Pork Commentary: Russian Road Trip - Week 219 August 2014
RUSSIA - This past week was spent in Russia, an interesting place right now with sanctions against several countries on different foods including pork. As we wrote last week producers are making about $250 US per head. As we travelled this past week this number was reiterated several times by other producers. Christmas in August! Santa Claus must be Russian?!
The Russian newspaper Moscow Times has several comments and observations on food sanctions.
We quote:“Russian politicians have declared the recent bans on Western imports a golden opportunity for Russian agriculture but farmers and economists warn that upping production is a question of years, not months, and closing the market will not be enough to solve its problems.”
“Against a background of international friction over the crisis in Ukraine and increasing economic isolation, the question of where Russian food is produced has been painted as a matter of national pride and sovereignty.”
“We are the kind of country, the kind of government, which can and should feed itself.” Prime Minister Dmitry Medvedev said earlier this week.
Moscow Times Meat
Russia’s meat industry is doing well. (Our comment $250 per head profit is doing well). Government support has increased since 2006, bringing moneyed investors to certain branches where quick profits can be turned.
The investors have good lobbyists, they get government money… Their growth rate in poultry and pork production are enormous “The enders of agriculture poverty.” Shagaida said.
“As a result poultry breeding has shot up in Russia, with domestic producers now satisfying 90 per cent of the market needs.”
“About 70 per cent of pork is now produced within the country.”
“Beef is the weak point, with less than half of the beef sold in Russia produced domestically. Brazil is expected to profit off the ban, replacing formerly hefty imports from Australia.”
We expect the recent profitability in Russia will stimulate expansion. Producers will have money to invest and there will be government subsidy money to further speed up expansion.
African Swine Fever still is a factor in Russia. Last week near Voronezh, 1000 kilometers south of Moscow several thousand pigs were exterminated.The threat of African Swine Fever is very real in the western part of Russia. When it is found all pigs are exterminated with no compensation. It’s a risk that hangs over the industry.
Buildings and swine equipment are expensive in Russia. To build about $10,000 US a sow farrow to finish another $4,000 US a sow to get to cash flow. Combined $14,000 US new unit to cash flow.
2500 sows over $30 million! It takes real money to get up and running. Interest rates are 16 per cent but government subsidy if you can get approved will be down to eight – nine per cent. Still a lot saltier than North American interest rates. Breakeven is about $200 per hog marketed.
Russia will expand hog production but it will take large sums of capital and courage. To add 500,000 sows which is the target. It will take seven billion US dollars! We expect the producers that participate in the expansion over the next few years will be rewarded with profitable hog prices if they get good production and utilize technology available.
Again this year I am travelling with my son Spencer. As a Father I am fortunate to be able to expose him to different cultures and geo – political experiences. Russia is interesting now as he hears many different opinions on the world’s political situation from a Russian perspective.
Travel continues next week. We will be in Russia and the Netherlands.
|Author: Jim Long, President & CEO, Genesus Genetics|
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