Lean Hog prices had a nice price rally last week. Friday to Friday Iowa-Minnesota’s lean price went from 56.33 to 61.33, an increase of around $8.00 per head. USDA Pork Cut-Outs last Thursday were 67.31 giving Packers a margin of $0.06/lb give or take. The next few weeks will be interesting as packer capacity will get pushed by the Christmas – New Year holidays. We believe that at the worst, hog prices will go sideways with a $0.03 – $0.04 /lb upside up to the New Year.

Mexico

In discussions with colleagues in Mexico this past week the consequences of higher feed prices are being felt. In Mexico producers are faced with several challenges most of the time. These include the almost non-existence of Agricultural loans and always relatively higher feed costs which are normally 20-30% higher than the US. The current cost of production in Mexico is $0.55-$0.60 US liveweight lb. Mexican producers, like US producers, are continually hearing of $5.00 corn.If that were to happen Mexico’s cost of production would be near $0.70 /lb US liveweight.

We have traveled to many countries in the World, many like Mexico, have little credit available for agriculture and rely heavily on purchasing imported grain. We expect that several countries including Mexico will have decreased pork and indeed poultry in the next year. The already high cost of feed is changing production and expansion plans. The $8 billion of subsidies for ethanol production is pushing up grain prices around the World. The price point for all meats will decrease consumption in countries with lower disposable income.

The end result is the amount of meat produced in the World in 2007 will be lower than earlier predictions. Fear of feed availability, the cost of feed, and the price points needed to maintain and or expand production will be such to lower per capita consumption in lower disposable income countries. At some point we will see lower grain exports as demand decreases from lack of usage.

U.S. and Canada should in balance benefit as the decrease in meat production in other countries will open opportunities for greater exports. The latest monthly export data from USDA shows a 20% increase year over year. Higher feed prices should help sustain further growth.

Vegetarians Losing Battle

Per capita consumption of meat, poultry, seafood (lb per person using boneless equivalent series per person)

The U.S. Population continues to eat more meat, in 2006, 12lbs more per capita than the average of the 90’s and a whopping 86lbs more than a century ago. Protein consumption has increased as the standard of living has grown and modern agriculture has delivered a better quality of life to America.

People vote with their money, people have choice … American consumers have voted for meat consumption. The vegetarians may be lowering, some individual consumption but all data indicates America wants meat. Its great to be involved in a market with proven sustainable demand.

Per capita Pork consumption has held static since the 1940’s, a disappointment in some regards. It shows we have work to do. We have lost meat market share in the pork industry, the consumer perception of food safety, healthiness, prestige and food service availability are issues we face. Other areas in the world have greater per capita pork consumption, Europe is almost double Americas per capita consumption, Why? The answer might unlock U.S. domestic demand.

Price Prediction

If you want to get real nervous consider the U.S. Economic Research Service prediction of live hog prices in 2007

An average price of 41.50 liveweight a lb in 2007 is well below breakeven. Probably $10.00 per head.

Thank goodness predictions are not reality – the economists once again are missing the mark. There will be in 2007 no more hogs in the Continental market (Canada – USA), there is abundant shackle space, exports will continue to grow, fueled by a weaker U.S. dollar relative to the Euro. Hog prices will be $.50-.52 /lb liveweight in 2007. $25.00 a head greater than this crew of economists predicts.

Big Change in My Life

This week I became President of Genesus Genetics. It was an honour to be elected by my fellow shareholders to take this responsibility. I feel fortunate to have the opportunity to work with a dedicated group of professionals in an industry that I have a passion for. At Genesus we plan to continue to grow our company. Currently Genesus has the largest registered high health nucleus purebred herd in the World and are producing over 100,000 hybrid gilts per year. Continual growth of our annual multi-million dollar genetic program will keep us at the forefront of delivering genetics that maximize our customers’ production and profitability. We all know how hard the business can be.It can be an unforgiving livelihood and only results pay the bills.

Some of you will have been reading this commentary for eight years. We have ridden the ups and downs in the market together. I wanted to share how happy and excited I am with the opportunity and future of our business.

Written by Jim Long, Genesus Genetics / Keystone Pig Advancement Inc. - 28th November 2006 - Reproduced courtesy Farms.com

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