Pork Commentary: Cash Hog Prices Below Break-Even

US - The US National average price last Friday was $ 52.81 lean per pound. (.39¢/lb live-weight). In our opinion prices that will have a good percentage of our swine production section losing money. The hogs just keep coming and they keep coming heavy. Last weeks US marketing’s were 2.067 million, which is 33,000 more than the same week a year ago.
calendar icon 30 January 2006
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Heavy hogs with the prior weeks Iowa-Minnesota weights averaging 273.8 lbs. a new weekly record averaging almost 4 lbs heavier year over year. More hogs, heavy hogs, and low prices is scaring the stuffing out of us and many in the industry. The knot we had in our stomach during the low market’s of the late 90’s and early 2000 seems to be coming back.

It is our opinion that packers have leverage and usually make good money with US weekly marketing’s over 2 million. After a dozen weeks over 2 million head and short holiday weeks packer leverage gets even stronger as pork tonnage compounds in the food chain. That is where we are now. To get significant price recovery we need to get weekly marketing’s under two million and hog slaughter weights going down. It is our opinion it will take at least two more weeks of marketing’s to get weekly slaughter below two million and weights showing significant decline.

We believe that the mild temperatures we have seen so far most of the winter throughout North America has created excellent hog growing conditions relative to other years. Increased growth rate has contributed to heavier weights and in our opinion not because of backed up hogs. If we are right this will enhance the chances that the US slaughter will get below two million weekly in a timely manner.

The Iowa Pork Congress

Consider attending the largest winter swine event the Iowa Pork Congress – January 25-26 Des Moines, Iowa- www.iowaporkcongress.org - Take the time to see what’s going on your industry. You have a big investment. Help protect it with knowledge garnered at the Pork Congress

US Quarterly Animal Report

The USDA released last week their statistics for various animal product production for 2005 and estimates for 2006.

  • Pork production in 2005 was put at 20.682 billion pounds, just under 1% more than in 2004 ( 20.509) The US barrow and gilt prices average in 2005 was $50.05 live-weight, compared to $52.51 in 2004. In 2005 1% more pork, but a 5% lower price compared to 2004. The USDA is projecting US pork production to be 21.125 billion pounds in 2006, with a barrow/gilt average of 44.17¢. This is 2% more pork than in 2005 with prices 6-12% lower. If the USDA is right and .44¢ is the price, most producers will spin their wheels trying to make a profit in 2006.

  • There has been relative restraint in pork production with less than 1% more pork produced in 2005 than in 2004. Unfortunately for hog producers there are other protein sources. Poultry was up 1.3 billion pounds in 2005 with the USDA projecting a jump of almost 1.1 billion pounds in 2006. Total meat production jumped 1.5 billion pounds in 2005 with a whopping 2.8 billion pound jump projected for 2006.

  • Nobody knows for sure if USDA’s projection is correct for 2006, but a 2.8 billion pound total meat production increase is 10 pounds more meat per capita available in the US. Of course exports will remove some of this meat. The truth is the meat will move, it always moves, but at what price?

Implications

If you are looking at building a new sow barn you better have pig price protection or a lot of capital and courage. We still believe prices will average .50¢/lb live-weight from now until the end of summer. After that who knows. Pork exports need to keep growing which we believe is a reasonable assumption. Domestic prices need to be supported by not only pork exports, but the ability of poultry and beef to access export markets. If the meat tonnage increase in 2006 has to be consumed domestically (+10 lbs per capita) meat and poultry prices will suffer.

From available data we estimate world pork production is around 220 billion lbs. US pork production will increase a tiny fraction of world production in 2006. Indeed an almost irrelevant amount, likewise the total US meat/poultry projected increase of 2.8 billion pounds is a small fraction of the 500 billion lbs of total world meat production. The increase is manageable if export markets expand. The billion dollar question is what is the expansion in pork, beef and poultry in the rest of the world. We know there is meat/poultry production expansion in Mexico, Brazil, China, Eastern Europe and Russia. There is a good chance per capita incomes will increase in these countries and other importing countries to consume the worlds increased tonnage. Thankfully increased income in much of the world translates into increased demand for meat protein.

For expanding pork exporting countries like Canada, US and Brazil, foreign markets are a double edged sword. They can be good but they can be undependable. As one US packing executive characterized to us “pork exports are like a drug addiction, it is something we are becoming dependant on to remain profitable, but also something we cannot do without“. Lets hope our packers can continue to hold and grow our export markets, our profits are increasingly dependant on their success.

This week we will be at the Minneapolis Pork Congress. Visit us at the Genesus Exhibit. We will report our congress observations in next week’s commentary. “It is a greater compliment to be trusted than to be loved“ George Macdonald. We are excited about the release of the Genesus video. If you have highspeed please take the time to view and learn more about us.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 16th January 2006
Reproduced courtesy Farms.com

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