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Pork Commentary: You Gotta Believe - Hogs in the 70’s in late August

by 5m Editor
29 August 2006, at 5:52pm

CANADA - This weeks North American Pork Commentary from Jim Long.

Hog Prices continued to defy what was perceived as the conventional wisdom in May - Lean Hog Prices had peaked in the 60’s and the high for the year was in.

Instead the industry in the last half of August has Iowa-Minnesota Lean Hog prices averaging 73.70 last Friday. Good news for producers as the equity crater that was dug in the late 90’s until 2004 gets backfilled. In fact the equity crater has be refilled and the excess is being stored in many cases for the next hiccup in prices that most producers know is inevitable. Smart reasoning as most of the industry is older and to use a cowboy analogy…There are only so many round-ups.

We also like to point out that in May we strongly disagreed with the pundits who said the price for the year had peaked. We had several emails and phone calls questioning the sanity of our position that lean hogs would average above $0.70 lean to the end of August. In the end maybe we were lucky, but we were right. Our supposition was simple, there would be no more hogs in the combined Canada-USA slaughter and with 5% greater packer capacity the packers would pound each other for market share with the desire to maximize capacity pushing prices higher and finally pork exports would continually increase fuelled by a weaker US Dollar and world pork demand. Bottom line, no more hogs, more competition to buy them, with increasing demand for the final product. Result – Lean Hog Prices in the 70’s.

USDA Cold Storage Report

At the end of July the US had 411 million lbs of pork in storage. The 5 year average for July is 415 million. Pork bellies in storage at the end of July were 37 million, the 5 year average 32 million.

In our opinion, there is not story here other than pork storage levels are close to the historical average and will do little to effect prices one way or the other at this time.

Hogs are Current

The verified US average carcass data for the week ending August 12 was 191 pounds. One pound lower than the same week a year ago. The week of August 12 was the first week in 2006 that had carcass averages lower than the 3 year average. There is no way hogs are backed up, not only weights tell us that, but who the heck is going to keep market ready hogs when Packers are wanting to pay you prices that are like having Christmas in August.

Feeder Pigs and SEW’s

Last week the USDA estimated the average price for SEW’s was $33.41 and 40 pound feeder pigs $44.58. The DTN feeder pig livestock margin calculates you can currently pay $60.60 for a 45 lb feeder pig that would be marketed at the end of December. We always see the market move to what can be paid. We expect feeder pigs and SEW’s to gain strength in the spot market over the next few weeks if lean hog and grain futures stay relatively stable. Expect a $10.00 increase on the feeder pigs.

Circovirus

Give Larry Pope, CEO of Smithfield Foods – the World’s largest hog producer and pork processor, credit. While many CEO’s will try to gloss over specific challenges to their business, Pope has been quite forthright with Smithfield shareholders about the cost of Circovirus in their US production system, which is approximately 800,000 sows.

CEO Pope has explained to shareholders that the damage of Circovirus to Smithfield is an additional cost of $1.25 per hundredweight across their production system. Most of these Circovirus problems have been in their Carolina production – with some breaks in the Midwest.

The cost of Circovirus to Smithfield has raised their cost of production to $41.50 per hundredweight , this increase of $0.25 per hundredweight on a 250 lb pig is an increased cost of $3.75 per head. Maybe it doesn’t sound like much, but if Smithfield is a reflection of the whole industry and we are marketing almost 2.5 million head in Canada – USA a week, the industry’s loss to Circovirus multiplies to almost $10 million a week.

Lets hope that the new vaccine that has recently been introduced to the market place helps. Unfortunately we all know of many vaccines for several diseases that have been less than totally effective: APP and PRRS vaccines come to mind. Circovirus is strange in some ways it has hit far and wide with little real pattern. Some people have been hit hard while others have seen no problems. For some reason our own Genesus Genetics customers have been spared of any major problems. Why? We do not know for sure, but we are glad!

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 15th August 2006 - Reproduced courtesy Farms.com

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To find out more about Genesus Genetics,
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www.genesus.net .

5m Editor