The market has now increased almost $40.00 per head in the last four weeks. Not a miracle but almost. Forty dollars a head is a difference of about $100 million a week to the production base. The reason: demand. The decrease in pork production globally is ‘coming home to roost.’ With the U.S. now exporting 25% of all pork produced, the supply/demand of the continental market is now being hugely impacted by global supply/demand.

We expect momentum to continue. Last week, U.S. packers fell all over themselves. They chased hogs and drove up prices. The hogs are not there to sustain these kill numbers. Hog weights are coming down and we are pulling ahead. We expect weights to continue to come down about one pound a week into the 250’s live. Cash flow needs of producers and what appears to be insatiable demand for hogs by packers and the marketplace will continue to lower weights and increase hog prices. The worst is behind us.

Iowa-Minnesota Weights (Pounds liveweight)
	2007	2008
January 7	269.8	271.2
April 11	268.4	266.4
	-1.4	-4.8

The markets are getting better, but the industry situation is terrible. The loss of equity has been huge. Even at $40 per head price increases, most are still losing money. We need 80¢ lean/lb. to get this corrected. We are optimistic that we will see 80¢ this summer as seasonal slaughter declines and global pork demand continues unabated.

Other Considerations

• U.S. slaughter is running over 70,000 a week liquidation levels.
• The Canadian sow cull program is beginning – this will lead to further liquidation. Some officials are expecting 150,000-plus to be slaughtered. We think the program will not reach 100,000. Even so, it will make fewer pigs.
• Speaking to a swine production record bureau, they tell us gilt entries are being limited. Producers are holding onto sows rather than culling (they aren’t worth much). Lack of gilt entry will, in time, lower production. Sows will be kept too long while we will see higher sow mortality.
• Swine vaccine and drug companies are reporting lower sales. In a bid to keep expenses down, vaccines and drug usage are being limited by many producers. This will lead to higher mortality and fewer hogs going to market. Decrease of circovirus vaccine usage could trigger large scale mortalities similar to two years ago.
• At the feed level, rations are being decreased in proteins and minerals, all in a bid to lower costs. Cash flow is king. Survival depends on it.
• We have been optimistic recently that prices would get radically better. One reason was the continual reports of under-inventoried finishing barn capacity throughout the Midwest.
• Early wean producers have been getting hammered. Many producers that had counted on contract prices to protect them in low markets are suffering the grim reality of buyers running away from their obligations. Finishers never quit contracts for early weans when they are buying under the cash spot market. It’s always on the downside. The problem for sow units on contracts is that they miss the highs of the spot market. For example, instead of getting $65 spot they get $42 on a contract. The good news is when we look at USDA data, probably 65% of all contracts have held. Some contract buyers have the capacity to live with their obligations.
• Now we hear that some ag lenders are not thinking they wish to finance sow units selling early-weans in the future. No matter what, there will probably need to be new ways to price pigs. Over time, spot finds the right value.

Summary

Prices are on a tear and we expect them to continue to trend higher. A price of 80¢ lean is achievable this summer and liquidation continues. Slaughter weights will continue to fall.

This coming week, we will be in South Korea speaking at the Korean Swine Federation Annual Meeting. We will report our observations. It’s a global market and it affects us all.