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Pork Commentary: Prices Continue To Languish

by 5m Editor
6 February 2006, at 12:00am

US - Prices continue to languish with the National average price last Friday being $51.60 lean (.38¢ live per pound). No one is making money. We are hearing of feeder pigs bought last fall now going to market with $15-20 per head losses. It is not pretty. Last week the US hog marketing’s were 2.030 million.

Until we get below 2 million a head per week it will be hard to have profitable prices. These low prices are going to take the wind out of many expansion plans and encourage some exiting of production.

What is Breakeven?

In 2005 the US marketing 103.5 million hogs. In 2005 there was 8 million early weans, feeder pigs and market hogs imported from Canada to the US. If we subtract 8 million from 103.5 million we come up with an estimate of 95.5 million US originated market hogs. If we divide 95.5 million by the USDA inventory of the breeding herd of 6 million we come up with 15.9 market hogs per breeding animal per year as an estimated average. If we move the market hog numbers by one million and the breeding herd by 100,000 which in our opinion would be at the extreme outside of any margin of error we would move the 15.9 estimate less than one half a hog per breeding animal per year. Let us assume for argument sake that 15.9 is a relatively accurate number as the US average result. Some observations:

  • What is the cost of production at 15.9? Certainly it is not .38¢ per pound as some observers speculate. Indeed half of the producers would be below 15.9. Average cost of production is likely .42-.45¢ per pound.

  • Pork powerhouses produce half of the US production. There is probably little chance from a statistical point of view to assume their average is much different than the industry average.

  • Some have wondered why there was no expansion of the US breeding herd over the last two years. Possibly it is because real profits build equity and confidence. It is our opinion that by and large profit levels of $25.00 per head for the last two years as some have conjectured are a fantasy. Profits from 15.9 hogs per breeding animal are not the same as ones from 20 hogs per breeding animal. If the average is 15.9 there are producers out there at 14. Surviving, but not getting rich and wondering about their future.

  • If you are getting 15.9 does it entice you to want to expand and put in more sows? We think the answer is no.

  • The average of 15.9 is a reason some sow producers want to get out of farrowing and buy early weans. Pushing the production risk and challenge on someone else. Indeed it is something we are seeing throughout the industry. Many who wish to expand are trying to find someone else to take a significant part of price and/or production risk.

  • A US industry average of 15.9 demonstrates the difficulty of production. It is why the producers we are involved with marketing over 20 are doing so well financially. There is tremendous variation in results across our industry which leads to opportunity for producers of excellence.

Growth Rate

Recently we have marketed heavier hogs and more hogs than expected. We believe it has been due to excellent weather and good quality grain. The weather has been the mildest for decades, which support improved growth rate. The corn crop had record heat units. It was harvested at low moisture rates. We did not artificially dry it. It was mature. All the producers we talk to tell us hogs are growing better. Unfortunately hog finishing data is not overly accurate. Beginning weights, ending weights vary.

This week we were talking to a chicken processor. Over the last five months compared to a year ago, their chickens have taken 37 days to reach 4.3 pounds. Last year it was 39 days. This is a 5% improvement. The data should be relatively accurate. We asked how the tow days were gained. They commented that they were not sure, but think better weather and better grain quality were key factors. A 5% improvement is huge. Remarkably, over the last 4 weeks there has been 4-5% more pork meat produced. Good chance there is a link.

We expect weights and slaughter numbers to continue to decline. We have pulled hogs ahead. Four days ahead is over one million hogs or 4lbs of heavier weight and half a million hogs. Four days of improved growth would explain all issues of increased pork tonnage. At some point if the premise is correct, slaughter will drop below a year ago. Prices will recover. Kansas State Swine Profitability Conference

On February 7th will are honored to be speaking at the Kansas State Swine Profitability Conference which will be held at the Kansas State University. The subject will be “Where is the Market Headed“ More information is available by calling 785-532-1267 or looking under “Upcoming Events“ on the Web at http://www.asi.ksu.edu/swine.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 6th February 2006
Reproduced courtesy Farms.com

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5m Editor