ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Pork Commentary: Low Sow Price = Large Liquidation

by 5m Editor
29 July 2008, at 10:03am

CANADA - This week's North American Pork Commentary from Jim Long.

One of our customers got 7¢ lb for sows last week. Their sow buyers cavalierly told them the only reason they were not getting 1¢ lb is because they were good guys. Got to love the customer service. Never before have there been 80¢ lean hogs (60¢ lb liveweight) and sows so cheap. The price spread between market hogs and sows are historically high. So many sows are going to market there is a price implosion. We believe that the US sow herd is removing 10,000 plus sows a week from the net inventory. Every day there are fewer hogs for 2009 (25,000 less per day). We have 80¢ lean now. There is no question we will see $1.00 plus lean in 2009 with the lack of supply that is coming.

Over the last three weeks, we have added $20.00 per head on the market price from 70¢ to 80¢ lean. We have also decreased feed prices by about $20.00 per head with lower corn and soymeal prices. A combined $40.00 per head producer advantage. This has cut losses and now some should be making money. Unfortunately, the volatility in the markets has created great anxiety in the producer base. It wears on everyone. It’s no fun at all.

We had several questions from producers about fall hog markets. There will be 10% plus more hogs in the fall than now. It is seasonal and is just part of the normal production cycle. Last year in the first part of August, lean hog futures for Oct-Dec were in the mid 70’s. We were not as bullish as the markets projected. When hogs were in the 70’s last August, we did not believe that 10% plus hogs, two to three months later would result in prices the same as they were at. It did not end pretty. Instead of 70’s we had some 40’s lean. Bottom line we do not see much upside in the Oct-Dec market prices relative to current lean futures. Your call - depends on how you see risk. Amazing – we are not bullish for once.

Hog weights are running 3.4 lbs lower than a year ago. Corn silking a week ago was 34% versus last year’s 72%. Corn is behind because of lack of heat. Most hogs are where we grow corn. Corn is behind and the flipside hogs are ahead. Heat slows down hog growth. It has been cool. Hogs are not only lighter than a year ago but we can see the evidence indicates cooler temperatures have brought hogs ahead. This is supportive to hog prices.

Last week, Scott McCain, President and CEO Agribusiness Group, Maple Leaf Foods Inc. announced the retirement of Gary Stott, Senior Director of Government and Industry Relations. At Maple Leaf Foods, his roles have included Director of Procurement Western Canada, Senior Director with Vertical Co-ordination. He also played a key roles in the development and establishment of Canada’s largest ever production system, Elite Swine.

We ran into Gary last Monday at a restaurant in Winnipeg and had a short conversation. Gary is always worried about the prosperity of the producer. Strong producers have the ability to sustain hog supply, every packer’s necessity. Gary was quite active in fighting the Manitoba government’s Bill 17 proposed legislation to ban hog production facilities in most of Manitoba. With Maple Leaf’s announcement last week to actively sell their Burlington, Ontario slaughter plant, there is absolutely no question that Maple Leaf’s plant in Brandon, Manitoba will be the cornerstone of their corporate model. We wish to also support Maple Leaf’s well wishes to Gary’s future endeavors.

With the announcement last week that Maple Leaf Foods is looking for a buyer for its Burlington, Ontario slaughter plant (up to 50,000 a week) it puts more pressure on the Ontario swine industry (about 400,000 sows). Already there are government initiated hearings ongoing to determine the future authority and powers of the Ontario Pork Producers Marketing Board, which currently has the sole monopolistic right to market all hogs in Ontario. Generally, large producers and the producer-owned, co-operative slaughter plant, Conestoga want more flexibility to the marketing system. Some Ontario producers who have been pounded by lack of profitability and a system that has, much of the time, given the lowest hog prices in the world, are looking for a reformation. Indeed, it is understanding the current marketing system is a detriment to the sale of Maple Leaf’s Burlington plant. Potential buyers are nervous about its socialistic-monopolistic system. This, despite bizarrely enough, the low hog prices it delivers. One option for Ontario producers could be the Triumph model in the US. Align with a company with shelf space, foodservice arrangements, export markets and brand. Producers have equity and take the meat price risk. There might be few other options. The plant is built and it has scale.

Iowa-Minnesota, last Friday was 79.17 lean. Latest USDA pork cut-outs 85.47. Hog slaughter was 2.126 million hogs last week. That’s 150,000 more than the same week a year ago. We have tremendous prices for producers considering the supply level. We have been quite aggressive on export demand. Our world view is global liquidation (high feed prices) coupled with greater global meat demand was going to save our behinds. We see more of the same coming. As world meat protein decline continues, expect prices in 2009 to reach astronomic levels. We are going to have significantly less hogs in North America in 2009.

5m Editor