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Pork Commentary: US Hog Prices Reach Record Highs

by 5m Editor
12 August 2008, at 3:29pm

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

The Iowa-Minnesota lean price reached 88.89 last Friday (65¢ lb liveweight). Touching the highest price ever reached which was in the summer of 1990. It feels like a miracle. As an industry, we have been getting hammered by high feed prices and large hog supply for months with per head losses reaching $50.00.

Now, as global meat supply declines (as we have been predicting), pork export demand is surging. In the last 6 weeks we have gone from lean hog prices of 68.52 to 88.89, a gain of $40.00 per head. On the cost side, corn has come off $2.00 a bushel and soybean $3.00 a bushel. The cost of raising hogs has dropped $25.00 per head. $40.00 + $25.00 = $65.00 gain per head, all in six weeks.

Thank goodness because, this industry sure needed a break. The real good news is the amount of hogs we are going to market through the first part of 2009 has been biologically put in play. There will be fewer as sow liquidation in Canada, United States and Mexico will mean less hogs in the coming months. Almost 90 cent hogs now mean even higher prices with the smaller supply in 2009 (at current exchange rates).

Other Observations

U.S. sow slaughter was 72 thousand for the last week we have data. It is consistently running 10,000 more then the same weeks a year ago. We believe this indicates an approximate net decrease of 10,000 in the U.S. breeding herd per week.

Last week’s sow prices were 10¢ lb less than a year ago. Market hog prices were 10¢ lb higher than a year ago. A year over year 20¢ lb spread. Some are saying liquidation has stopped. If so, we would expect supply and demand would bring sows higher in price probably close to the 20¢ lb difference year over year. When heavy sows get to 10¢ lb under the market price, we will believe liquidation has stopped.

At the first part of July, feeder pigs were trading for $10.00 per head. Since then, lower feed costs and higher lean hog futures have increased the prices $30.00 per head. We expect feeder pigs to reach $80.00 to $90.00 per head in 2009.

We had some visitors from Russia this past week at Genesus. 110 kg (242 lb) liveweight market hogs are bringing $360 U.S. per head. $3.27 per kilo or $1.48 U.S. liveweight per lb only goes to show where prices can lead. Any wonder pork exports from the U.S. to Russia are strong.

One of our associates is moving feeder pigs 25 kg (55 lb) from Western Europe to Russia. They are costing Russian buyers 80 Euros ($120 U.S.) per head. Bet there is a lot of Canadian – U.S. producers who like to send pigs for that price.

Corn was $4.97 Friday, soy beans $11.97 price continue to come down. The crop has been getting rain and warm weather almost everywhere. We expect corn south of $4.00 a bushel in harvest.

Last week the European Union (E.U.) immediately suspended pig meat export refunds. The program had been subsidizing E.U. pork exports at 31.1 Euros per 100 kg of carcass ($46 U.S.). With E.U. a major global pork exporter, this subsidy cancellation will make U.S. – Canada pork even more competitive globally. This is price supportive for U.S. pork.

Iowa and Minnesota weights a week ago were 4.8 lbs per head – lighter than a year ago. Hogs have been pulled ahead.

The Canadian dollar closed Friday at 93.74¢ to the U.S. dollar – down from par a few weeks ago. This helps Canadian producers’ competitiveness. Canadian producers have not had much good news in the last year or so. Some good news was due.

U.S.chickens placed last week were down 3.5% year over year. Year to date chicken slaughter has been running 4.6% plus year over year; a big swing. High feed prices have cut chicken production. The chicken placed decrease is a 5.5 million per week decline. Lower chicken production cuts feed demand and supports hog prices.

Sure can see the greater competition in the Pig Software business. Once dominant Pig Champ had only 13 farms from Canada in those yearly production analyses. Significantly down and this probably reflects loss of market share to now numerous competitors. U.S. Pig Champs 2007 top 10% herds weaned per female was 24.10. Certainly indicates reaching 25 pigs is still a great accomplishment.

The U.S. government is not very friendly to U.S. livestock producers. The current administration has rejected the idea of allowing conservation set aside land be released early (15 million acres) to allow cropping. Then this last week, the Environmental Protection Agency (EPA) rejected the waiver request to lower mandated ethanol usage. It’s almost like it’s a conspiracy to destroy the livestock industry. The U.S. government is subsidizing ethanol production, protecting with tariffs and then limiting grain production. Not only is it hurting livestock producers, its also affecting the pocket book of every U.S. consumer with higher food prices, all in the pursuit of producing a product (corn ethanol) with little environmental support and little economic logic. The insanity of government. It doesn’t make common sense, but when government is involved, why would that be a consideration. Point is, if the government believed that corn ethanol was the solution for environmental and economic reasons, why would it not allow early release of set-aside land, then produce the largest crops in history? Beyond our comprehension.

Summary

Highest hog prices in history. Domestic and global pork and meat supply is declining. Hog prices have significant upside in 2009. The hole that has been put in everyone’s equity is beginning to be back filled.

5m Editor