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Pork Commentary: Road Trip Through the Mid-West

by 5m Editor
15 July 2008, at 8:01am

CANADA - This weeks North American Pork Commentary from Jim Long.

In the last few days we travelled through the Midwest covering 4320 kilometers (2700 miles). We were in Michigan, Indiana, Illinois, Iowa, South Dakota, Nebraska, Missouri, and Kansas.

Some Observations

No wonder the corn price has dropped $1.20 per bushel from its top. We saw thousands of miles of good to excellent corn. We saw some poor corn in Iowa around Cedar Falls, Cedar Rapids, Des Moines River low areas, and the low ground in Nebraska. Everywhere else we saw corn that had been behind catching up. It was hot and there was a lot of moisture. This is perfect corn growing weather. We expect, barring any other extraordinary weather challenges, Informa’s prediction of a crop at 12 billion plus bushels will be right. Ditto for a good soybean crop.

There were a couple of other things that we noticed. High prices for corn and soybeans has encouraged replanting. Corn at $2.00 would not have got that done. In Kansas where wheat has come off, soybeans were being planted. High soybean prices are encouraging double cropping. Both factors will lead to more corn and beans then possibly being factored.

Industry has black bear syndrome

A producer in our travels summed it up best. Pork producers have black bear syndrome. What’s that? If being chased by a black bear; you don’t have to be the fastest, just not the slowest. It’s like the hog industry; you don’t have to be the most efficient to survive, just not near the bottom. Heck of a business, isn’t it? It’s a war of attrition.

Everywhere we went the main topic of conversation was feed prices and state of liquidation. Everyone realizes feed prices need to moderate and hog prices have to go higher. You only have to look at the publically traded companies that produce hogs and chickens which generally speaking have stock values close to half of what they were at their highs. We expect, like these public stocks, most sow farms are worth half of what they were. Not only has their been losses in hog production but fixed asses values for all producers have been hit.

Sow liquidation has picked up steam. The latest weekly slaughter numbers show 11,000 more year over year. We heard several antidotal stories of liquidation in our travels. Several units producing early wean pigs and receiving next to nothing are pulling the plug. The finishers unable or unwilling to honor their contracts have blood on their hands. There is euthanization of small pigs ongoing. At no value it’s rational. This is the hardest for any producer. The reality is people who have and work in sow barns are focused and committed everyday to give birth and keep pigs alive. Euthanizing 1,000 pigs is traumatic. In all likelihood it would wreck the spirit of a crew. It is very sad.

We have learned that there are organizations providing the service (at a cost) of picking up and euthanizing pigs off site.

A producer last week pulled the plug (1,200 sows). They could not sell pigs, and could not give them away. The producer said “what’s the point of producing something that people won’t take for free”. Done. It is sad. Piggy sows going to market.

Slaughter weights are continuing to drop. The latest Iowa and Minnesota weight average is 259lbs. Usually weights don’t stop falling until the middle of August. We understand one packer has dropped their weight target to 250lbs on their own hogs. Less weight means less pork. It also indicates to us that we have pulled hogs ahead. Iowa and Minnesota last Friday averaged $76.36. Two weeks, ago the day of the June USDA hogs and pigs report, Iowa and Minnesota were at $71.97. Market has done well in the face of what was perceived as a negative report. We expect Iowa and Minnesota hog weights will drop below 253lbs before the summer is over.

Summary

Last week we saw a lot of good crops. We are not worried about grain availability. The talk of $10.00 corn is gone. Sow liquidation is accelerating. We expect the September and October combined Canada and United States sow inventory will be down 400,000 sows from there peaks. Pork export demand remains of record levels. We see chicken egg sets are off 4% or 8 million chickens per week. Chicken company stocks have taken a hit. They need higher prices and they need to push the stocks up. If the chicken egg sets stay down it will be less chicken in September on. This will support fall hog prices. The United States beef cow herd continues to liquidate at an unprecedented rate. We expect that the beef industry will be smaller and stay small. Hopefully like Europe, pork will become the dominate red meat and beef is something you eat occasionally. Average pork per capita consumption in Europe is double America’s.

There is going to be fewer hogs; everyday fewer and fewer. Prices will explode and as we said before (June 2009) at $1.10 Canadian. Right it on the wall. If we keep up the liquidation we may see $1.20!

5m Editor