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World Pork Expo: Feed prices dominate but attitude reflects prosperous times

by 5m Editor
12 June 2007, at 12:07pm

As usual, there were thousands of industry participants at the World Pork Expo. Things have been good for the last three years and almost everyone’s attitude reflected the prosperous times we have had, says Jim Long. He reports from this year's successful event in Iowa.

The National Pork Producers Council (NPPC) did an excellent job organizing the expo and we must commend them for a good job. The expo is a major source of revenue for the NPPC and this importance can be seen in the way that exhibitors and attendees are so well treated.

As one would suspect, feed prices were a major topic of conversation. There is concern on the potential harvest and prices. We traveled in the course of the last seven days across the Midwest, over 1,000 miles, and it appears to us that the US corn crop looks in good shape – even, dark green, with adequate moisture and at a height more than satisfactory for the first week in June. There is certainly no sign yet of a crop failure.

One large hog producer that we talked to had an interesting perspective on corn ethanol production. After dismissing corn ethanol as government induced insanity, he added that the corn ethanol surge had done wonders for a major part of rural economy. Not only has the corn price put almost 20 billion dollars into farmer’s hands from higher corn/soybean/wheat prices, it has created jobs and increased land value. But the best part is that most of investment for the ethanol plants has come from outside ag. The money has been invested in the rural communities to stay. It has come in his terminology from the ‘pretty people’ who live on the east coast or west coast. They live where they never walk on dirt. They live in air conditioned houses, drive to work in air conditioned cars and work in air conditioned offices. Corn ethanol has captured the imaginations of these ‘pretty people.’ They believe their investments are helping to solve the environmental issues caused by fossil fuels consumption. This producer’s point is when the corn ethanol bubble collapses; the money that was invested was not ag, but ‘pretty people’ sources.

Packers we talked to at the expo are worried about a potential deluge of hogs this fall. One talked about hogs in the 30’s liveweight. With feed prices where they are, that would be a $25 per head loss. Lean hog futures do not reflect this, currently being 48-49¢ live lb. The one factor that is the wildcard is the lower mortality in the industry due to the circo-virus vaccines. How much lower, is the big question. If you are adverse to risk, some sort of price protection would be worth considering. Historically, most years, pork producers lose money in the fourth quarter.

There are new sow barns under construction. Possibly 100,000 sow spaces will be added this year. We believe the exiting of production is about the same in the US, so the net effect at this point is no sow herd expansion. One feed company executive told us that he believes that if corn is $4.00 a bushel or more this fall, and hog prices are where they are projected, he would suspect some major exiting of sows from land-based producers who do not want to subsidize their hog production with their crops.

The profitability potential this fall could be being reflected in the spot early wean price with some pigs at the expo being offered in the $15 - $17 per head range. The spot market always reflects the psychology of the market, lean hog futures at the time of marketing and feed costs. $15 early weans are a sign of nervousness in the marketplace and the grim reality of hog price expectations. At the expo, we heard of some long-term early wean contracts not being honored by the buyers. This is surprising, since the market has collapsed in just a matter of a few weeks. Of course, some of these clowns were buying contract pigs at $35.00 and then selling them spot market $55.00. Now the contract price is $35.00 and spot is $15, so they run away. There should be a public list of all parties that do not honor contracts.

The Swift announcement that it is being sold to the Brazilian company, JBS was a topic of discussion. The Brazilian company will now become the largest cattle packer in the world. They have never been involved in hog packing. JBS says that they will assess Swift’s hog division and decide in the next six months whether they will continue to operate or sell the division with capacity to slaughter 42,000 head per day. Everyone that we talked to says that they will sell the hog division, but we expect no one knows and no one had included JBS as one of the potential buyers in the first place. Stay tuned. The Brazilians are aggressive and not afraid to compete and have proven more than capable competitors in the world meat market.

We are big believers in benchmarking production information. To make improvements, you have to have targets and know where you sit relative to your peers. We have had dozens of Genesus Genetics customers benchmark their data. It helps push results and maintain producer viability. Unfortunately, there has been little done until now to benchmark grow-finish data. With high feed prices and profitability challenges, better and benchmarked grow-finish data is even more important. It is our understanding that 70% of all profit potential in hog production is in the grow-finish phase. Barn utilization and throughput, pounds of pork produced per space are all major factors to maximize profitability. Swine Management Services, the major benchmarking organization for sows, launched a benchmarking program for grow-finish at the expo. This type of direction is necessary for an industry push to excellence.

Mexican producers told us of hog prices in Mexico in the low 50’s US liveweight and feed at $280 US per tonne. Profitability in Mexico has been non-existent the last few months. Some Mexican producers speculate that in some regions, 10% of the sows have been liquidated. We expect that Mexico will have decreased pork production in the months ahead.

As far as new equipment and barn design, we didn’t see any.