Pork Commentary: 2014 – The Year of the Pig Farmer07 January 2014
CANADA - The Chinese have the year of the horse, dragon, dog, etc. The last few years in North America and much of the world it’s been the years of the Grain Farmer, writes Jim Long, President-CEO Genesus Inc.
High Grain prices pushed mostly triggered by US Government Corn Ethanol Mandates and by regional drought not only lead to record grain production profits but unprecedented farmland appreciation. (If there is 315 million arable acres in USA, each $1,000 an acre appreciation of land was $315 billion dollars). This created wealth or at least paper wealth.
The huge jump in Global Grain Prices has triggered grain development in much of the world. For the last few years we have written as we travelled the world especially Russia, Ukraine, China and Brazil our observations of millions of acres of land coming into Grain production. In 2013 the wold produced 55% more corn than in 2006. An unprecedented increase. The old saying “The surest cure for high prices is high prices” comes to mind.
The world for Grain Farmers is now going upside down. On the Chicago Board of Trade last January-March was $6.50 a bushel, last week March closed at $4.23. The USDA estimates that it cost around $4.10 a bushel to produce corn. The bloom has gone off the proverbial rose for grain farmers.
In 2014 it will be the Year of the Pig Farmer. Feed Costs have dropped about $35 per head while lean hog futures (i.e. June) at 1.01 are $20 per head higher than they were last summer for June 2014.
Hog Farmers who are in business are survivors. The last five years have not been good. Most Producers have less equity in their swine business that they did five years ago. A few days ago the USDA released the December 1 Hogs and Pigs Report. It indicates fewer breeding animals and fewer market hogs year over year. This seemed to surprise the “Chicken Little Economists” who were predicting expansion. We note that these predictors of expansion do not own hogs, never have, and never will. They don’t understand how hard owning pigs are, they never lost money raising hogs, never borrowed money, gave personal guarantees, struggled to make payroll, never had a pig disease (i.e. Prrs, PED, etc.). Bottom line, there is no expansion because there isn’t the capital and courage to get it done. The equity hole is huge. It needs to be backfilled. These producers that hung in and survived are now going to be rewarded in 2014.
2014 will be the Year of the Pig Farmer. Lower Feed prices, fewer pigs, a stronger domestic economy, record high beef prices, good pork exports, PED all are a recipe for a 2014 that will be the most profitable in a decade. We all need our turn. We expect summer Lean Hogs will reach $1.10. Happy New Year – 2014 the Year of the Pig Farmer.
|Author: Jim Long, President & CEO, Genesus Genetics|
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