Pork Commentary: Good Times are Rolling

CANADA - Iowa-Minnesota’s average lean price last Friday was $77.76 (57.5¢ per pound live-weight). Some producers will be making $40.00 per hog marketed. That’s if they didn’t hedge when the wizards of the future were predicting market highs of .65-.67¢ or about $20.00 a head short of where we are now.
calendar icon 21 June 2006
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Good Times are Rolling

This past week packers bid the price up but could only round up 1.823 million hogs over 9% fewer than the same week a year ago. (1.914 million) As we said many times before you can only kill what’s there. Indeed Iowa-Minnesota live-weights a week ago came in at 264.3 pounds, 2.2 pounds lower than the week before and 2.5 pounds lower than the same week a year ago. Fewer hogs, lighter hogs, it is certainly not a scenario of bountiful supply relative to demand. Packers are in a tough place with pork cut-outs barely over the lean hog price.

Many, if not all will be losing $5.00-$10.00 per head on the kill floor. Packer capacity of 410,000 plus a day is working in the producers favor. In reality, with weekly marketing fewer than 1.85 million, packers have little or no leverage to drive up prices. The packers who own hogs will do the farmer arithmetic. Make $30.00 plus on production lose $10.00 killing. Farmer arithmetic tells you this is a win.

At the same time the packer’s who own hogs hope the packer’s that do not own or price control their supply are hemorrhaging red ink It is indeed a Darwinian struggle; packers: strong companies, strong willed. Logically you would think they would adjust price to stop losing money. In our opinion with marketing’s around or under 1.85 million even if there is a will by the packers to push hog prices lower they do not have the leverage. We see hog kills through June and into July hovering around 1.85 million with lean hog prices well north of .70¢ lean. Good times for producers who own hogs, tough time to be a packer.

Expansion

We do not believe expansion in Canada or the US has yet been at a level to increase hog supply year over year before the spring-summer 2007. Especially when we factor PWMS-Circovirus mortality into the mix. Producers will make money into the spring-summer period 2007.

Word of Caution; Producers equity levels are growing. With this comes confidence and the wherewithal to expand. We haven’t seen net expansion yet. We wonder though if three more months of $30.00 per head plus profits when piled on the cash-equity levels in the industry could lead to real expansion. All markets seem to be effected by gravity at sometime. We will not sustain high prices forever.

On the flipside to our caution; corn price futures in 2008 of $3.10 per bushel plus, and new building costs probably translate into a .65¢ lean breakeven. It will take a lot of farmer arithmetic to have the courage to bite on that type of cost and breakeven commitment.

Last week we were in Manitoba visiting producers, industry personnel and customers. The price cost scenario in Canada, primarily due to Canadian exchange rate appreciation is a major topic of conversation. More and more producers are talking of shifting production to the US (finishing hogs). The $20-25 per head US advantage per head is hard to ignore. There is no expansion of the breeding inventory in Western Canada presently.

We also were involved in our Genesus 25+ Award barbecue. At the barbecue Genesus presented plaques to many of 39 Genesus producers that weaned over 25 pigs in calendar year 2005. It is always positive to see so many producers who can reach such a lofty goal. High production is the best hedge against low prices.

In the last few weeks we had sent production data from 21 of our customers to Swine Management Services (SMS) of Fremont Nebraska, a production benchmarking and management entity that has 301 farms and 504,615 females in their database. Fortunately Genesus farms did quite well in the SMS benchmarking results for pigs/weaned/mated female/year. In the last 52 weeks Genesus customers farms were 1,2 and 4 with 14 of the top 24 farms out of 301 (504,615 females) being Genesus.

Results we are quite proud of. All major genetic companies have numerous customer farms in the aggregate result. Genesus’ 21 farms averaged almost 4 pigs better than the SMS aggregate herd average. Four pigs is a strong $100.00 better return. If you are looking for new genetics consider Genesus as an option. More details of the SMS Data are on the Genesus Newsletter below.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 19th June 2006
Reproduced courtesy Farms.com

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