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Pork Commentary: 10 per cent more hogs than a year ago!

by 5m Editor
15 November 2007, at 12:17pm

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

Last week, the U.S. marketed 10% more market hogs than the same week a year ago – a new record weekly marketing number of 2.362 million head. That is 215,000 more than the same week last year (2.147). Lean hog prices continued to fall with last Friday’s Iowa-Minnesota lean price, averaging 46.04 - $30 to $40 per head below producers breakeven. Wasn’t it August when lean hog futures for December were 73¢? That would be $54 a head better than where we are now. Some hedged, some didn’t. Business futures usually hinge on the decisions of the leadership.

If there is any silver lining (this is from the boy who would look for a pony in a manure pile), packers should be doing quite well. U.S. pork cut-outs averaged 58.81, last Thursday using the Iowa-Minnesota price of 46.04. The 13¢/lb. spread would put packer margins above $20.00 per head. Good times for packers.

Observations – Mostly Good

  • Packers making $20.00 plus per head will be hungry to slaughter everything they can. This should keep hogs moving.

  • U.S. pork cut-outs are staying relatively strong at 58.81 considering record marketing numbers. Pork demand is remaining strong under this deluge of meat. Pork is moving out of the packers to the marketplace. Cash lean hogs could move up quickly if cut-outs hold, especially if hog marketings decline.

  • Packers who own hogs are losing significant money if they are not hedged. This is motivation for packers to push lean hog prices up.

  • We are at seasonal peak market numbers. Historically 8 out of 10 years, producers sell hogs below breakeven sometime in the fourth quarter. Marketings will seasonally decline. Assuming demand holds, prices could rebound quickly. Lean hog futures closed last Friday – February 61.30, April 66.60. April is $40 a head better than now.

Canada

Canada swine producers are being pounded by a currency appreciation the U.S. dollar of 50%, high feed costs and low slaughter prices.

Last week in Ontario, about 500 producers and industry leaders met in Mitchell, Ontario near the centre of the Ontario industry which has 420,000 sows. Pork producers predicted the end of industry and the loss of 40,000 jobs if costs, prices and the soaring Canadian dollar stay at today’s level.

“If it stays where it is, not one pork producer will be left in Ontario in over a year” said Rob Nyenhuis, president of Perth County Pork Producers (Perth is the largest pork-producing county in Canada).

Government officials present were not only asked for loans, but help in decreasing veterinary product costs that are as much as 240 percent higher in Canada than the U.S.

One Ontario producer we talked to told us that last week’s Ontario slaughter price was giving him losses of $40.00 per head. “It’s worse than 1998” he said.

We are in an industry under siege. Equity levels are not nearly as high as most pundits believe. Sure, prices were higher over the last three years, but so are expenses. It will get better, but we expect that the Canadian industry will be significantly smaller (down 7 to 8%) a year from now.

Conclusion

Dire times for too many producers. Losses are mounting. Thankfully pork is moving, exports are at record levels. Consumers of the world are looking for pork – North American pork. We are selling a product people want, we just have too much of it. The seasonal supply decline will happen. We are at or near the price bottom. It’s only up from here. Producers with capital and courage will survive and prosper. Producers who are using the best technologies and achieving better productivity have the edge.

“Decision makers need to factor into their present decisions the future that has already happened.”

------- Drucker

5m Editor