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Pork Commentary: Market Inventory Down 12%

by 5m Editor
26 August 2008, at 12:37pm

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

The North American swine industry was bogged by the data released last week by Statistics Canada that indicates the Canadian Market Swine Inventory was down 12% on July 1 compared to a year ago. We are in a Continental Market and the real key statistics are the combined US – Canada Inventory.

Official Inventories
June – July
1000 Head
Breeding Herd 2007 2008 2008 as % of 2007
Canada 1565 1493 -5%
United States 6120 6069 -1%
Total 7685 7562 -2%
Market Herd 2007 2008 0
Canada 13125 11492 -12%
United States 57830 61591 +7%
Total 70955 73083 +3%

Canada certainly is doing its part to cut continental pork supply with a large year over year decrease in both the market and breeding herd – almost 10% since its peak in 2005; while the market herd has decreased 18%. Less hogs, less pork, less jobs, less feed usage, and more broken dreams. The attrition in the Canadian Industry has been relentless and we suspect it has not stopped. Nothing new is being built in the infrastructure. Four years ago Canada was the largest exporter of pork in the world. Now it is being surpassed by the U.S. Exchange rates, feed costs, packer upheaval, low hog prices have all contributed to make and downsize the Canadian Swine Industry.

When we look at the Canada – U.S. inventory, we see the combined breeding herd down 2%. The market inventory up 3% which is a much more manageable number then the +7% the United States market inventory is on its own. 3% when you consider population increase yearly average of +1%, coupled with the massive global demand for pork is helping our industry to have market hog prices that were incomprehensible at these supply levels just a few months ago. Supply and Demand, it sounds almost simplistic but they go together when deciding the markets.

Sow Slaughter

The latest U.S. weekly slaughter was 68,500 head. These are liquidation numbers in our books, over 10,000 more than the same week a year ago. 550 pound sows have gone from the 20s to 50s pound in price in three weeks, a huge jump. So far, it does not indicate less sows coming to slaughter. We have to keep watching but we suspect liquidation of the U.S. sow herd is ongoing. Our industry is getting better prices but feed prices remain high and profits are hard to come by. Attrition continues.

A friend of ours sells farrowing floors across North America. He reports business is good due to remodeling, but, they are not supplying any new farrowing barns in 2008. Breeding herd inventory is not being pushed higher by any new sow units.

It appears there could be a range war between the U.S. and Mexico on the U.S.’s concerns about Mexican Meat Plants food safety, with the main concern exports to U.S. If it does not get settled, escalation of events could lead to border closures. This is not good for U.S. pork exports to Mexico. This too would be bad fro the U.S. hog prices. Mexican producers would probably see a hog price increase. Currently, Mexico’s hog prices are 18.5 pesos per kilogram – approximately, .85 U.S. per pound live weight.

You’ve got to love markets. The USDA projects a corn crop to be the second largest in history and an increased production of over 500 million bushel more than the previous month. What happens is corn prices go up, this defies logic. We expect the price will be coming back down. You cannot overcome gravity forever.

Last week, Maple Leaf Foods has a large recall of processed meats contaminated with Listeria. There are reports of deaths and sickness caused by this problem. Maple Leaf acted quickly to deal with the situation. It is not good for Maple Leaf or Canadian Livestock producers. Any damage to the reputation of Maple Leaf or the meat industry is only negative with Maple Leaf such a dominant company and brand in the Canadian Market place.

Markets

Iowa-Minnesota lead Hog Price last Friday was 81.55, down from 85.84 the week before. U.S. Slaughter was 2.231 million up 7.6% from the same week a year ago. USDA pork cut out at the end of the week was 90.31. Packer averages appear good. This is great incentive for them to keep packing plants running full. We are beginning seasonal price decline. More hogs are coming in the next few weeks.