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Lean hog prices - can they beat expectations in 2012 too?

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Lean hog prices were surprise gainers in 2011, if only by a modest 5.9% in Chicago.

Strong grain prices had looked set to undermine values, putting producers on the defensive and potentially placing herd sell-downs on the cards.

But unexpectedly strong demand for US pork held up prices, after disease struck Chinese and, in particular, South Korean herds, forcing mass slaughter and a turn to imports to meet supplies of the countries' signature meat.

Will such demand hold up enough to lift prices this year too?

Goldman Sachs

"We continue to believe that live cattle prices will outperform lean hog prices into 2012 on sharply lower cattle on feed placements against a modest hog herd expansion.

"We see risks of further modest expansion of the US hog herd on continued positive margins and a rise in litter rates.

"We expect that demand for meat will continue to improve, driven largely by strong emerging market income growth with the US Department of Agriculture expecting further growth in exports in 2012."

Morgan Stanley

"High grain prices will remain a headwind. We remain constructive on grain prices into early 2012 which should pressure production margins early in 2012.

"Demand for US exports is expected to remain firm over the coming months.

"We expect Chinese hog production to rebound 5.5% year on year in 2012. While this may increase competition for US exports, we still believe that US volumes sent to the country should remain flat-to-up in 2012 owing to strong domestic consumption growth.

"US pork demand likely supportive as well. Continued economic distress across much of the US bodes well for trade-down demand from beef."


"Pork producers and processors have been challenged with slowing margin growth due to the upward shift in corn prices. As a percentage of total feed cost in the raising of US lean hogs, corn has risen from 49.6% to 54.6% due to both the higher corn cost and the 11.8% in the price of soymeal.

"While US breeding stocks increased 1.3% in November, eventual year-on-year expansion is uncertain due to the relatively high price of corn.

"Upward movement in the lean hog market has been driven, to a large extent, by strong export demand.

"There is a risk of weaker [US] pork exports into China in 2012 as domestic producers recover from disease outbreaks and scale up production. There was widespread liquidation of the Chinese domestic hog herd in 2011 due to disease, and this resulted in a larger-than-expected shortfall in domestic production.

"Lean hog prices are expected to flatten in 2012 as US and global supply increases. But upside risks remain with strong Asian demand and risk of disease in the Chinese domestic herd."

US Commodities

"China was a huge positive factor in 2011. It will be China's imports or lack of import interest that will make or break export demand in 2012.

"China has been providing incentives to pork producers to increase pork production. That has helped China expand their herd after the recent disease challenges.

"The profitable margins seen in 2011 are expected to result in the US expansion and increased US supplies. Export demand will need to offset this expanded production."


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