Pork Commentary: Still $25.00 per Head Profit

CANADA - Hog prices weakened last week with Iowa-Minnesota’s lean price Friday averaging $70.13, lower yes, but still .6¢ higher than a year ago.
calendar icon 11 July 2006
clock icon 5 minute read

Next week we expect lean hog prices will stabilize with some upside price potential. Producers appear to always get the short straw around holidays as packers get the leverage of fewer hours of shackle space to keep filled. With full non-holiday slaughter weeks for the next 8 consecutive weeks we expect packers will once again bid up prices close to pork cut outs. At the end of last week the pork cut-out was around .76¢.

Hog Production January 1st - July 1st Thousand Head
2005 2006
USA 50423 50387
Canada 11189 10852
61622 61239


After the first 6 months of 2006 combined hog production of Canada and the USA is almost 400,000 head less than a year ago. You’ve got to love the purveyors of knowledge who repeatedly tell us of productivity gains. If there are productivity gains- where are the hogs? Six months is a long time. Fewer hogs mean stronger prices. A market hog is bringing $12-$15 per head more than a year ago.

Beef Prices

You’ve got to give credit to the beef industry. They are running beef production 7% greater than a year ago, which is approximately 35-40 million pounds (about 2000 more tractor trailer loads a week) but cattle prices are 2% better than a year ago while the beef cut-out is 13% stronger. Beef is seeing tremendous demand; a 7% increase in production is huge to actually have stronger prices is a miracle. God help us if the pork industry increased production 7% year over year.

Chicken

Earlier in the year chicken production was running 5% more than a year ago. In the last few weeks it is running 2% lower than a year ago. We estimate this to be a decrease of 40-50 million pounds a week. (2000-25000 fewer tractor trailer loads a week) Current chicken prices, despite lower production are 10% lower than a year ago; .64¢ versus .72¢ per pound. We have no idea where chicken prices and production are going but we believe chick placements currently running 2% fewer than a year ago means less chicken short term, and that is positive for hog prices.

Global Demand

The organization for Economic Co-operation and Development has written jointly with United Nations Food and Agricultural Organization a report on global agricultural trends to 2015. “Global meat consumption is expected to expand 2% annually through 2015, with developing countries in Asia accounting for 60% of that growth. China’s per capita meat consumption will rise 23% over the period”. This 2% per year increase in the next decade translates into approximately 25-30 million more hogs a year globally for the next decade. Pork dominates the global meat consumption with 46% market share of all meat protein consumed.

Mature Meat Protein Markets

Canada and the USA will see increases in total consumption due to population growth but minimal per capita growth.

The report is a blueprint for the future in Canada-USA. Pork exports and all the risks they bring are the path for production and market increases. This in itself is a continuation of the pattern that has already developed. Pork export-sale increases month after month. Quality, price competitiveness and market access are keys to the degree of future success. Having multiple options for both domestically and internationally pork products should be price supportive.

Giant of our Industry

A dominant personality and an individual who revolutionized the pork industry is shifting gears. Joseph Luter III, Chair and Chief Executive Officer at Smithfield Foods, has handed off his CEO title to Larry Pope. Luter (67) will continue as chairman and will focus on acquisitions and long term strategic development.

When the man who by strength of personality and shrewdness built Smithfield Foods into the world’s largest hog producer, world’s largest pork processor, major cattle feeder and processor makes a move such as this it is major news.

Luter has affected all of our lives. He was at the forefront of the industry evolving into an integrated producer packer ownership.

Likely the evolution would have happened with or without Luter as consolidation has happened in all types of businesses, but his vision and ability to see the future and make the right move was extraordinary. A testament of Luter’s acumen is that over the last 30 years Smithfield Food has returned a 24% annual growth rate for shareholders: largest pork processor, largest hog producer in the world. Joe Luter; there is no one like him in this industry. There is only one giant.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 5th July 2006 - Reproduced courtesy Farms.com

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