Pork Commentary: World Pork Expo Report

US - A couple of weeks ago we were quite aggressive that the high of the market was not in contrary to what some Ag-economists were saying.
calendar icon 14 June 2006
clock icon 5 minute read

World Pork Expo Report Markets

It is good news for producers that our premise was right, with prices jumping last week $5-6.00 lean per pound. The Iowa-Minnesota lean average Friday was $73.43 (.54¢ per pound live), with this the high price YTD. Currently farrow to finish producers should be making $30.00 per head. US slaughter for the week was 1.903 million with packers beating the bushes hard trying to round up this relatively low slaughter number.

World Pork Expo Observations

  • Industry continues to consolidate with fewer exhibitors and fewer producers.

  • There are new sow barns under construction but the numbers we can identify are at a level that we do not believe will lead to significant net expansion in the USA.

  • One builder told us that new finishing barns are costing $200.00 a head space. This builder calculates a new barn pay back of 12 years when given a $36.00 annual head space contract fee. It used to be a 7 year pay back. He wondered if and when this slower rate of return could lead to a slowdown in finishing barn construction or higher per head contract fees.

  • There was talk that some of the pork powerhouses are actively pursuing building and owning their own finishing sites. Perceived lack of control of contract finishers was cited as the main driver in this direction.

  • Canadian’s were at the Expo investigating the merits of finishing their pigs in the US. One Eastern Canadian producer exploring the possibility reported that there was approximately $22-24 per head advantage with US finishing. We expect with this scenario more pigs will come to the US from Canada over the next year. We predict an increase of 20,000 per week over the coming year with most being custom finished with retained ownership. The shift of finishing production to the US will take pressure off the need to expand sow herds in the US as finishing barns will be utilized and packer’s needs better fulfilled.

  • Packers were losing money last week with pork cutouts priced under lean hog prices. One packer told us they were losing $10.00 per head. This won’t last. There will be plant production cut back to try to push pork prices higher and if possible roll back hog prices. From what we can determine the ready to slaughter market hog inventory is quite current. Nobody is holding hogs on a .73¢ market. With a $30.00 per head profit all packers we talked to told us their regular suppliers were down in hog numbers. Hog supply is tight. Expect marketing’s of 1,850 – 1,900 million a week until July. Hog prices will remain in the 70’s.

  • There was concern expressed by several producers about future feed prices, with increased Ethanol production sucking up corn. Corn and soybean fields we saw looked good for this time of year, though some areas can use some rain.

  • We were told of new drought resistant Corn Hybrids with over two years of field results supposedly getting good yields but only requiring 20% of the normal moisture. If this is true and they hit the marketplace, millions of acres of dry lands could become corn country. The consequences would be numerous.

  • PWMS and/or Circovirus were a major topic of conversation at the Expo. Some are speculating a 1-2% decline in production nationally being attributed to this scourge. Vaccines are being developed. Unfortunately vaccines in the swine industry have had mixed results. Diseases of the week seem to come and go. Hog Cholera, Pseudorabies, Parvovirus, APP, PRRS etc. They hit hard and then a solution is found or we learn to live with the problems. PWMS appears to be the new challenge. Bad news for producers, but it helps the vets and drug companies pay the bills. There is a saying “One person’s adversity is another’s opportunity“

Attitude of producers was good. Comes with the territory when you are making money. We still sense a concern for the future. Most, if not all producers have been through several hog cycles. The last two cycles low enough to bring many to their knees. Producers are older. Older means more cautious. A kind of “been there, done that“ outlook. Producer equity is building. At some point we could have real expansion, but we do not see it yet.

Source: Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 13th June 2006
Reproduced courtesy Farms.com

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