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Pork Commentary: Red Ink in Hog Country

by 5m Editor
21 November 2006, at 2:31pm

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

Iowa-Minnesota lean average price last Friday was 56.33 (41.68 live weight per lb). At current feed prices some producers will have red ink - the first time since April, 2004. The bugaboo of the holiday season seems to be jumping up and hitting producers once again. It appears every time we approach a major holiday (now Thanksgiving) the factor of fewer slaughter days works to give packers more buying leverage.Pork cut-outs averaged 64.21 last Thursday, almost 8 cents higher than the lean hog market (56.33), ample margin for packers. Packers will pay only what they have to, to get what they need and can handle.

US slaughter last week was 2.121 million. The week before was 2.150. Last year’s same week was 2.140.A handful fewer hogs and the first time for several weeks lower than the year before.

Other observations:

Slaughter weights are running one pound lower than a year ago. If we are approximately marketing 2.1 million head a week – that would be production of 300,000 head per day – one pound lower weights with a two pound gain per day would be a pull ahead of 150,000 head. The market hog inventory is quite current

The last weekly egg sets for broilers is 3% lower than a year ago. Higher Feed prices are impacting future chicken production. Lower chicken production is supportive for hog prices. Also fewer chicken production means less feed demand.

Cattle placements are declining. The USDA released October Cattle on Feed last Friday. October cattle placed were 87% of a year ago - the second lowest October cattle placement since 1996. High feed prices are cutting into cattle feeding margins and feedlots’ appetite to place cattle. By February, as the feedlot inventory declines, we expect to see fewer cattle marketed, lighter weights and less beef produced. Less beef and chicken coming to market are both factors supporting hog prices.

If we look at last Friday’s lean hog futures closes, we see perceived market prices for the next year significantly stronger than last Friday’s Iowa-Minnesota lean close of 56.3.

Hogs Lean – Close
Dec – 61.25
Feb – 64.92
April – 67.22
May – 70.80
June – 72.7
July – 70.45
Aug – 69.30
Oct – 63.40
Dec – 62.27

Hog prices through the next twelve months will stay strong from any historical perspective. The profitability challenge will be cost of production, as feed prices have moved higher. Grow your own feed and you are cash flowing fine, if you look at your business as an integrated operation. Buy all of your feed and it is tougher.

Two things we do believe. There will be less corn used in livestock and poultry production, cutting demand. $3.00 corn will get every piece of arable land planted in the 2007 crop year. Cut demand and increase supply. Wildcard is ethanol. At what point does perceived energy requirements begin to jeopardize food supply?

There will be No Expansion in Manitoba

A week ago, the Canadian province of Manitoba announced a moratorium on hog barn construction. The intention is to review the effects of hogs on the environment. There was no moratorium on chickens, dairy, cattle, etc construction. This is quite an arbitrary assault on the swine industry, especially in a province with massive arable areas and low rural population density. How long the moratorium last is anyone’s guess. Crass politics in our opinion.

The socialist government of Manitoba is urban based – over 70% of the province’s population is urban. Being green is safe politics. The perception of Big Hog is an easy target that plays into the visuals, perceptions and prejudices of the general population. An election is coming. They are playing to their political base. To heck with realities of the situation. The reality of enhanced manure utilization and management due to the high fertilizer costs. Targeting pig farmers is easy arithmetic, a few thousand versus hundreds of thousands of urbanites. Crass shallow politics. Shame.

With the hog barn construction moratorium in Manitoba and also Quebec, the affects on total swine production in Canada is profound.

Canada had 1.639 million breeding animals on October 1, 2006. Quebec had 416,000 and Manitoba 382,000. The combined 797,000 is almost half of Canada’s total breeding inventory. The consequences of half of Canada’s production base being legislated from construction is going to effect total pig numbers. There will be fewer.

If we look at production trends in the five largest hog provinces in Canada, we see some interesting dynamics.


Manitoba is the only province that has significantly grown its breeding herd over the last year. It now has a moratorium on construction.

Manitoba’s breeding herd productivity (26.01) is almost 5 pigs per breeding animal better than the other provinces. Probably that is why Manitoba has expanded in the last year. The best always gets bigger (with 20% of the swine genetic business in Manitoba we at Genesus like to think we are contributing to the productivity). Manitoba now has a moratorium on construction. There can be no further expansion.

Quebec, which has had a moratorium for several years, is now losing sows, 4% in the last year. We believe that every year, everywhere, 1-2% of all sow barns go out of production. If you do not build the net effect will always be negative.

Alberta is losing sows and its pigs born per breeding animal (20.29)is the lowest of the five provinces. The oil boom in the province is making it quite difficult for producers to find quality labour and the costs ($20.00 per hour) are prohibitive. We believe that Alberta’s lower production is probably a factor of quality and number of man hours available per breeding animal. We expect to see Alberta’s breeding herd to decline further due to this reality.

Summary

  • Manitoba has a moratorium on hog barn construction.
  • Quebec has a moratorium on hog barn construction.
  • Alberta has huge labour cost and availability issues.
  • Saskatchewan with 133 thousand breeding animals has little critical mass while the intention of Maple Leaf Foods to close (and not sell) the only major packer in the province causes further problems. 133 thousand sows will not attract a new packer (it’s not enough hogs). While provincial productivity of 20.86 pigs born per year falls behind other major players. The proximity to Alberta is also negatively affecting labour quality, availability and cost.
  • Ontario is stagnant. Sow herd decreasing. Little construction. With the major packing plant, Maple Leaf Burlington, up for sale creating instability.
The sum of all of these factors and other dynamics is fewer pigs in Canada, decreasing total continental hog availability. This will be supportive to US and Canada hog prices over the next year. We see no problem with the US hog price averaging 50-52 cents live weight over the next twelve months.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 21st November 2006 - Reproduced courtesy Farms.com

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5m Editor