Downsizing May Be Needed Due To Feed Prices

US Weekly Hog Outlook, 15th December 2006 - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.
calendar icon 16 December 2006
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Reports are that Canadian firms Big Sky Farms and Olymel have announced they are withdrawing from the OlyWest consortium that planned a $200 million processing plant in Manitoba. No information has been released as to whether the third partner in the consortium will continue with plans to build the plant. Our guess is they will not.

Maple Leaf a Canadian packer announced earlier that they were abandoning plans to build another pork processing plant. The high feed prices and strength of the Canadian dollar are impacting the Canadian hog industry very negatively.

There also are reports that the province of Manitoba has banned the construction of hog production facilities for some time.

Even with the Canadians taking much or all of the plans to increase hog slaughter facilities off of the drawing board, reports are that the farmer-owned Triumph Foods Illinois plant is still a go for plans to start construction next summer.

With a high probability that the U.S. hog industry will need to downsize in the next few years due to higher feed prices, another 16-17 thousand head a day slaughter plant will result in overcapacity in hog slaughter facilities in the U.S. With tight margins already for packers the addition of another 16-17 thousand head a day new plant would probably result in the closure of one or more older plants.

Sow slaughter from domestic production for the six weeks ending December 2 is up 17,291 head from a year earlier. Gilt slaughter also continues to run above last year and normal. The question is who is cutting back or getting out of pork production? Hog producers that are also corn producers would appear to be good candidates for reduction, but we have no solid information that this is occurring.

Average live weights for barrows and gilts in Iowa-Minnesota for the week ending December 9 continued below a year earlier with weights at 269.3 pounds, down 0.6 pound from a week earlier and down 1.7 pounds from a year earlier. For the three weeks ending December 9, live barrow and gilt weights in Iowa-Minnesota have averaged 1.33 pounds below 12 months earlier.

Pork exports for October 2006 were up 7.1% from a year earlier and pork imports for this month were down 2.2%. Pork exports for January-October of 2006 were up 11.1% for the same months in 2005.

For January-October, the increases in sales of pork to Japan were down 7.4%, Canada up 6.5%, Mexico up 16.5%, Russia up 125.3%, South Korea up 46.9%, Hong Kong and mainland China up 8.5%, Taiwan up 1.5%, Caribbean up 74.3% and other up 10.4%. For the first ten months of 2006, pork imports were down 1.6% with all of the decline plus some from Canada. Net pork exports as a percent of production for January-October of this year at 9.25%, is up 1.32% from 12 months earlier.

Agents for the U.S. Department of Homeland Security's Immigration and Customs Enforcement division and other law enforcement agencies commenced interviews with employees at six Swift and Co. livestock production facilities on Tuesday. Two of Swift's hog operations were interrupted on Tuesday and production was slowed the remainder of the week.

How much this operation will influence hog slaughter is uncertain, but probably not too much. Hog slaughter through Thursday was down 29 thousand head from a week earlier but up 23 thousand head from a year earlier.

USDA in their December update of the supply and the use of corn for the 2006-2007 marketing year did not change use estimates, but increased their estimate of corn prices by $0.10 per bushel from a month earlier. The new estimate average for the year is $2.90-3.30 per bushel. The December estimate for price of soybean meal was unchanged at $165-190 per ton from a month earlier.

Live hog prices Friday morning were down $4-5 per cwt compared to a week earlier. The weighted average carcass negotiated base prices Friday morning were down $3.73-7.76 per cwt compared to 7 days earlier. We believe the Swift situation was negative to hog prices this week.

The top live prices Friday morning for select markets were: Peoria $37.00 per cwt, St. Paul $38.00 per cwt, Sioux Falls and interior Missouri were unavailable. The carcass negotiated weighted price by area were: western Cornbelt $54.37 per cwt, eastern Cornbelt $56.80 per cwt, Iowa-Minnesota $53.95 per cwt and nation $56.04 per cwt.

Slaughter under Federal Inspection this week at 2135 thousand head, down 1.5% from 12 months earlier.

ThePigSite News Desk

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