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Pork Commentary: US Sow Herd Expansion is Coming

09 December 2014
Jim Long on ThePigSite

Jim Long is President &
CEO of Genesus Genetics.

US - There is little doubt in our mind that sow herd expansion is coming. We are in the breeding stock business, every day we are being involved in discussions about more sows going into production, writes Jim Long President – CEO Genesus Inc.

We can get to 30,000 new sows without much effort in orders and imminent orders. We know that Genesus is just a piece in the swine genetic business. Let’s assume Genesus is getting 20 per cent of all new business? That would mean about 150,000 new sows coming in total. That’s a market mover and we suspect it would push supply levels to an area to drop prices to breakeven, or possibly lower, especially if PED slows down and slaughter weights stay at the heights they are now.

In our opinion, the supply of hogs from imminent expansion will not hit the market much before 2016. This is due to sow herd fill timelines and the biological period from conception to market. We expect strong profits through the summer of 2015, and in our opinion summer lean hog futures in the low 90s are undervalued and we expect summer hogs to be in the 100s.

We expect the 100s because of seasonal hog supply, record beef prices, and we expect excellent pork exports to China in the summer of 2015. China’s liquidation of 5 million sows will lead to a giant pork pull, Smithfield Foods, Chinese owned will be busy loading containers to fill their Chinese supply chain.

Small Pig Prices

The demand for small pigs both early weans and feeder pigs remain strong. Last week US cash early weans averaged $74.77 and 40 lb. feeder pigs $87.60. If we get any sort of bump in lean hog futures, we expect to see a ramp up in small pig prices.

Canada

We don’t sense sow herd expansion of any significance in Canada. A few empty sow farms starting back up, but we are not aware of any new sow barns under construction. We do not expect sow herd expansion in Canada. Labour issues, environmental regulations, banks lack of appetite for swine farms, and a general lack of bullishness will keep a lid on sow herd expansion. Producers seem to mostly retrenching, filling the equity hole and getting ready for when the hog market gets weaker.

China

We have written for the last while about the massive sow herd liquidation in China, over 5 million sows or about 12% of the sow base. Liquidation happens because of financial losses, it never happens in the pig business for any other reason.

You don’t need to look any further than the $9.25 a bushel US that the China Government has established as a floor price to understand why China’s swine production costs are quite high. The Chinese Government now owns about 5 billion bushels of corn at about $10 a bushel or $50 billion invested. No wonder all efforts are being made to keep imported cheaper grains out of China by the Chinese Government as they are the owners of much of the corn in their country. We expect GMO issues etc… will continue to affect the possibility of imports. In the meantime, the high feed costs continue to drive Chinese hog producers out with another 550,000 sows liquidated in October, obviously, liquidation is still underway. Another major factor with taking 5 million sows plus out of production will be the future decrease in feed needs. Less hogs, less feed needed. This will not only cut the feed needs for China’s grain farmer but US farmers hoping for exports to China will be disappointed.

Prairie Livestock Expo

This week we will be at the Prairie Livestock Expo in Winnipeg (formerly Manitoba Hog Days). Visit us at the Genesus exhibit and/or the Genesus Reception after the Expo. Next week we will report our observations on the industry that we picked up at the Expo.

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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