The liquidation of U.S. breeding herd is real. Since December 1, 2007 (39 weeks) the U.S. breeding herd has declined 172,000 (Dec: 6.221 million; Sept: 6.049 million), which is an average decline of 4,400 sows per week. Every week for the last 39 weeks, we have taken about 100,000 head per year out of the U.S. production system capacity. 172,000 sows would produce over 3 million hogs per year. Real numbers, and when coupled with the decline in the Canadian sow herd of over 150,000 from its peak inventory, the maximum production capacity of the two countries has taken a big hit. Thank goodness because, if we had not started the cut back, production losses would have been even greater than they have been.

In our opinion, we will see continued breeding herd decline through the fall at levels of 4,000 to 5,000 sows per week. Why? Nothing is being built. New sow barn building is the lowest it’s been for a decade. We have only attrition. People running out of money and courage. It’s been brutal!

Market Hogs

The USDA September market hog inventory on September 1 was 3% more than a year ago. The bad news is there are 6% more hogs in the 120 lb plus category compared to last year. The good news is there is under 1% more market hogs in the 120 lb category.

We believe that the October-November time period will remain under price pressure. Hog numbers of 6% more year over year will do that. It’s somewhat of a miracle to us that Iowa-Minnesota last Friday was 72.58¢ when last week’s U.S. market pigs were 2,363 million head; 140,000 more than the same week a year ago. At 72.58¢ and today’s cost of productions of 80¢ plus, we are all losing money, but it’s a heck lot better than 62¢ - Iowa-Minnesota. Unfortunately, U.S. pork cut-outs at the end of last week were under 75¢. We find it hard to be cocky on hog cash prices when the spread between cut-outs and cash hogs is so narrow. Something has to give one way or another.

The under 120 lb weight category which shows under 1% more pigs is more bullish. These pigs will be coming to market late November and on. We just have to get there. We expect hog prices that averaged just around 55¢ lean last year through the first quarter to average 75¢ lean this year. Make it to second quarter 2009 we expect 4-6% fewer hogs year over year. We will see hogs reach $1.00 lean lb. We need it as the insanity of corn ethanol is driving cost of production over 80¢. If we do not make money by then, we all get a job at McDonalds.

Wildcard

The U.S. financial crisis could make credit increasingly hard to get. $700 billion has to come from somewhere. Will banks take on new risk? How much equity will they demand to make a deal go? What’s this going to do to interest rates? It’s not making anything easier. It’s amazing the Einsteins on Wall Street were so foolish. Now as pig farmers get caught up in the collateral damage. Of course we should have all known. The same Einsteins on Wall Street put in the early money into Premier Standard Farms and Heartland Pork 250,000 sows that overloaded the supply chain in 1998. The ventures failed. They lost all their money, but we all paid for their collective stupidity. We are Main Street, they are Wall Street. The strength of U.S. economy is the doers like us, not the money traders who make nothing, sell nothing, and accomplish little.

Benedict Arnold? Brutus?

Got to give it to Bill Niman, founder of Niman Ranch Inc., a natural meat company for pork and cattle based in Bolinas, California. When he sticks a knife into us, he does it up front. Last week, Niman wrote an editorial in the San Francisco Chronicle in regards to California’s Proposition 2, which would ban gestation stalls for breeding sows.

We quote Mr. Niman’s editorial:

“There is simply no excuse for confining animals in tiny cages where they cannot even turn around or extend their limbs. Unfortunately, such misery is the daily reality for millions of animals.“

“If a sow has access to sticks, branches or tall grasses, she will spend that time building an elaborate nest for her young. But in industrial-style confinement pig operations, none of this is possible. The harsh confinement in factory farming frustrates the pigs’ most important instincts, leaving them unable to turn around to stretch their limbs, much less build a nest.“
The self serving rant had more, but we think you get the point. From what we can see about Niman Ranch, they mostly buy hogs from old antiquated facilities from farmers that cannot compete or will not compete in modern agriculture. The sows run around farrow in nests mostly. Bet the farm this marvelous system has higher mortality and fewer hogs to market. That is so humane. Niman has developed a niche market. He charges more for his meat. He sells a story. That’s all fair. But putting his self righteous moral judgment onto the whole industry crosses the line. From what we know, his scheme does not include owning a packing plant to harvest his hogs. He gets them custom killed. Maybe packers should say no to the Niman Ranch scheme. Maybe producers should ask the packer why they support him – Niman and his hostile attack on our industry. Maybe he could build his own plant?

It’s our industry, it’s our investment; we cannot let California niche markets set the agenda. Too much is at stake.

Further Reading

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Go to our previous news item - the article by Bill Niman - by clicking here.