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Pork Commentary: Liquidation All Over

by 5m Editor
6 February 2008, at 11:02am

CANADA - This week, Jim Long's North American Pork Commentary highlights a strengthening market in some states, but reduction in slaughter weights - which has been expected. The global picture is changing too as market forces begin to bite and grain prices escalate.

Markets were stronger last week with Friday’s Iowa-Minnesota average 53.38, up from 46.63 three Fridays ago, or about $14.00 of really needed extra dollars per head. Weekly US slaughter was 2.276 million, down from the previous week’s 2.304 but up from a year ago, when we had 2.048 million head. If there is any silver lining in this huge slaughter increase year-over-year, it is the fact that slaughter weights are dropping rapidly – 2.2 lbs over the last two weeks.

We would not be surprised to see five pounds off slaughter weights in the next five weeks, a one-pound-a-week average. We are pulling hogs ahead. As slaughter numbers come down in the next few weeks, lower weights will mean less pork tonnage. May Lean Hog Futures were 74.95 on Friday, which is about $40.00 a head better than we are now. With about 2.5 million market hogs in Canada and the US each week, that’s $100 million dollars more for a production base. That would help a lot.

Observations

  • Tyson Foods is planning to close their beef plant in Emporia, Kansas, laying off up to 2,400 workers. Good signal that there is concern that cattle numbers will be decreasing. Less beef tonnage is positive for pork. Pork is the other red meat (surely we are confused).
  • Further signs of liquidation in Ontario. Here are some of the sizes of sow units quitting and this is not all of them. M 1500, C 1500, V 2500, P 1000, D 1500, R 750, T 3000, D 440, J 1500, R 1500, V 1200, R 750, F 4500, etc. In Canada you have not only feed and price challenges but the question of slaughter plant viability, exchange rate, country of origin, trade actions, basis etc. Many producers everywhere are asking, “Are we viable short term and long term?” As issues magnify, it can trigger liquidation.
  • Rabobank (largest agriculture bank in the world) is reporting that up to 100 million pigs have died in China from Porcine High Fever Disease.
  • Price of pork in China is $2.00 a lb. The government has instituted price controls on pork, as prices have quadrupled in the last year.
  • The Chinese government has announced subsidies of $2.2 billion dollars to keep prices in check and a disease health insurance scheme to keep producers in business.
  • China has banned the use of grain for ethanol production to help ensure food supplies.
  • China instituted the use of Methanol fuel (from coal). There are now 200 plants producing 3.6 billion gallons per year by 2010, 6.6 billion gallons. China has the world’s third largest coal reserves. Methanol is being produced for 55¢ gallon.
  • The United States has the world’s largest coal reserve. Just a thought – use coal for fuel. Use corn for food. Maybe the Chinese are ahead on this one. The idea of burning your food to drive your car is one that historians will write about. The judgment will be harsh.
  • $2.00 lb pork in China should continue to drive US pork exports. As slaughter decreases seasonally this will continue to push price higher.
  • At the Minnesota and Iowa trade shows, we talked to several AI studs and AI equipment suppliers. They reported rod usage and AI sales down from 2 to 20%. This would be a sign of less demand from a smaller sow herd. You do not breed what’s not there.
  • Last week, more reports of large PRRS breaks knocking big holes in some production systems. We believe that the impact is significant with even a 1% decline in total supply price altering.
  • A producer called us and named producers and their sow numbers who were quitting in his area. Near the Iowa-Minnesota border, it is interesting that this is happening in an area of packers, feed and opportunity for manure utilisation. It was over 5,000 sows in a relatively small area.

Summary

Liquidation is happening. There are large PRRS breaks, exports are strong with still major opportunities in China. Last week, Korean contacts (Korea one million sows) told us that the feed price (all imported grains) was causing panic in the industry. In Eastern Europe our contacts told us that liquidation was underway. Global pork supplies (not only domestic pork) are declining as we speak. We are confident there is upside of 5¢ plus to all lean hog future months from May on. It’s nasty now, but if you have ability and faith in yourself and our industry, better times are coming.

5m Editor