Pork Commentary: Lean Hog Prices Continue Under Pressure

US - Iowa-Minnesota lean hog price last Friday averaged 60.62. Lots of hogs around with prices under pressure. Packers are doing fine though, with carcass cut-outs last Thursday 67.32, a $7.00 spread.
calendar icon 11 September 2007
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We have to admit, we have little confidence that lean hogs will be 66.30 in October, which Friday’s lean hog futures reflected. There will be too many hogs for too many weeks. Pork tonnage is going to overrun demand unless China starts buying volume now. We suspect that they are waiting for lower prices. A pork trader responsible for China told us last week that they have had little China interest the last two weeks. October-November could be really ugly for cash hog prices. Lean hog futures are at prices for this fall that will ensure profitability. If you are adverse to risk, good time to look at price protection.

Maple Leaf Foods

This past week, Maple Leaf Foods in Brandon, Manitoba started killing hogs on a second shift. When the shift gets to full capacity, the Brandon facility will be able to kill 16,000 head a day. This will help alleviate packer pressure. Maple Leaf had closed their plant in Saskatoon, Saskatchewan in June, eliminating 7,000 head a day. Maple Leaf is planning on closing their Winnipeg, Manitoba facility which kills 3,200 – 3,600 head per day. This past week they cut Winnipeg’s slaughter to 1,600 – 1,800 per day. Maple Leaf’s closing of Saskatoon and Winnipeg will, in the end take about 7,000 – 8,000 head a day out of production but they add back 8,000 in Brandon. Maple Leaf is hoping the closure of the Winnipeg and Saskatoon plants will ensure supply for Brandon’s second shift, as they are in the same relative geographical area. Maple Leaf is smart. By closing two old antiquated plants they are going to utilize the state of the art Brandon facility and have the flow through economic benefits of double shift infrastructure utilization. All producers benefit from packers that are making money and lowering production costs to stay competitive.

The downside for producers is in Ontario, where Maple Leaf has said they wish to divest from their Burlington slaughter facility (42,000 head a week). As Brandon ramps up the need for Burlington for Maple Leaf decreases. It appears the floundering Ontario Pork Producers Marketing Board has not been able to entice a buyer to come and deal with their monopoly control of the province. There is a leadership vacuum at the top of the Ontario Pork Producers Marking Board (OPPMB) that jeopardizes the livelihood of 100’s of farm families in Ontario and hundred of millions of investment in the industry. The OPPMB bureaucracy continues to bloat and do studies without actions, somewhat like Nero playing his harp while Rome burned The inability of Ontario to have effective leadership is a threat to all of Canada’s producers. It comes with the territory when you put in charge the chief dog catcher of Toronto to run your organization and destiny. Who is accountable? Where are the results? A bureaucracy with power but not legitimacy. This is a tough business. We know how hard producers work and invest. We find it disheartening when we see their livelihoods exposed to incompetence and indifference. It’s a tragedy.

Week ending 09/01/07
2006 2007 Change
Lewan Hog Price Iowa S. Minnesota 68.09 62.68 -7.90%
Live Fed Steer 91.03 94.3 +3.60%
Chicken - 12 City Broiler 68.89 79.75 +14.40%
Turkey - Eastern Region Hen 81.00 91.00 +12.30%
Corn - Omaha Bushel 2.01 3.10 +54.20%
Wheat - Kansas City Bushel 4.44 7.11 +60.10%
Soybean Meal 160.20 231.10 +44.30%

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