Pork Commentary: Prices Continue To Struggle

US - Last week the US marketing 2.009 million hogs. Another week of two million hogs, the second ever in March. The first week of two million in March was the week before. Not real good news.
calendar icon 20 March 2006
clock icon 5 minute read

Hog marketing’s over two million are not the farmer’s friend. The Iowa-Minnesota price last Friday was $56.46 lean, about $1.00 lower than the previous weeks Friday. Lets be frank, $56.46 is not making anyone any money. It is treading water at best. It is hard to get bullish when the reality of overwhelming supply comes to the market on back to back weeks.

On the positive side we are confident the hog supply will begin to decline. Seasonality of the hog production pattern historically means fewer hogs in the coming weeks. The lack of bullishness of producers also leads us to believe there is little effort being made to hold hogs. There is little expectation of short term price appreciation. It is a good time to be a packer. It is not a great time to own hogs. On the upside packers are making money. This will give them more to bid with to keep their shackles full as hog numbers seasonally decline. The increase of packer capacity that has come into play over the last few months has made hog prices stronger than they would have been with these back to back two million hog kill week. In the next couple of months we believe packers will feel the pressure of the increased shackle space when coupled with their need to maintain retail shelve space, food service customers and export contract in the coming weeks. The battle for packer’s market share with this increased packer production capacity has and will enhance hog prices from where they would have been without the extra shackle space.

Chicken and the Mass Media

Chicken is getting lots of media. Time Magazine, USA Today, etc are intensely discussing the challenges of Avian flu. In marketing theory repetition of a message is perceived to create an impression and retention. Chicken is getting the Avian Flu message repeated over and over. People dying and the fear of a pandemic are not a message you want to put out there to create demand. In the parts of Europe and Asia there are reports of a chicken consumption decline of 20%. French government officials have resorted to eating chicken on television to promote its safety. Eating chicken in France has been promoted as a patriotic gesture. They have not gotten to the point of putting yellow ribbon stickers on their cars for the chickens, but who knows what the future holds. Despite the government efforts, French chicken consumption is down 20%, and that is a lot.

In the USA Today this past week there was an article on the collateral damage chicken companies in the US have suffered in the stock market, of up to 30%. On CNN we saw a stock analyst discuss the stringent safety standard the US chicken industry has in place to prevent Avian Flu. The interview also revealed the analyst’s company has significant stock holding in chicken companies.

The point we are trying to make is Avian Flu is a huge wildcard effecting not only chicken but pork price prospects. It appears Avian Flu moves rapidly. It has traveled several thousand miles from South East Asia to Europe. The bad news is, birds fly. There are ten’s of thousands of chicken barns in the US. That is a lot of locations to defend from a flying virus. The consumer has been inundated with news on the subject. What will happen if it breaks in the US? Will chicken consumption hold, or fall 5%, 10%, 20%. Americans have shown little concern about BSE, but the dangers were clearing laid out by the government that the chance of infection was minimal, consumers believed, beef consumption held.

US chicken production is currently 162 million head a week. (Chicken/Turkey combined, one billion pounds a week), a 10% decline in demand would be 100 million pounds. That would certainly wack chicken and turkey prices and cut back chicken and turkey productions. In retrospect it is likely a bad time to be promoting the Other White Meat. Blah or is it Duh. Building a brand with emphasis on a competing product does have some drawback.

One Other Thing

Low hog prices we are experiencing are not conducive to new sow barn construction. Many barns talked about are getting harder to get built with hog prices and prospects below breakeven. It takes capital and courage to build new sow barns. With two million kills in March it doesn’t look like we need more hogs.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 20th February 2006
Reproduced courtesy Farms.com

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