ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Pork Commentary - Manitoba Hog Days

by 5m Editor
17 December 2007, at 10:54am

CANADA - This past week, Jim Long spent two days at Manitoba Hog Days, held in Brandon, Manitoba, Canada.

Our observations:

  • The producers we spoke with were nervous. Many farrow-to-finish producers are just covering feed costs with their hog market receipts, and reports of losses near $50.00 per head are not uncommon. It is a very ugly situation.

  • There were several antidotal reports of breeding herd liquidation, but most were from the provinces of Ontario and Alberta. There is liquidation in Manitoba, but at this point it is still quite restrained. Manitoba is in a better situation than most of Canada. It has a stable packer situation and Statistics Canada (government) shows that it produces four more pigs born alive per sow than any other province (26). Sustained increased productivity has given Manitoba’s industry more equity and staying power.

  • A flooring manufacturer told us that they have no orders for new farrowing or nursery barns, either in Canada or in the United States. They said that they have never seen it this slow.

  • Sow marketers and packers spoke of large numbers of sows being marketed, with the price of sows in the teens per pound. There are a lot of sows being offered. One packer told us they did not need more sows until the 2008. An integrator called us last week and said that because the plants were full, they could not get sows killed. Some reports say that sow kills are operating six days a week. The bottom line is that lots of sows are being offered, with the kill capacity being at least 70,000 a week. Are we trying to liquidate faster than there is sow kill capacity? With a price spread of over 20 cents per pound between market hogs and sows, this may be a good time to buy shares in sausage operations!

  • A year ago, the Manitoba government put a moratorium on building new hog barns. In retrospect, it is a blessing for Manitoba’s swine industry, as it doesn’t need more hogs. Although the original reasons for the creation of the moratorium were environmentally related, it worked out for the best. In conclusion, this government policy had positive consequences.

  • The Brandon Maple Leaf Foods Plant went to double-shift a few weeks ago. Currently, they are near capacity, slaughtering about 14,900 hogs per day. Manitoba is fortunate to have the only modern double-shift plant in Canada, owned by a company with a commitment to the pork business and the financial resources to make it work.

  • A large Canadian integrator, who finishes in both Canada and the U.S., said they were losing $50.00 per head in Canada and $14.00 in the U.S. That large difference is not sustainable. According to farmer arithmetic, it is possible to finish three times as many hogs in the U.S. before you are broke. This case reminds us of the person who said a few weeks ago, “Canadians want to finish in the U.S. so they can lose less money!” Heck of a business.

  • The circo-virus vaccine, weather, and Paylean appear to be pulling hogs ahead. One group who markets over a million hogs told us that they see one week quicker to market. A couple days industry-wide is 700,000-plus extra hogs pulled ahead. If this is true, markets could be pushed up fast when the day of reckoning comes with the seasonal marketing declines.

Summary

Canada is liquidating, but how much is anyone’s guess. We expect to see a net decline of 3,000 to 4,000 sows a week. There will be an increase in numbers of small pigs sent to the U.S. for finishing, but slaughter hog numbers to the U.S. have peaked from Canada.

Corn Ethanol

The great insanity of corn ethanol appears to be losing its lustre. A year ago, subsidy-supported corn ethanol was showing profits of $2.00 per gallon. Now with the spike in corn prices, they are showing profits in the 25 cents per-gallon range. It is almost impossible to find investors for new ethanol projects. A couple weeks ago, VeraSun Energy Corporation acquired its rival, US BioEnergy Corporation, for U.S. $700 million in stock, creating the world’s largest independent producer of fuels made from corn. VeraSun paid the equivalent of $1.65 per gallon of production for USBE. That is 25 percent less than it paid in another major takeover just a few months ago. Many analysts wonder if even that is too rich, considering VeraSun’s stock price had dropped by more than half this year.

It is the same scenario that happened in the dot.com era of the late 90’s, when dot.coms started swapping overprices shares and forming Internet titans that soon collapsed. Déjà vu.

The crushing effect that corn ethanol has put on all consumers in the world by driving food prices higher causing social, political and economic complications have far exceeded the benefits of a few gallons of expensive fuel. Now even the environmentalists are losing their love affair with corn ethanol, as they realize that the impact on food and water supply is far outweighing any benefits. This reminds us of the CEO of Exxon’s comments on why they don’t invest in corn ethanol production: “We see no way of adding value to moonshine.”

Markets

The spread between cut-outs and market hog price narrowed last week.

Iowa-Minnesota Lean Hog Price: Friday to Friday 48.91 to 52.51
USDA Lean Hog Cut-outs: Thursday to Thursday 60.29 to 58.94

Two weeks ago, lean hogs to cut-outs were 13 cents per pound. Last week, spreads dropped to 6.5 cents per pound, a 50 percent decrease from the week before. This means that last week packer margins dropped about $12.00 per head ¬- a huge decline. This indicates that packers had to bid up the almost 4 cents per pound with increased hog bids to get them. It makes the most sense to us, as the U.S. marketed a very large kill of 2.383 million head. Packers chased the hogs for this kill. They paid 4 cents more and gave up margin to do it. Maybe hogs are pulled ahead. Exports are strong and the meat is moving. Packers have learned that they can kill almost 2.4 million head a week every week, and like the money they have been making. After the marketing chaos of the holiday season, we expect hog prices to quickly reach 60 cents lean, as hog marketings decline. Packers have made money and soon they will compete for fewer hogs. Packers are like us farmers: they cannot stand too much of a good thing. This coming week, we will be in Mexico. We will report our observations next week.

5m Editor