Morgan Stanley Upbeat on Hog Producer Amid Feed Costs

Futures Dip But Profitability Outlook Remains Strong

Morgan Stanley reports that while hog futures declined and rising feed costs are expected to slightly reduce producer profits in 2026, the overall outlook remains positive. The firm maintains an Overweight rating on key producers like Sanderson Farms, citing supportive commodity fundamentals.

Current Market Snapshot

Hog futures curve indicates a revised profit of $26 per head for the first half of 2026, down from a previous forecast of $29. Despite the week-over-week dip, this figure still represents a modest year-over-year increase in profitability. Packer margins held steady at $8.2 per head, a significant rise from $3.6 per head in the same week last year.

Price and Cost Dynamics

The market is navigating conflicting pressures. Pork cutout prices increased 2.9% year-over-year, driven by strong belly and trim prices. However, feed costs also rose, with soybean meal prices climbing 3.5% week-over-week and 6.4% year-over-year, tightening producer margins.

Summary Outlook

Analysts suggest that while feed costs require close monitoring, the fundamental demand for pork remains robust. The market expects profitability to continue its year-over-year growth trajectory into 2026, contrasting with some consensus estimates projecting a decline.

FAQ

Q: Why did 2026 hog profit forecasts decrease?
A: The forecasts were lowered due to a recent rise in feed costs, particularly corn and soybean meal, which increases production expenses.

Q: What is Morgan Stanley's rating on Sanderson Farms?
A: Morgan Stanley maintains an Overweight rating, indicating a positive outlook despite the short-term cost pressures.

Source: Investing.com