Pork Commentary: US Corn Crop Record Size12 November 2013
US - The US Corn Crop was estimated by the USDA last week to be a record 13.989 billion bushels. There will be much guessing on how much corn will be exported, used for ethanol and consumed for livestock. All we know is that corn is now approaching a price not seen for three years. Cheaper feed will let hog farmers make some money. It’s our turn, writes Jim Long.
Some other Grain facts:
- This year global grain production has yielded 167.2 million metric tonnes of increased production over last year. That’s equal to the entire European production.
- The strengthening commodity prices has meant an additional 72 million hectares of farmland (158 million acres) have gone into production globally over the last 10 years.
- 6.7 million hectares (14.74 million acres) - additional global farmland in production for corn, wheat and barley in 2013 compared with 2012.
- 60 per cent – the amount of global trade in corn, wheat and soy that the US market controlled in 1980.
- 25 per cent – the amount of the global trade in corn, wheat and soy the US market controls today.
- The US Corn Ethanol Policy has not only cut US corn exports it raised commodity prices that in turn stimulated global grain production while at the same time high corn prices cut US livestock production potential which in turn cut corn usage and demand. Someday conventional wisdom could be that Corn Ethanol Mandates were the worst thing in long run for the profitability of American Grain Farmers. Many global competitors were created with significantly less land costs than the US.
Outbreaks of the PED virus continue unabated. There will be fewer pigs because of it. We have not seen sow herd expansion of any significance. (USDA had September 1st breeding herd up only 26,000 from the year before).
This past week we read one of Ag-Economists Steve Meyer’s article that he was very disappointed that PED was going to deprive Pork from an opportunity to gain market share relative to Beef, because Beef supply is plummeting.
Maybe we missed the point but we don’t care about market share by selling at a lower price. We care about making money and paying our bills. The last few years have not been good for most hog producers. We need to make money to back fill the hole in our equity, pay down debt and make some money. We don’t give a rat’s ass for market share and the idea that we sell cheaper if we had more hogs and if we didn’t have PED. We know Ag-Economists don’t own pigs, they tell us how to make money but if they’re so wise why don’t they go into the business. Armchair quarterback with no skin in the game.
Market share from lower prices as a business strategy such as Dr. Meyer suggests in not how to build a profitable business. We are in the Swine Genetic business, we suspect that Genetiporc was on a quest for market share by selling at lower prices with next to no profitability, doesn’t work, Genetiporc doesn’t exist anymore. The quest for market share by lower pricing is a spiral to the bottom.
Real and sustainable market share gains are accomplished by selling a quality product that encourages repeat customers. We believe the Pork Industry can increase market share and profitability by producing pork that has better taste, flavour, is darker, marbling, high Ph. etc. Stop producing white meat - produce red meat. Let’s produce a product competitive with Beef in taste and flavour. Our industry made a terrible mistake a generation ago with “The other white meat!” We branded to a cheaper product (chicken) that sells for less money. Now we see the demand for bellies and ribs, both with flavour and taste. Neither are lean products. Beef is not lean and repeatedly gets the highest prices in the meat case.
Real sustainable market share can be achieved with better tasting pork. The race to produce the leanest and whitest pig was a mistake.
Lean Hog Futures continue to show strength. A record US corn crop will keep feed prices reasonable. We expect farrow to finish profitability will exceed a $25 per head average over the next ten months.
|Author: Jim Long, President & CEO, Genesus Genetics|
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