Pork Profit Maximizer – Food Service Edition
February 4, 2019
Ample pork supplies pressure spot prices but futures maintain ASF risk premiums for summer and fall.
Nearby lean hog futures have come under pressure in recent weeks and the premiums following African Swine Fever (ASF) outbreaks in China have been mostly erased at this point. A couple of days ago we outlined how pork supplies in recent weeks have been higher than expected, pressuring pork prices lower and thus pinching packer returns and demand for hogs in the open market. Estimated packer margins are currently near the 10 year average and well below recent history for this time of year.
The chart below illustrates our gross margin calculation based on three key inputs: weekly pork cutout + LMIC calculated by-product value – net national hog price. This is a very broad indicator because individual packers will have very different results for each one of these inputs. Additionally, some packers are also major hog producers and own value-added operations. This means profitability needs to be viewed in the broader scope of a vertically integrated operation. According to the USDA Mandatory Price Reporting System, in 2018 32% of all hogs that were marketed and reported through the MPR system were packer-owned.