Pork Producers Should Lock in Futures Prices as Contracts Reach Record Highs

By Harry Siemens

Tyler Fulton, the director of risk management with HAMS Marketing Services, advises pork producers to take advantage of solid futures and lock in prices as they reach new highs on many spring and summer month contracts.

Despite exceptionally high feed costs and reduced slaughter hog supplies due to health challenges in the United States, 2022 is among the three most profitable years for pork producers over the past decade.

As far as the futures go the most significant factor was the constrained supply due to some health challenges in the US herd. Still, nothing changed the dynamics of the market so significantly but seasonal trends at higher levels.

The latest Hogs and Pigs Report indicated a reduced hog supply in the first three to four months of this year, which surprised analysts resulting in a reasonably positive price response with some of the nearby contracts gaining three to four dollars per hundredweight in one week.

“Starting into the first marketing week of 2023, it’s important to note that we’re at a record high level,” said Fulton. “We’ve never started hog prices this high in a calendar year, so that bodes well.”

Fulton said that when thinking about hog markets, the adage is that cash is king because the cash market is the base by which the industry moves through the seasonal trend over the year.

“We’re going to see in 2023 that things are shaping into a relatively typical trending year. But, then, we start to see some significant disruptions on the demand side or, for that matter, on the supply which is almost impossible to forecast,” he said adding in that case, producers’ risk management plans pay for themselves in securing some of those good cash flows projected today.

Producers should pay attention to slaughter hog volumes, currency exchange rates and pork consumption patterns said Fulton. The US Supreme Court is also due to rule on the validity of California’s Proposition 12, which could significantly impact the long-term trend of hog supply.

Fulton also said it’s important to note the slight shift in pork export flows.

“A significant drop in the flows to China as compared to the year previous but, on the flip side, Mexico started purchasing more products to make up for some of those deficits going to China and Asia at large,” said Fulton. He said getting through the summer months and into the latter half of this year, pricing could start a US hog numbers increase by the fourth quarter and a little bit more price pres sure.

However, he is confident that 2023 will be a pretty good year.

Tyler Fulton of director risk management with HAMS Marketing Services said they are seeing record high levels starting in the first marketing week of 2023.