Hog Markets Contine to Move Higher25 October 2012
CANADA - The hog market lows of mid - September appears to be behind us. After wallowing around 65 cents lean per pound in September last week 53 – 54 per cent lean hogs were over 83 cents, writes Jim Long.
Low to high gain in a month (counter seasonal) of over $30 per head to the better, that change is huge. In mid – September many pundits were projecting a deluge of hogs that would keep prices below 70 cents per pound through the fall; the recovery to 83 cents and the $30 per head gain means $30 per head less in losses. That is about $75 million a week to the industry to the better.
Just looked back at a projection we received from a Commodity Broker in mid – September. They predicted the pork USDA cut – out last week would be 75 cents per pound – it was actually 89 cents, which equals $28 per head to the better. Of note, they projected 2.385 million market hogs last week and the actual was 2.388 million. They nailed supply but really missed demand. In our opinion too many pundits are missing the global pork demand surge. We are continually looking at foreign hog prices that are all higher to USA – Canada hog prices; demand - pull is pushing our prices higher. That is why we have hogs in the mid 80’s. We would not be surprised if lean hogs hit 90 cents sooner rather than later.
The latest weekly US sow slaughter was 67,304 – these are liquidation numbers. We expect USA – Canada sow herd dropping up to 10,000 a week currently.
Not only sow slaughter is up but also gilt retention is down. We observe in our business cut backs in gilt purchases. Many are early wean producers, which mean their herd is shrinking as they have no other sources of gilts. We believe that the Canada – USA sow herd will be 200 – 250,000 head smaller on the 1 January compared to 1 June. This decrease in production capacity of four to six million hogs will be major drivers in leading in 2013 to the highest historical hog prices.
Early wean and feeder pig prices are moving up, last week cash early weans averaged $34.86 that is a big improvement from the $8 a head they were a few weeks ago. Cash 40 pound feeder pigs were $30.40 up from mid-teens a few weeks ago (10 weeks under $20). We doubt if anyone can make money at $34.86 for early weans but the bleeding that $8 pigs were causing has been greatly diminished. The price increase on small pigs is seasonal but it also reflects the lack of supply due to liquidation of sow herds. The same number of finishers chasing fewer pigs always leads to stronger prices. Always have – always will. Farmers hate empty barns.
Big Sky update: Canada’s second largest hog producer has received an offer to purchase (about 44,000 sows). The offer has come from Olymel a packer with a plant in Red Deer Alberta that needs the hogs. We understand other offers can still be received for about 60 days as part of the bankruptcy proceedings. Rumor has it the offer is in the $60 million range, Big Sky’s debt is over $80 million.
Puratone of Manitoba is in receivership (25,000 sows) has received it has been reported two offers. Reportedly both have been rejected as too low. The process of looking for purchasers continues.
It is a sad testimony to our industry the liquidation and financial difficulties many have been inflicted by. While farmland values appreciate at break neck speed sow units continue to wallow at cents on the dollar. Hopefully when the dust settles our industry rationalises to a supply – demand equilibrium that allows our industry to prosper and receive reasonable returns.
|Author: Jim Long, President & CEO, Genesus Genetics|
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