Pork Commentary: Potential Price Upside-But Don’t Bet the Farm!

US - Iowa-Minnesota lean hog prices averaged $67.31 last Friday ( .50¢ per pound live-weight). Most producers should be making $20-$25 per head. It’s a good time to own hogs.
calendar icon 23 May 2006
clock icon 5 minute read

US slaughter this past week was 1.945 million. This is 26,000 more than the same week a year ago. We expect Canada-USA total slaughter in the coming weeks to be very close to a year ago. Prices have some potential upside, but we wouldn’t bet the farm on it.

Too much domestic beef and chicken production with both meats having continuing export problems due to BSE or Avian Flu. In the pork industry we are fortunate not to have any consumer life threatening diseases. The threat of death is not conducive to enhanced consumption. At some point you might think it might tilt meat consumption pork’s way.

  • US cattle on Feed Report released last Friday indicates 9% more cattle on feed than a year ago. Feedlot operators are losing lots of money trying to market this glut of production. The cowboys don’t seem to ever learn from history. Unfortunately the 100’s of millions of extra beef that the meat market has to move is limiting the upside in pork prices.
  • Chicken integrators are beginning to show slight restraint. Probably their bankers and shareholders looking at 100’s of million of dollars in losses might be thinking a little supply management might be a good idea. Chick placements were down last week 2% from a year ago. Not a lot but in the right direction, let’s hope this trend continues.
  • Last week the USDA released pork in cold storage inventory as of April 30th and it came in at 516 million pounds. Last year April 30th was 563 million pounds. March 31st this year was 502 million. Over the last 5 years April pork in cold storage averaged 508 million pounds. This year was quite in line with the 5 year average. Historically annual pork in cold storage peaks at the end of April. From now until September pork storage levels will decline. The good news, pork including bellies in storage is at a manageable level and shouldn’t be a drag on prices.
  • Following the money – when the BSE crisis hit the Canadian cattle and the border was shut for exports to the USA there was not enough slaughter capacity to handle all the cattle. Solution: expand Canada kill capacity from 60-65,000 a week to 95-100,000 a week. This has been done. US border then opens. The dilemma; about 30,000 weekly are again being sent to the US from Canada to feedlots or to slaughter. Canada is slaughtering around 65,000 a week. Slaughter capacity 95-100,000. Canadian packers and feedlots can not compete with prices offered by US buyers. Cattlemen are following the money to the US. If the numbers available to be slaughtered in Canada do not increase, expect bankrupt cattle slaughter plants due to underutilization and margin challenge. Implication; some in Canada think increased hog slaughter capacity would keep small pigs and market hogs in Canada from going to the US. We are not sure, hog producers just like cattle producers will tend to follow the money to wherever is the best return. You have too; this is a low margin business, your very survival depends on your ability to maximize returns wherever that might be. You have to be a brave soul to invest in new hog slaughter capacity in Canada.

Pig CHAMP-Grow Finish Summary 2005

There is reality in production and there are the myths. We all hear about the producers who claim 21 pounds per day average daily gain in the grow-finish. How many can do it?, what is the industry average? Myth - Reality: PigCHAMP is the western hemispheres leading benchmarking data base. We recently received PigCHAMP 2005 grow-finish results.

There is tremendous variation is results. This gives opportunity to producers. Feed costs varied from best to worst by $15.00 per head, mortality by 5% and average daily gain by a half of a pound per day. All these factors combined would be a $25.00 per head difference. We think the difference between prosperity and bankruptcy. If you know your own production numbers, benchmark them. We tend to fixate on prices and markets.

Unfortunately markets are something we can do little about. Your production is a lot more in your control. How are you doing relative to benchmark standards? What can you do to make them better? What is your pig health, employee motivation and training; what is your technological ceiling, including type of genetics. Analyze, search for solutions. Challenge your advisors and suppliers. Benchmark your results. We know reality can be hard to face, but to make things better you have to identify the challenges. Raise your standards.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 23rd May 2006
Reproduced courtesy Farms.com

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