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Pork Commentry: Hog Prices Rocket Higher

by 5m Editor
14 May 2008, at 12:10pm

CANADA - Hog prices rocketed to 78¢ lean in Iowa-Minnesota last Friday – up 5¢ lb from the previous Friday (+$10.00 per head), writes Jim Long.

On March 21, Iowa-Minnesota lean price was 48.89. Since then we have had the miracle of a $60.00 per head increase. With a Canada-USA weekly slaughter of 2.5 million, that’s a cash flow improvement of $150 million a week for the production sector. The latest Iowa-Minnesota average weights were 263.7. This is 4 lbs lower than a year ago and 0.9 lbs lower from the week before. No heat, no humidity – we are pulling hogs ahead. All factors are bullish for further price increases.

Other Observations

Last Friday, the USDA came out with a corn crop prediction of 12.7 billion bushels, down 7 percent from a year ago. Let’s hope weather gets better real soon. Rain seems to be hitting too many spots in the Corn Belt, delaying planting. This is leading to increased concern about total acreage and yield potential. The only good thing you can say about the weather is we are not having a drought.

If you look at Argentine and Brazil corn production, the USDA is projecting an increase of 6 million metric tones over the last crop year, while the Canada-Australia wheat crop combined is a projected 49 million metric tonnes versus 33.2 last crop (increase of approximately 16 million tonnes). We believe that the world’s high grain prices will lead to more acres planted and higher yields in every country. Statistics Canada, for example, has projected 64.97 million acres in 2008 in grain and oilseeds, a 4.2% increase over 2007 (+2.657 million acres). Some US data we have seen has projected an increase of 7 million acres in grains and oilseeds combined. Give farmers profits, they will plant more, fertilize more, herbicide more, etc. We expect, at the end of this crop year, the world will have produced the largest grain and oilseed crop in history, barring some major drought. At the same time, world meat protein production is decreasing, cutting grain and oilseed demand.

It appears that the Danish swine herd is declining. On April 1st, it was 11% lower than a year ago. A combination of low hog prices and high feed prices has lead to liquidation. There were approximately 15 million sows in the European Union in 2007. If the EU countries decline similar to Denmark, which we believe is plausible we could see 1.5 million sows liquidated (the same size as all of Canada’s production).

An EU decline of this magnitude will cut 25-30 million hogs from production. Last week, we read reports from Great Britain that speculated English prices could reach 2 pound sterling per kilo, $4.00 US per kilo, $1.81 US per lb. That would work, wouldn’t it? All of this is about supply relative to demand. Global pork meat availability is declining, hog prices are trending up globally. We are on the beginning of where prices could go. The higher feed prices go, the higher ultimately hog prices will be. $6.00 bushel corn is over $10.00 in some other countries. Prices ration supply. How high can prices go is directly related to the feed prices. $6.00 corn will probably make $1.10 - $1.20 lean hogs. $7.00 corn $1.20 to $1.30. No one knows for sure where this will end up. We got 80¢ lean hogs now, never before has a price this high been around breakeven. Breakeven prices and fear of $8.00 corn is going to lead to further sow liquidation.

Country of Origin Labeling – Some Canadian producers have benefited from COOL. Canadian producers who put hogs on feed in the United States have not been able to forward sell their market hogs over the last few months to packers. Packers have been afraid of COOL legislation. The big benefit for Canadian producers is because they could not sell ahead. They have to take cash bids. On Jan 4, May lean hog futures were 68.92, last Friday, 80.27. Canadian producers, because of COOL are ending up better off by at least $20 plus per head. Go figure.

Check out the Genesus Newsletter this week. We are proud of our customers’ results on Swine Management Services Yearly Benchmarking Summary. Genesus had 8 of top 10 herds out of 900,000 plus sows. Gratifying to see the huge efforts we do genetically being recognized in the marketplace.

Summary

Domestic and international breeding herd liquidation continues. Prices have increased $60.00 per head in seven weeks. We expect summer cash hogs have further upside. Beware of the fall; every year, seasonality leads to large marketings. Lean Hog Futures in October-December might not have much more upside. 2009, we will see $1.00 plus lean hogs.

Genesus Dominates Swine Management Services 2007 – 52 weeks Summary

Swine Management Services (SMS) of Fremont, Nebraska is the world’s swine benchmarking service. SMS 2007 data was benchmarked on 467 farms with 901,764 females.

Genesus once again dominated results, 8 of top 10 farms were Genesus, 12 of the top 15 Genesus. Genesus had the only two farms over 30.

2007 – 52 weeks
901,764 females
SMS GENESUS
No. of Farms 467 44
Top 10% Avg. 27.12 29.97
Average All 22.94 2655


SMS Total 467 Farms - Genesus 8 of Top 10
SMS 52 weeks
RANKING FARM P/S/Y
GENESUS SMS
1 1 Camrose 31.12
2 2 Woodland 30.29
3 5 Riverview 29.54
4 6 New Haven North 29.43
5 7 Fairhaven 29.22
6 8 Milltown 29.03
7 9 Suncrest 28.30
8 10 New Haven South 28.10

All genetic companies are represented in this database of 901,764 females.

5m Editor