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Pork Commentary: Chicken Little is Wrong Again

by 5m Editor
12 September 2006, at 6:00pm

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

Not many weeks ago, the Chicken Little predictors in our industry were strongly encouraging producers (of which none of Chicken Littles belong) to seriously look at hedging their October Hog Marketings. October lean hog futures were in the high 50’s unfortunately once again the sky is falling wizards missed the mark. October lean hog futures closed last Friday at $66.55. A strong $15.00 per head better than when the chicken littles were encouraging producers to limit their profitability.

Just as the Chicken Littles in May said the yearly high was in (we strongly disagreed – and we were right). They, once again, are dead wrong.

The Chicken Little flock appears to predict in lockstep. Unfortunately, they continue to miss the simple facts. There are no more hogs – as the Canada-US slaughter YTD is no greater than a year ago. No more hogs and a 5% more slaughter capacity creates more competition for hogs by packers. The US dollar depreciation makes exports easier to compete in world markets despite relatively profitable hog prices. Summary, no more hogs – Canada-US – more packer capacity and increasing export demand = higher hog prices.

If we sound harsh we do not apologize. This swine business is hard. The last ten years have not been overly profitable. Producers have to maximize returns and misdirected advice is harmful. This is about people’s livelihood, not an abstract academic theory.

Record Daily Slaughter

Iowa-Minnesota lean hog prices Friday averaged $67.70. This despite daily marketings in the week hitting 416,000 head 5,000 more than the previous daily high set December 16, 2004. There is an interesting phenomenon going on. Pork cut-outs were averaging 75.06 lean and packers are making money, lean hog prices averaging $67.70 and producers are making money (+ $20.00 per head). Both packers and producers making money and the industry is setting record daily kills. The hog stars are rarely aligned so well. Demand is a wonderful thing.

Expansion

Canada will export approximately 700,000 + more early weans and feeder pigs to the US in 2006 compared to 2005. This increase in pigs is dampening the need for new sow barn construction in the USA. If these pigs did not come there would need to be 35 – 40,000 more sows in place to fill the finishing barns and shackle space that obviously these imported pigs are filling.

The plus for Canada-US producers is that these little pigs are meeting a need without increasing total Canada-US slaughter, which in turn helps maintain high slaughter hog prices when coupled with increased slaughter capacity and export demand.

We expect a continued increase in small pigs from Canada, as Canadian producers seek to maximize returns. This will be a shift of location for finishing, not a product of expansion.

Sow Slaughter

How much expansion can we be having when weekly sow slaughter continues to run above a year ago and gilt retention isn’t increasing? Not much, in our opinion.

One theory being batted around is that sow slaughter has increased because sow mortality has decreased year over year.

We did some checking with the two benchmark groups to see if their data on sow mortality would back this theory up. The data shows little change year to date. The biggest difference in farms can be attributed to different sources of genetics. Some genetics have statistically lower mortality. We do not expect that production management overall in the industry has changed much year over year.

The industry’s sow mortality as a whole will continue to hover around 8% per annum as long as the genetic company with most of the business has few herds able to get below 10%. When you couple the multiple effects of sow mortality and involuntary culling, it is difficult to gain sow productivity in high-mortality herds. All sows that die or are involuntarily culled do not wait to farrow before their production demise.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 12th September 2006 - Reproduced courtesy Farms.com

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

5m Editor