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Pork Commentary: COOL Supported by Congress

by 5m Editor
21 May 2008, at 8:53am

This weeks North American Pork Commentary from Jim Long.

The US congress passed the farm bill last week officially known as the Farm, Nutrition and Bio-energy Act – it was approved by the US House of Representatives on a 318 to 106 vote and last Thursday by the Senate on a vote 81 to 15, which according to the NPPC (National Pork Producers Council) had a number of provisions beneficial to the pork industry. Among these include segments that are good for both the Canadian and US pork industries. President Bush has threatened to veto the bill but the resounding vote tally of both houses will override any veto. The key point was to change the mandatory Country of Origin Labeling to include four new label categories for meat, including one to address Canadian feeder pigs by allowing flexibility in labeling so that producers and packers can reduce sorting costs. The law was also changed to ease record keeping for verifying animals’ country of origin by allowing the use of existing records, such as normal business records, animal health papers and import or custom documents.

This appears to be a big win for Canadian producers, American finishers and US packers. The threat that had been hanging over these segments of the industry was unsettling. Now, it appears that people can plan for the future. Canadian producers need access to the US finishing infrastructure. US finishers need Canadian pigs to fill their barns and US packers need these hogs to keep slaughter plants full.

We do not expect Canadian shipments to the US will change much. Canada to US trade totals currently are running similar to a year ago (-2.44%). We expect the huge liquidation that has happened and is happening in Canada will minimize any pig trade increases.

US Exports

US pork exports for March were released last week. They were 23.3% higher than the previous year at 122.2 million pounds. We calculate the year over year increase is equal to an extra 40 to 45 thousand hogs being exported weekly. 1 in 5.5 hogs were being exported in the first quarter. Last year 1 in 6.8. This is hugely supportive for our markets and is the reason, despite a large increase in hog production, that prices have been better than many expect. We see no reason for US exports not to continue increasing as US pork, even at current market prices, is the most cost competitive in the world.

Cattle

Cattle futures are now about $1.06 for October. Current cattle prices are about 92¢. The 14¢ lb price increase on a 1240 lb animal is $173. On the beef cut-out it would go to $1.70 lb, up 22¢ from the current prices ($1.48). Point is, higher beef prices will be supportive to pork prices this fall. There will also be less beef available. The higher feed costs go, the more devastating for cattle cost of production. 7 to 1 feed conversions will do that.

Chicken

High feed prices appear to have slowed down the chicken industry. While currently year to date chicken production is running 6.3% higher. Egg sets the last few weeks have dropped year over year 2%. The egg set difference is about 5 million fewer chickens a week, or almost 30 million fewer lbs a week (about 1,000 tractor-trailer loads). Less chicken, less beef and we know the hog industry has cut back. Magnify this by lower numbers of chickens, cattle and hogs throughout the world, and it is almost incomprehensible what could happen to pork and all meat protein prices. The only way to ration supply is higher prices.

Markets

Last week, we saw lean hog prices drop back with Iowa-Minnesota averaging 76.80 last Friday. The best news is pork cut-outs increased from 77¢ to 82¢ on the week. Packers had been losing money with the hog prices higher than the pork cut-outs. Probably losses were in the $7 to $9 a head range. Now lean hogs are 77¢, cut-outs 82¢. Packers have cut their losses. If cut-outs continue to increase, we expect that packers will chase the hogs and push lean hog prices higher. Packers are like farmers – they, like us, have a hard time having self-control.

Corn

Seems like the doomsayers who thought the corn crop would never get planted were wrong. By Monday night at least 75% will be in the ground. Never doubt the capabilities of the American farmer. It was ridiculous that there were thoughts that it wouldn’t get planted and listening to some of the hedge funds you’d think we needed to build an ark. Rain makes grain. Droughts are what cause crop failures. Always have – always will.

5m Editor