Lean Hog Investment: Why Betting on Pork Could be a Wise Move


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The use of lean hogs to speculate on pork prices are directly linked to the massive global pork industry. More people in the world consume pork than any other animal protein. Worldwide consumption of pork products exceeds 100 million metric tons annually and spans across diverse geographies, economies, and cultures.

The price of lean hogs is historically related to that of livestock feed and to changes in weather patterns. Increased demand from China and competition from other animal products also play a role in price fluctuations.

Top 3 Uses of Lean Hogs

Lean hog is the name for pork as a commodity. Pork is not only valuable as food source, but parts of lean hogs are also used in pharmaceutical and industrial co-products.

Use of Lean HogDescription
Pork
Bacon Icon
Ham, pork loins and pork chops and are among the many food products produced from lean hogs.
Pharmaceutical Co-Products
Medical Icon
Pharmaceuticals rank second to meat in products obtained from lean hogs. The following are a small handful of the pharmaceutical products we obtain from hogs:
  • Cortisone
  • Blood Albumens
  • Heart valve replacements
  • Heparin
  • Estrogens
  • Insulin
  • Melatonin
  • Antidiuretic Hormone (ADH)
  • Oxytocin
  • Pespin
  • Thyroxin
  • Industrial Co-Products
    Crayons Icon
    Lean hogs make contributions to the production of many industrial products including the following:
  • Leather treatment agents
  • Plywood adhesives
  • Glue
  • Gloves and shoes
  • Buttons
  • Bone china
  • Bone meal
  • Brushes
  • Insulation
  • Upholstery
  • Insecticides
  • Cosmetics
  • Crayons
  • Floor waxes
  • Antifreeze
  • Plastics
  • What Drives the Price of Lean Hogs?

    Some of the specific factors that move lean hog prices include:

    Feed Prices

    The cost of grains and feeds represents more than two-thirds of the production costs of producing pigs.

    Historically, the price of livestock feed, especially corn, is inversely related to the price of lean hogs.

    As the price of corn rises, farmers take their hogs to market at lower weights to save on the higher costs. This creates an excess supply of hogs in the marketplace.

    Weather

    Extremely warm weather in the late summer and early fall can make hogs inactive and lessen their desire to mate. This could result in a smaller number of births in the winter months. The reduced supply can translate into higher prices when the pigs are taken to market the following summer.

    Pig Farms
    Hot Weather Can Make Pigs Inactive, Reducing Yield – Image via Pixabay

    China

    China is a behemoth when it comes to pork production and consumption. The country produces and consumes about half of the world’s supply of pork products. In addition, China accounts for about 20% of the global supply of pork imports.

    As China continues its transformation into a world superpower, it will require more food to feed its growing population. The country will likely increase its volume of pork consumption as its population gets wealthier. Other emerging economies such as Mexico and South Korea may also have greater demand for pork as their economies get stronger.

    Substitution

    Pork competes with other animal protein products such as chicken, beef, lamb, and fish.

    Many factors can impact which of these products consumers choose, but price often plays the biggest role. If pork prices rise, consumers may substitute other animal proteins in their diets.

    Other factors that could lead to substitution are the health benefits of the various choices. Hog farmers in the United States have made efforts to reduce the antibiotics used to produce pigs. In addition, the industry has changed the diet fed to pigs in an effort to produce leaner and healthier meat. How the public perceives these benefits can determine demand and price for lean hogs.

    Expert Opinions on Lean Hog Prices

    Pork industry experts are generally very optimistic about the prospects for lean hog prices in the future. They cite demand, especially from international sources, as the main catalyst for higher prices.

    Lean Hog Experts

    We’re currently seeing so far this year in 2017, 15 percent more exports of pork, and it’s all going to foreign consumers. Strong demand is how we would explain the situation of more supply but even higher prices.

    – Chris Hurt, agricultural economist at Purdue University

    Another expert, Steve Meyer, shares this optimism and believes higher beef prices in the United States might fuel more pork demand.

    We’re pushing 4 percent more pork this year and 4 percent more pork next year. We’re going to be pushing those per capita offerings over 52 pounds per person [domestically], which is about as high as we’ve ever seen

    – Steve Meyer, vice president for EMI Analytics-Pork

    Top 10 Lean Hog Producers in the World

    RankFlagCountryPork Produced per Year (1,000 Metric Tons)
    #1Flag of ChinaChina54,750
    #2Flag of European UnionEuropean Union23,350
    #3Flag of USAUnited States of America12,188
    #4Flag of BrazilBrazil3,755
    #5Flag of RussiaRussia3,000
    #6Vietnam2,775
    #7Flag of CanadaCanada2,000
    #8Flag of the PhilippinesPhilippines1,635
    #9Flag of MexicoMexico1,480
    #10Flag of South KoreaSouth Korea1,332

    The Lean Hogs Production Process

    Successful production relies on proper animal husbandry techniques and good economic decision-making. The hog industry has evolved dramatically in recent years as large private and corporate operations have replaced small family farms.

    Farms with larger headcounts (number of pigs) have at least two economic advantages:

    1. Lower production costs: Economies of scale allow farmers to feed pigs more efficiently and better utilize their labor.
    2. Negotiating leverage: Larger farms can enter into better contracts with packing operations – the companies that slaughter, process, pack, and distribute hogs – since they can offer packers a more consistent supply of hogs.

    Hog production takes place in five stages:

    Reproduction

    Gilts (young females that have not yet given birth) and sows (mature female breeders) breed twice annually to ensure a steady flow of pigs.

    Operators seek out gilts that show excellent growth, leanness and breeding potential. Farmers purchase boars (sexually mature males) from breeding farms.

    Hog breeding takes place in one of three ways:

    1. Pen mating: One or more boars are placed with a group of sows.
    2. Hand mating: One boar is placed with one sow or gilt.
    3. Artificial insemination: A more labor intensive method that allows farmers to control genetics.

    Gestation and Birth

    Female pigs have gestation periods of 4 months and give birth to average litters of 9 -10 pigs. This number has steadily increased in recent years due to improvements in health, genetics and production methods.

    Piglets
    Close attention is paid to yields – Image via Pixabay

    Weaning

    Females wean baby pigs for three to four weeks. After this time, sows are either re-bred or sent to market. During the weaning stage, about 5% of pigs die from suffocation, disease, weather, and other factors. Changes to this attrition number can affect supply and hog prices.

    Feeding

    Grains including corn, barley, milo, oats, distiller’s grains, and wheat comprise the main diet of young pigs. Farmers often supplement the diet with oilseed meals and vitamins.

    Feeding Pigs
    Grains are a popular source of food for hogs – Image via Pixabay

    Finishing

    It takes about six months to raise a pig from birth to slaughter. A barrow (castrated male) or gilt typically gains on average about 1 pound a day during the finishing stages and will weigh about 270 pounds when they are ready for market. Producers usually sell pigs directly to packers.

    Packing

    Packers slaughter the pigs and butcher the carcasses into cuts that they sell to retailers. A typical 270-pound pig will yield a 200-pound carcass with an average of 25% ham, 25% loin, 16% belly, 11% picnic, 5% spareribs, and 10% butt. Jowl, lean trim, lard, and miscellaneous cuts and trimmings comprise the rest of the production.

    Hog operations fall into four categories:

    Type of Hog OperationDescription
    Farrow-to-FinishHandle all phases of production from birth to sale of a market-ready hog
    Farrow-to-WeanHandle raising pig from birth to weight of about 10 -15 pounds and then sell to a feeder operation
    Farrow-to-FeederRaise hogs from birth to feeder stage (weight of 40 – 60 pounds) and then sell to a finishing operation
    Finish OnlyHandle preparation of pigs prior to slaughter

    Further Reading

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