Pork Commentary: Finally Some Live in the Price

US - Last Friday, the Iowa-Minnesota average lean price averaged 74.76 (55¢ liveweight lb). It’s good to see prices move up, but they seem to be struggling to go higher, writes Jim Long.
calendar icon 20 June 2007
clock icon 5 minute read
Hog slaughter weights are heavier than last year (+ 1lb), more hogs than a year ago (+2%), more beef and lets not forget increased chicken egg placements. More meat across the board. Moreover, higher feed prices do not appear to have slowed the meat complex, yet.

July lean hog futures closed Friday at 76.45 (56.37 live) with October 68.90 (50.98 live). We have a sense that there are not only more hogs now, but more coming this fall, year over year. If you are adverse to risk 68.90 in October, might be a good position to look at.

All Smiles at Smithfield

The pork industry is not a sexy business. No one is clamoring to get into the pork industry because of prestige or glory. This is a tough business. Pigs smell, manure is not considered an environmental resource, slaughtering pigs is truly a blood and guts business. This is an industry not for the faint hearted.

In the last two decades, if there was one person who has been the pork industry visionary that saw the future and then, more importantly, executed his vision; it was Joe Luter and his team at Smithfield Foods.

Big to the point of scaring many in the industry and a lightning rod for all the environmental and animal rights crowd (vegetarians). The Smithfield group has become the agenda setter for many an issue. Their announcement, last January, of eliminating gestation stalls in their own swine operations over the next ten years, check mated the animal welfarists and has diminished one of their major fundraising issues while shifting the welfarists’ focus to other targets. It was a tough decision but it was right for Smithfield and the whole industry in the volatile circumstances we are operating now. Ten years is a long time. In 1997, who could have predicted the changes we have seen in the last ten?

Smithfield and our industry were pounded by yellow journalists in a vicious Rolling Stone article a couple of months ago. Smithfield had to defend themselves against the assault which was a condemnation of our whole industry. Being big means none of us came to their aid to fight what was also our fight.

Consequently, the listing of Smithfield Foods in USA Today as one of the top 25 performing stocks in the last 25 years (+19,414%) is obviously recognition of their relentless quest for the top, but also puts the pork industry at the forefront of business news and acknowledges the opportunities available in our business.

USA Today said and we quote “Smithfield Foods pork production and processing added up to super-sized gain for Smithfield and put its shareholders in hog heaven. Its pre-processed sandwich meats fill kids' lunchboxes daily, and the low-carb craze make Smithfield bacon a breakfast staple.”

In the USA today rankings, Smithfield was just behind Berkshire Hathaway (19,424%) led by the ‘Oracle of Omaha’, Warren Buffet. Fast company indeed, Smithfield’s record shows the opportunities in the pork industry that have been and will be for the people who seize the day. It is good to be in an industry with infinite possibilities.

Is Cool for Fools

Still can’t get over the foolishness of US country of origin labeling (COOL) for pork, while chicken does not have to comply. US pork producers are going to be shackled by increased bureaucracy, increased costs and irritation. Meanwhile, the chicken industry must be laughing, watching COOL drive up the cost of pork. If it’s a safety issue to the consumer, why is chicken exempt? Truth is, most consumers do not care about COOL, and probably less than 1% knows it exists. Fish and aquaculture has already implemented COOL, with reports indicating no benefits to the industry, only increased costs. In a country where the motto ‘Freedom or Die’ was first called the idea of further government encroachment into our livelihood is a further sign of a Big Brother syndrome gone mad. COOL costs have been estimated to touch a billion a year, throughout the food chain. You know who will pay. The Producer, as everyone else in the food chain pushes down. The US pork industry has an enviable record of food safety, unlike chicken (who are exempt from COOL). Salmonella and E. coli from poultry are proven health risks. Pork is safe. Chicken has proven otherwise. The world is upside down. Chicken needs more scrutiny, not pork. We are in a commodity business; our survival depends on every dollar. Erosion of margins due to COOL makes our industry less competitive and sustainable.

The US Department of Agriculture, last week, announced the re-opening of the comment period for 60 days on country of origin labeling.

Now is the time to let our voices be heard. Any way to gut the program would be a job well done. As producers we are being hammered by higher costs in feed, labour, energy equipment, building, etc. This is not a time for the government to pile on.

Quote: “For those consumers, the higher prices resulting from mandatory COOL would make them unequivocally worse off” USDA Economic Research Service Perspectives on Farm and Food Policy.

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