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Pork Commentary: Excellent Profits for Producers

by 5m Editor
29 June 2006, at 12:00am

CANADA - The Iowa-Minnesota average lean price last Friday was $79.17 ($58.50 live-weight per pound). A year ago it was just under .70¢ lean. Producers are receiving $20.00 per head more than a year ago. An extra twenty on each hog is a nice bonus isn’t it? Especially nice when the total profit per head is currently over $40.00 for many producers.

Other Observations

  • Iowa-Minnesota average live-weight slaughter weights were 262.5 last week. A whopping 4.3 lbs. lighter than the same week a year ago. This just happens to be the largest weight difference to the downside since September 1995. Average Iowa-Minnesota weights were also 1.8 pounds lighter than the previous week. To say the market inventory is current is an understatement. In our opinion, when packers wave a couple $20.00 bills in profit before producers, “look out Nelly, they’re going to town now” All producers know that profits like this rarely happen, and they don’t want to miss the ride. Market inventory is more than current. Weights have not dropped because of heat. Sure its summer, but its summer every year. This year’s heat and humidity has not been extraordinary.

  • Packers continue to pound each other. Pork cut outs of .81¢-.82¢ and average lean hog prices of $79.17 only give packers red ink. Packers subsidizing producer’s profits cannot continue forever. Packers will try to push back. As long as weekly hog slaughter stays below 1.9 million we believe packers will lose money and subsidize producers.

  • We have taken a position in the past that there would not be appreciable sow barn construction until a new price list is established that will cash flow the cost of production for the higher building costs of new units. A new price list is appearing for sews; higher, flat prices of $34-$35 with weight premium of up to $1.00 a pound are pushing 13 pound pigs to a guaranteed price of $37.00. We have heard of percentage of CME contracts 56-57% of 6 months out. Higher price could trigger more building. It also will begin to move prices up for existing sew producers as contracts are renewed. It is our opinion that in the last three years the finishers have had the opportunity to make more money per head than the sew sow units. It is one reason finishers are being built, but not many sow units. Having sows and getting top results is hard. Running finisher barns is easier. The pendulum will swing. Finishers flush with big profits are going to be like packers are now. Excess capacity chasing a finite supply. Buying sews and finishing might not be as good as it has been.

Ontario Pork Congress

This past week we attended the Ontario Pork Congress. A trade show for Ontario pork producers.

Observations:

  • Ontario has approximately 450,000 sows.

  • More and more Ontario producers are, and will be or considering sending pigs to the US to be finished. The $20-$25 per head US advantage of profitability is too great to ignore. The latest statistics back this up with the Canada to US small pig total 21,000 more than the same week a year ago. (117,945 in 2006 and 96,066 in 2005) Ontario’s hog slaughter year to date is 4.7% lower than a year ago.

  • Ontario, like Quebec and North Carolina is one of the hardest hit areas for PWMS (circo virus). It appears to be leveling off but estimates of an extra 7% mortality is still being quoted. The hard part of this disease is the pigs die after 100 lbs. with a lot of cost already incurred. The cause and solution to this scourge is still under investigation. We think our guess or yours is about as good as the solution gets to date. In Ontario the economic impact has been industry altering. Some of the bravest souls we know in this industry have been knocked to their knees.

  • Low prices disease, Counter-Vail, anti-dumping issues, currency appreciation etc., are all part of the Ontario scenario. When this happens, producers look for ways to compensate and or find solutions. For the several decades all market hogs in Ontario have been by government legislation been mandated to be marketed by the Ontario Pork Producer Marketing Board monopoly. Now one of the solutions some producer leaders are investigating is the concept of allowing producers to actually sell their own hogs directly to the packer. This producer group calls it Open Marketing. To almost everyone else in North America it is just normal day to day business. Not exactly a bunch of revolutionaries are they? Receiving $20-25.00 per head less in Ontario than just across the border is obviously a big part of the issue. The marketing monopoly had its day. About 2 decades ago. Before internet and fax machines. When a pick up truck load of hogs was common. Things change. Monopolies do not. The monopoly to the detriment of the producers has for much of the last couple years been delivering from what we can determine the lowest hog prices in the world. The saying “how are we doing now” comes to mind. Choice and freedom are hallmarks of our society. A cartel monopoly that collect almost $2.00 per head in levy (check off). The size of the bureaucracy it funds is amazing. They now have added former policemen to enforce their mandate on producers who in attempting to survive try to sell hogs across the border for more money. Of course the monopoly will never allow freedom of choice in marketing for producers. It would be the end of the bureaucracies’ gravy train. The only hope; powers granted by a government can be taken away by government. Industry viability depends on market access reform, so does job creation, environmental compliance, grain utilization etc. At one time Ontario was one of the leading hog producing regions in the world. Not anymore. The legislated suppression of marketing options is too great to overcome. Marketing option reform is necessary. Being a successful hog producer is hard. This is a business where average farrow to finish profits were $3.70 a head from 1998 to 2005. No producer can afford to have dollars of opportunity lost in this commodity business. Marketing reform is a necessity for survival. It is a tough world out there and there is no rational justification to sustain the status quo. It isn’t working.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 29th June 2006
Reproduced courtesy Farms.com

To find out more about Genesus Genetics,
please take the time to visit their website at
www.genesus.net .

5m Editor