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Pork Commentary: When You Have Fewer Sows, It Means Liquidation

31 December 2013
Jim Long on ThePigSite

Jim Long is President &
CEO of Genesus Genetics.

US - The latest USDA report indicates the US breeding herd down by 62,000, which means liquidation, writes Jim Long.

The average trade guess (whatever trade guess is?) of the breeding herd for 1st December was between 100.2 and 101.9 per cent higher this year compared to last. That would have meant that between 12,000 and 110,000 more year-over-year. The December 1 USDA report indicates the US breeding herd is actually 62,000 fewer, which is liquidation. Got to love the “trade guessers” saying 110,000 more; they are only out by 180,000 sows.

If you regularly read this Commentary, you know we never believed there was expansion going on. We sell breeding stock. It’s our job to know where expansion is happening. It wasn’t! We don’t see any significant new sow barns (next to zero), we know of producers quitting in the last quarter, producers have been losing money over the last couple years. Getting labour, environmental issues, animal welfare pressures, older barns, older owners, hard to get credit, with higher equity demand by lenders. All the above meant net less sows. Liquidation.

We expect profits will now be strong through 2014 as the smaller breeding herd plus Porcine Epidemic Diarrhoea (PED) losses means fewer hogs throughout 2014.

Producers need to back fill the equity crater created over the last few years. Producers know they are going to make money over the next 12 months but the “trade guessers” who expected expansion underestimated the experience and knowledge of the existing producers. They know they start expansion now there will be no market hogs before 2014. What’s the market going to be then?

Today’s producers are survivors, they have lived the pain of the hog cycle. Most producers are older and when you get older, there is more risk aversion. Few sow barns have sold at a decent price in the last five years (many used ones are still 20¢ on the dollar). Sow barns have not been a very good investment. To have more pigs you need more sows. To build a 5,000 wean-to-finish new, land, building, inventory start-up is a $10-million investment. Lots of money, you need a 10 per cent return to cover in our opinion. Need a $10 per head profit on 100,000 pigs a year. There is no recent history that can be made on a $10 million investment. That’s why they are not happening. Simple hard economics.

Bottom Line

There is no expansion. There has been liquidation. We believe lean hogs will reach $1.10 this summer. Why? Less pork, less beef, pork exports will be strong, domestic pork demand will be solid, especially with US economy gaining strength.

 

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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