely. So you know, when we talk about our communicating with producers, we haven’t really seen a back up of market animals, which typically happens as we enter into the winter months here. We tend to see our largest production, most animals being first. And then obviously a lot of market weights continue to drive up as the weather gets colder and they pack on the pounds there.

00;01;21;28 – 00;01;43;29

And really, you know, the conversations that we’ve been having, it’s been quite current in terms of what availability of hogs are out there. And you have the lean hog index up at about $87 per hundred way at this point, which is some of the highest prices that we’ve seen in November, with the exception of 2014, which was, you know, a disease ridden year, and then 2022, which was kind of a record post-Covid year for most proteins as well.

00;01;43;29 – 00;02;08;17

So, you know, price action is definitely showing. It’s quite supportive. And anecdotally, a lot of limited supply is out there. And I think the best way to say that is kind of going back to the September hogs and Pigs report from the USDA. It did show at the report that we are sitting on close to two and a half ish percent lower breeding herd, and then you also had, you know, 1 to 2% declines in estimated pig crop and farrowing intentions coming into the fall here.

00;02;08;17 – 00;02;28;29

So you basically had, you know, lower breeding herd and lower production coming out of those animals. So I think that’s all kind of come into fruition here. And probably the rationalization behind why there’s lower availability of hogs right now. And just on the futures side of things, you also have open interest for the lean Hogs futures contracts, up over 340,000 contracts, which is kind of an all time high for this market.

00;02;28;29 – 00;02;45;17

So a lot of participation there. And I think what we have our eyes on is about a third of that outstanding open interest is manage money long position. So you have a lot of institutional money or, you know, speculative money that’s been kind of driving this market higher. And they currently sit at that really strong long position at the moment.

00;02;45;17 – 00;03;02;26

So all those things are more or less about supply. And I think there’s a bit of a surprises in how that’s played out. What about demand? I mean I think our sense is that we’re seeing some rotation away from restaurants, back to the grocery store. The scanner data that I look at shows pork sales, kind of, you know, we potentially looking better.

00;03;02;28 – 00;03;05;02

Is there a demand component to this story as well?

00;03;05;03 – 00;03;27;27

Yeah, absolutely. I think you have those tightening supplies. And at the same time, especially exports. Pork is such a dependent complex around kind of the international markets there. And we’re looking at one of the strongest export years for U.S. pork, only behind 2020 and 2021. And those years were you had China who’s the, you know, consumes half the world’s pork that was covering from African swine fever.

00;03;27;27 – 00;03;47;12

So they really turned export markets, namely the US. And then a lot of post Covid kind of protection, the export business to help feed some of those nations. So those are the only two years I’ve really kind of outdone what we’re seeing here in 2024. So it’s been really encouraging that we’re seeing some strong export interest there. And then domestically, like you said, you have a very cost conscious consumer.

00;03;47;12 – 00;04;07;19

I think when you look at some of the trends, there’s been more of a transition from less eating away from home, less restaurant trips and then more micro trips to the grocery store, smaller baskets where consumers are not necessarily buying in bulk and they’re looking for deals. And so that’s definitely been more supportive for a lot of the retail cuts that you’ll find in the meat case there.

00;04;07;19 – 00;04;16;06

But the two, you know, biggest outperformer in the pork complex have definitely been ham market in the belly market, which tend to be very demand driven.

00;04;16;12 – 00;04;36;01

And so as I think about restaurants and cork, I think that we look at let’s take beef, for example, I would say that, you know, as restaurant traffic declines, beef consumption probably declines, right? QSR burgers orders of pork isn’t as prominent in some of those spaces. Is it possible that pork does even better on this roll back to whole than other meats?

00;04;36;01 – 00;04;53;16

There’s definitely a case to be made for that, just that it has, you know, more broad based demand push coming out of the retail side of things. One of the kind of narratives or things that we’re tracking kind of going into the new year. There is, as you mentioned, yes, on the foodservice side, pork doesn’t have maybe as much representation as I’m sure that they would like.

00;04;53;16 – 00;05;16;05

But you do have, you know, some of these bigger chains, like McDonald’s coming back with the McRib, which is a pork superhero item that you know, everybody loves, that supports the complex. And then other things, I guess staying on McDonald’s, they’ve released their MC value menu. We we talk a lot about the value wars of trying to fight for consumer dollars and getting buyers to come back to the quick service and fast casual area.

00;05;16;05 – 00;05;37;01

And so part of that plan going into 2025 is they’re doing a lot of buy one, get one for $1 additions on the menu. And some of the items that are part of that list are things like the sausage McMuffin and the sausage burrito. So, you know, definitely keeping eyes out there in terms of, you know, things that could be supportive for pork trim, pork bellies, cell lines, things like that, that might go into those items.

00;05;37;04 – 00;05;51;26

Speaking of items like sausage and other cuts, I know you follow the wholesale side of things. What usually happens at this time of the year and are we seeing it? I know you mentioned hams, bellies. One of the things do you track in that cuts market? What do you find interesting there?

00;05;51;28 – 00;06;12;22

Yeah, typically pork has at least the pork cutout has a pretty clear seasonality of you know, we ran up to get to some of our higher prices in the summer and then start to decline with the hog price there into the fall. There are some outlier cuts where there’s a bit of holiday seasonality, like the hams leading up to Easter and to Thanksgiving and Christmas here, where they might debunk that trend.

00;06;12;22 – 00;06;27;18

In terms of looking at just the performance so far, we kind of had some outliers late in the year. You would ask me that question, you know, about a week or two ago it would have been, yes, it’s a very abnormal year that we’re experiencing. We had to cut out over a dollar in November, which doesn’t historically happen.

00;06;27;18 – 00;06;44;10

And a lot of that strength was on the back of hams and bellies like we talked about there and then. Now, you know, over the last week or two here, as we kind of get through the holiday season, we’ve seen that reversion back to the low 90s, which is more historical territory still elevated compared to, you know, prior years for this late in the year.

00;06;44;10 – 00;07;00;22

But if you look at all the different cuts, like the lines, the butts, the picnics, you know, some of those retail cuts, all of them are at or below year ago levels. So more so in line with, you know, historical performance. It’s really the ham in the belly. And between those two cuts, you know, they make up about 40% of the cutout.

00;07;00;22 – 00;07;17;28

So a meaningful portion that can influence the complex there. And you know, with hams definitely in the peak of that demand period for the holidays, as well as that export business that’s been really strong to Mexico. And then on the belly side, it’s been interesting. That tends to be the most volatile cut within the complex in recent years.

00;07;17;28 – 00;07;41;27

But this year we’ve been an almost 2030 cent trading range, which is mind boggling for most that have been in the belly market. But we did see over the last two weeks a bellies prices hit their eye for 2024, hitting a dollars $70.80 ish price range here in November, which is pretty uncommon. Since then, we’ve seen the negotiated volume and some of the forward purchasing really dry up and a demand and really couldn’t sustain at those levels.

00;07;41;27 – 00;07;57;27

And now we’re seeing prices fall back to the dollars $20.30 range, which is still high by historical standards. But given the very low inventories in the freezer right now, definitely a lot of interest from buyers to begin with. Those freezer bids and scooping up some more supply for anticipation for 2025.

00;07;58;00 – 00;08;03;14

Speaking of 2025, Taylor, what do you see as the big things for the complex as 2025 begins?

00;08;03;20 – 00;08;24;26

I think one thing we talk about a lot with our producer clients is it isn’t often that when you look on the forward curve with both lean hogs and where feed costs have fallen to that, those Ford margins show a little bit of profitability. So we’ve had a lot of conversations with our producer clients to be active and, you know, really consider being able to lock in for a portion of their volume, some profits in the next year.

00;08;24;26 – 00;08;41;14

Positive margin there just considering that tough, you know, few years that we’ve had for their operations. I think that’s definitely encouraging to enter the year where, you know, the whole value chain seems to be in balance, where producers are making money, packers are making money. So that’s what you always want to see is a healthy supply chain there.

00;08;41;14 – 00;09;10;04

But I do think that it doesn’t come without some risks that we’re still considering. You can’t look anywhere except for the US selection here. And you know, the ramifications there with the new administration coming in, you know, with Trump and his administration, and they’ve been very vocal about what they want to do with agriculture, trade and tariffs. And it’s hard to understand at this juncture whether that’s retaliatory tariffs that could impact the export business that we currently have, pork being so dependent, you know, exporting as much as we do of our production.

00;09;10;04 – 00;09;27;15

It’s very, very important to monitor what happens with trade partners like Mexico, Japan, South Korea, China, trying to understand if we have any sort of impacts to the business we’re doing with them. Like we said, you know, one of the top three years in history for U.S. pork exports. So we want to be able to continue that momentum.

00;09;27;16 – 00;09;50;04

All eyes they’re on, you know, as this new administration comes in, what might happen on the trade front. The other thing is definitely, you know, those value wars we talked about and canned food service really start to work. Pork in just given where the beef markets are because of their supply and demand fundamentals with the cattle cycle and where it’s at, pork definitely has an opportunity to gain more plate share.

00;09;50;04 – 00;09;56;20

And so we’ll see if the retailers and the food service are able to kind of promote that in a way that’s supportive for the pork complex.

00;09;56;24 – 00;10;16;26

Yeah. I mean, we wake up this morning and there’s talk about 25% tariffs on Canada, Mexico tied to people in drug trafficking. And it’s kind of hard to know what’s bombast and what’s real. But you know whatever happens right. It just speaks to our potentially volatile environment. And volatility means it means opportunity but it also means risk.

00;10;17;01 – 00;10;25;08

Absolutely. And so that’s what we just encourage with our clients to just have a plan. Stay informed and just execute on that plan when given opportunity.

00;10;25;08 – 00;10;31;02

So it’s Thanksgiving week. Where does pork appear on the and Thanksgiving table?

00;10;31;03 – 00;10;50;04

We are holiday home people for sure. You know, I think a lot of the conversations have been that there are consumers that are more and more supporting two proteins. So it isn’t necessarily just a turkey holiday, even though we always call it Turkey Day. I think that you’re seeing more and more households that are doing a holiday ham and your traditional turkey, or maybe a prime rib or something.

00;10;50;04 – 00;10;52;26

So our family is, shoo in for autumn.

00;10;52;26 – 00;11;08;05

Well, here in the Plourde household, we’re trying some sort of ham and honey thing I saw online. It could blow up in our face. We’ll see. But Ham will be on the Thanksgiving table in the port household as well. Taylor, we’re thankful for you. We’re thankful for all of our clients and our listeners. Thanks for joining us today.

00;11;08;06 – 00;11;09;01

Absolutely. Thanks for having.

00;11;09;01 – 00;11;16;15

Me. If you’ve enjoyed listening to Hog Talk, be sure to tell a friend or two and subscribe to us wherever you listen to your podcast. Thanks for the insights Crew for their work on today’s show.

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