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Pork Commentary: Feed Prices

by 5m Editor
5 December 2006, at 4:45pm

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

Feed Prices

We are certainly getting a strong feeling that corn and feed prices are beginning to affect producers’ decisions. We have been told of expansion plans being put on hold and liquidation due to decade-high feed prices and the fear of further potential increases. A historical indicator of feeding profitability is the hog corn ratio.


A year ago, both the hog corn ratio and the steer corn ratio were indicating quite high feeding profitability. At 17.3 for hogs and 26.6 for steers it’s now a much tougher deal. With lower margins, you could expect to see greater sow slaughter, cow slaughter, and lower egg sets (broilers).

Sow Slaughter

Year-to-date sow slaughter Canada-USA is 2.839 million, 3.8% greater than a year ago (+107,000). The most recent weeks’ sow slaughter data shows 7% more than a year ago (2006 – 68,000, 2005 – 63,500). University of Missouri US Gilt Slaughter percentages show over fifty percent the last few weeks. More slow slaughter, less gilt retention = liquidation.

Cow Slaughter

Year-to-date cow slaughter is up 17.5% over a year ago. The most recent week up 24.85% (2006 – 72,900, 2005 – 58,400). That would be 14,500 more cows being slaughtered in a week. Hard to see how the cow herd is going anywhere but down.

Egg Sets Chickens

Year-to-date egg sets are down -0.5%. The latest weeks egg sets down -3.22% which is approximately 6.5 million fewer eggs (chickens) per week getting to market compared to the same week a year ago. The latest sow slaughter is up 7%, latest cow slaughter up 24.85%, latest egg sets down -3.22%. There is going to be significantly less meat being produced. Less meat in the supply chain leads to higher prices. A good way to cushion feed prices.

Other Markets

Corn in Mexico is 2.20 pesos per kilo or $5 a bushel. It is hitting Mexican producers hard, as the cost of production is now greater than most producers’ selling price. We expect to see contraction in Mexico’s breeding herd, one of the US’s major markets for pork exports. Contrast this with Argentina where corn last week was $110 a tonne or $2.80 a bushel. This is higher than before but still $2.20 a bushel lower than Mexico.

Cost of Production

A few months ago, we discussed the cost of production benchmarking done by the accounting firm, Latta, Harris, Hanon and Pennigroth of Tipton, Iowa. Most farms were in Iowa, Missouri, Ohio and Illinois. This group’s average cost of production in 2005, farrow to finish, was 41.75 cent per lb live weight. On Nov.16, 2005, terminal corn was $1.68 bushel; on Nov. 16, 2006 it was $3.33 bushel - an increase year to year of $1.65 bushel (almost doubled). If we use the calculation, it takes 10 bushels of corn to produce a hog – the $1.65 bushel of corn increase translates into $16.50 a hog. Simple farmer math tells us that $16.50 increase divided by 260 lb hog equals increased farrow to finish costs of 6.35 cents per lb. Extending this further, the 41.75 cents per lb cost in 2005 moves to 48.10 cents per lb live weight. If you do not produce your own feed, it’s not any too lucrative to have market hogs just over 50 cents in 2007. Breakevens on new barns just keep getting higher.

Markets

The Iowa-Minnesota Lean Hog Price last Friday was 59.05. US weekly marketings were 2.156 million, 13,000 few head than the same week a year ago. Combined lean hog futures are historically strong averaging over 50 cents per lb live weight through 2007. We had predicted strong prices of 50 cents plus in 2007, somewhat contrary compared to negative predictions of the ag-economists.

Going forward, we expect no more hogs in 2007 than 2006 (Canada-US). We see liquidation of the sow herd continuing, building costs and feed prices minimizing new sow barn construction, continued pork export growth, abundant packer capacity and lower total meat supply. No doubt, hog prices have upside over 50 cents per lb. If you are growing your own feed, 2007 will be a great year to be a hog producer.

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

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5m Editor