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Pork Commentary: Mr. Smithfield Goes to China

28 August 2007
Jim Long on ThePigSite

Jim Long is President &
CEO of Genesus Genetics.

CANADA - This weeks North American Pork Commentary from Jim Long.

Smithfield Foods are dominating pork news with the announcement of 60 million lbs of pork being sold to China. Smithfield also is reporting further sale opportunities in the coming months. Smithfield is satisfying Chinese demands to supply Paylean free pork. Something they can do rather quickly with their control of the largest swine production system in the world. Stop feeding Paylean and within 3 weeks, Paylean free pork. It must be making Elanco, maker of Paylean, almost mental. You’ve got China with half of the world’s pork production and consumption effectively banning Paylean use. Several weeks ago, we heard from Smithfield people that they believed they had a great edge in a potential pork sale to China, with their ability to eliminate Paylean use quickly. Looks like they were right.

60 million lbs of pork would be about the equivalent of 300,000 hogs being exported. This is a significant sale, as it will take around 15% of a US weekly kill out of the US domestic market. With China’s hog prices over $1.10 US lb, it doesn’t take a rocket scientist to see that China has a pork shortage. Some China observers are speculating Chinese hog production could have decreased 20% from a year ago. No one knows for sure the percentage, but we all have been around long enough to know hog prices do not double like they have in China for any reason other than a massive shortage of pork.

The Chinese usually slaughter 10 million hogs a week. Consequently, a decrease of 20% in pork production would be a decline of 2 million hogs per week of equivalent to the US weekly kill. If this scenario is true, the potential for further Chinese importation of pork is almost incomprehensible. The greatest restriction would be the level of pork exported before US (Canada) prices reach the point where pork export prices including delivering reach Chinese domestic price levels. 60 million lbs is a good start but in our opinion it will not be the end. 2007 is the Year of the Pig in China. Looks like the year of the expensive pig.

Lean Hog Futures closed higher last Friday, with the China export order Oct 70.65, Dec 69.60, Feb 70.25. One thing for sure, Smithfield, as the world’s biggest pig farmer, has vested interest to push prices higher. High hog prices are good for their profits and stockholder value. None of us can probably comprehend the effort Smithfield is making to move pork to China. All hog producers have an interest in Smithfield and every other packer’s ability to export and enhance hog prices. Let’s hope the initial success continues.

Russia

This week, we had several visitors from Russia looking at purchasing Genesus breeding stock. Some observations:

  • Like China, the price of hogs in Russia is high. A typical market hog at 220 lbs in Russia (40 mm backfat) is bringing 90¢ lb US liveweight. Improved genetic market hogs (17 mm backfat) are bringing $1.10 liveweight lb. (Some regional markets $1.35 US lb). Strong prices and a reflection of supply shortages.

  • Construction is underway in Russia to build a new swine infrastructure. After twenty years of little investment, it is a huge undertaking to revitalize a whole industry. Russia’s current pork production is estimated to be half of what it was in 1990. Obviously, it will take several years before production returns to 1990 levels.

  • Feed in Russia is approximately $220 US ton. Crops have been good and our visitors speak of continued Russian efforts to increase grain production.

  • There is lots of room for increased productivity in Russia. Many producers have hogs that are between 38-50 mm of backfat (1½ to 2 inches). Days to 220 lbs (100 kgs) are 250-280 days. Pigs per sow per year are 15. The opportunities for early adapters of currently available genetics and production technology have tremendous potential for huge profit. The 2000 sow operation that visited this past week calculated that they could improve their bottom line by 5 million dollars a year by having our typical results on their farm compared to where they currently are. It’s almost incomprehensible on 2000 sows, isn’t it? We had calculated $4.4 million advantage but they insisted it was 5 million. You know us; we are always a little too negative.

  • Our Russian visitors were guest of Hutterite colonies that are also our Genesus customers. The Russian visitors were fascinated by the communal lifestyle of the Hutterian Brethren.Some of our Russian visitors have had past experience living in the former collective farms in Russia.The Russians openly acknowledged the obvious success of the Hutterite community after their visit and acknowledged the failure of the Russian collective system.It was interesting to hear the two points our Russian visitors made regarding the difference, in their minds, of why the Hutterite society has existed 400 years and the Russian system collapsed. Firstly, the Russian system did not have a God or religion to guide the community.Secondly, in the Hutterite community, you are there by choice.In the old Russian system, you could not leave.You were forced to stay. God versus a Godless society and freedom of choice versus forced confinement. One system has prospered.The other has failed. Are we not fortunate to live where we do?

Latest SMS Data Calendar Year 2006

The latest Swine Management Service Benchmark (SMS) Data (Freemont, Nebraska) proves once again Genesus’ industry leading results. The SMS data base for the 12 months ending December 31 has a total of 380 farms and 722,417 females. In the last twelve months Genesus has 8 the TOP 9 farms in pigs weaned/ mated female/year (out of 380 farms). In the quarter ending December 31 Genesus has 6 of the TOP 9 farms in pigs weaned/mated female/year, and the first farm ever to exceed 30 pigs weaned per sow. Every major swine genetic company has numerous herds in the SMS database.

52 Week Performance ranked by Pigs weaned/Mated female/Year December 31, 2006 – 380 farms and 722,417 females

Pigs weaned/mated
female/year
Geneses
Number of farms: 30
SMS
Number of farms: 380
TOP 10% 29.46 27.29
TOP 25% 28.90 26.84
Average All 26.41 22.68


Author: Jim Long, President & CEO, Genesus Genetics

To find out more about Genesus Genetics,
please take the time to visit their website at
www.genesus.com.

The opinions expressed in this commentary are entirely those of the author and can not taken to represent the views of ThePigSite.com, its owners or its management.



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