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Pork Commentary: US Producers Losing $35 Per Head

29 November 2016
Jim Long on ThePigSite

Jim Long is President &
CEO of Genesus Genetics.

US - As Thanksgiving holiday ends, it was good to have the celebration but the one less day of slaughter from the holiday puts even greater pressure on shackle space and allows packers to bid even lower. Last Friday, the Iowa-Minnesota average price was $42.31 lean a lb. The losses per head are in the $35-40 per head range. It’s ugly.

Meanwhile, the packers’ golden time continues with US pork cut-outs at $0.74. It doesn’t take an ag-economist to subtract $0.74 by $0.42 to get a $0.32 spread on a 210 lb carcass, roughly $60 gross margins for packers to operate. Extraordinary times.

Of couse, the packers making the most money will be the ones who own fewer hogs. The ones that own hogs get packer gross margin less their loss per head. All in all, that arrangement still beats being strictly just a hog producer right now. With more than 2.4 million hogs a week going to market, total packer gross margins is in the $150 million per week range. No wonder the new packing plants under construction in the US are in all-hands-on-deck mode to get operational as soon as possible.

Every day each packer gets stronger financially. When the new plants start up, we expect there will be a vicious fight to get hogs, retail shelf space, and export markets. All packers should be strong for a fight. The added dynamic is that the plants have large blocks of supply under ownership control. Existing plants are going to lose supply. Who knows for sure what the future brings, but we have not seen anything but herd liquidation when producers lose $30 plus per head. Maybe this time, it will be different! We doubt that.

Our Scenario

Continued losses per head through the early winter. As spring comes, back to profit. When the new plants get going (a packer war) coupled with no greater hog supply, there will be erosion of packer margin and producers will get to drive the bus for a while. We expect summer hogs reaching the 80’s.

Other News

European Union: The debt of the Dutch pig production sector has now reached $3 billion US (just over 1 million sows). The government would like 3,000 or 60% of the production units to close over the next 4 years, which would benefit the remaining producers.

U.S cash early weans averaged $37.07 per head last week, a huge increase from $8 a few weeks ago. Obviously, supply and demand is at work. Lower pig numbers and optimism of higher summer prices are racketing up the price. No doubt they will hit $50 in the not so distant future.

US sow slaughter two weeks ago was 61,424. That’s in liquidation area.

We heard reports that the supply of raised without antibiotic (RWA) free hogs is surpassing the demand of such premium priced pork. Hogs are ending up getting sold at regular market price and not receiving premiums. Probably a short term situation, but bears watching. How much RWA pork can the market receive before it outstrips demand that will pay a premium? At the National Pork Industry Conference in July this year, the Vice Preisdent of Seaboard estimated all the niche markets (including RWA) at this time was no more than 5%. Time will truly tell.

Elm Spring Colony Wins Prestigious Maple Leaf Signature Award

Elm Spring Colony, a Genesus client for over 20 years, has been awarded the Maple Leaf Signature Award for 2016. The Maple Leaf Signature Award is given to the best overall producer shipping to the Maple Leaf Lethbridge packing plant in Alberta, recognizing excellence in a combination of attributes that packers are looking for, including consistency, uniformity of product, core weight range, muscle, marbling, firmness, and colour.

Elm Spring ships all of their pigs to Maple Leaf Lethbridge, and does not sort lower quality pigs to another buyer.

Elm Spring Hog Barn staff includes manager David Wipf, Willie Wipf, and Joe Wipf. This is the 4th time in 5 years that Elm Spring has received a major award from Maple Leaf. They were also the #2 herd for grade index at the plant this year as well.

“Elm Spring works hard to provide their customer, Maple Leaf Lethbridge, with the best product they can. Clearly their strong management together with our meat quality program is the right combination” says Mike Van Schepdael, Vice President of Genesus. “Together, we are a strong team”.

A farrow to finish unit, Elm Spring uses Genesus Durocs and Genesus F1 gilts exclusively.

The top 3 herds for grade index at the Lethbridge Maple Leaf plant are all Genesus clients. Genesus also has 3 of the top herds for meat quality as clients, including the top herd.

Genesus is the world leader for meat quality, investing more into meat quality research than any other genetic company since 1998. Genesus has the largest registered purebred herd in the world.

We would like to congratulate Elm Spring for this tremendous achievement!

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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