Pork Commentary: Is There a Santa Claus? US Hog Farmers Hope So20 December 2016
US - US hog prices, lean hog futures, and small pig prices continue a rapid rebound heading towards Christmas. Santa Claus has come early for American hog producers, writes Jim Long President – CEO Genesus Inc.
- Cash lean hogs have jumped $20 per head in the last four weeks, now $0.57/lb
- U.S. cash early weans were down to $5 per head. Last week, they averaged $47 per head. Anyone selling cash early weans will have a better Christmas.
- In the lean hog futures June has gone up from a low of $0.67 at the end of September to a close last Friday of $0.78. A $20 plus increase.
- A few weeks ago, some profitability farrow to finish projections for the next twelve months showed profits of $5 per head. Current models indicate $20 per head.
- We don’t want to forget our packers so close to Christmas. With U.S. pork cut-outs at $0.78/lb and hog prices of $0.57 on a 210 lb carcass, packer gross margin is over $40 USD per head. With gross margin at this level or higher for the last four months, every day has been Christmas for packers. What is absolutely fantastic is that with U.S. hog marketings at 2,544,000 last week, USDA pork cut-outs are $0.78/lb. It is record pork production, and we doubt if anyone predicted such high pork cut-out prices in the face of this record deluge. It reflects a demand for pork in retail, food service and export that is absolutely positive. Throw in the U.S. dollar at extremely high levels relative to foreign currencies and the demand is even more extraordinary.
- In the future, the new U.S. packing plants will come on line. Triumph-Seaboard, Hadfield, Prime Moon Ridge and Prestige. Lots of new capacity of over 10 million head per year, or about 500,000 sows production. The competition for hogs by packers will get intense. Packer margins will decrease with producers getting a bigger share of the cut out value. This in itself will enhance producer profit potential. We continue to believe as we have for quite a while that U.S. lean hogs will exceed $0.80 in the summer of 2017.
- This past week, we attended the Prairie Livestock Expo in Winnipeg, Manitoba, Canada. Manitoba has about 300,000 sows. What we observed is an industry licking its wounds from the losses of the last half year, but cautiously optimistic of the future. We heard of no new sow barn construction and just a few finishers being considered. We expect Manitoba will continue to ship about 60,000 small pigs a week to the U.S. The U.S. has the capacity to finish, strength of currency, and producer demand, which will continue to pull the small pigs south.
- At the Expo, we had some producers ask why the Des Moines Iowa based CEO and COO both left Choice Genetics at the same time. We don’t know. We expect the challenge of trying to operate an added value genetic company like Choice Genetics, maintain customers, and even add any is very difficult after dealing with the bankruptcy they experienced. The Choice brand was severely damaged by the bankruptcy. My father always told me “it’s easier to give birth than bring the dead back to life.” We understand the new CEO of Choice Genetics is based in Europe.
This time of the year is a time for reflection. We have been in the swine business a long time. We have met many people in our industry. This is a tough business. We all know there has been consolidation. Part of consolidation has been the exit of many producers, what some would call destructive capitalism. We are all passengers on the journey. There are things we control and many we don’t. Many of what we term survivors of the journey have done well. For this, we can be thankful. We believe in the future as most, if not all, of you do. We know pork is the global market leader in meat consumption. We all see the growth in demand. We all know we have productivity tools to enhance our opportunities, whether it be genetics, nutrition, human resources developed, or equipment.
We are believers. We are optimists. Nothing has ever been built by anyone but optimists. Believers we are. Merry Christmas. Santa’s coming to our house.
|Author: Jim Long, President & CEO, Genesus Genetics|
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