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Pork Commentary: Iowa-Minnesota Averaging at 60¢

by 5m Editor
22 October 2008, at 11:50am

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

When we left for Russia on September 30, Iowa-Minnesota was averaging 72¢. Came back and now 60¢. A $24.00 per head drop. Fortunately, or unfortunately, the grain price collapsed also. A few weeks ago we wrote that we could not see lean hog prices not dropping to 60¢. Too many weeks of marketing’s of 2.350 million plus a week were going to push hogs to this level. We have never felt bullish about the fall of 2008. Too many hogs were and are coming. The smart ones booked hogs at 75¢ plus.

Other Observations

  • Vera Sun, one of America’s largest ethanol producers is having a tough time. Stock was $27.00 a share, but closed last Friday just under $2.00. They lost over $100 million last quarter. Seems like Vera Sun got caught up in the $10.00 corn, $150 barrel oil mind set. Bought corn and position in volume at $6.75-7.50. Big miscalculation. Too bad, but when your model is built on subsidies, tariff protection and government mandates, maybe you get delusionary. Fact: Never buy long-term at historical price highs.
  • We heard of some of the large pork powerhouses who had taken corn positions at $6.50 plus a bushel. Unfortunately for them, they are not benefiting by feed price decline. Hopefully they hedged hogs; if not, this will be really ugly. One large hog company supposedly bought until April at high grain prices.
  • Pilgrim's Pride produces about 25% of U.S. chickens (about 50 million a week). Their stock has gone from a high of $35.00 to $3.00 a share. This is crippling. U.S. egg sets have been down 16% plus. The financial damage is extensive throughout the chicken industry. Their (chicken) wings have been clipped. It is bullish for hogs that meat protein production from chicken is down and the financial damage will limit chicken expansion throughout 2009.
  • One of the interesting factors in the global financial meltdown has been the rise of the American dollar. The Canadian dollar has lost 20% value to the U.S. dollar in the last 2 months (par to 85¢). This will make Canadian hog producers and packers a little more competitive. The rise of the U.S. dollar versus all foreign currencies will make U.S. pork (and grain) more expensive in relative terms for foreign buyers. We do not expect further growth in U.S. pork exports. The U.S. is losing its cost advantage. Canadians will be more competitive. Increased pork exports from Canada are positive and it can and will take pork out of the North America consumer market.
  • Got to love the head man of Canada’s Big Sky Farms (50,000 sows) announcing that country of origin labeling will not and is not affecting them. Not every organization like Big Sky is owned 70% by a (Saskatchewan) government. Makes you kind of cash flow immune. Never read in the report that Big Sky was not losing money, so not sure what’s not been affected by cool means. The Saskatchewan government has announced their intention to sell their shares in Big Sky. It is a travesty that hog farmers should have to compete with government owned farms. The fact is they should load up the sows and shut it down.

A week ago Ontario Farm Products announced that they were stripping the monopoly marketing powers of the Ontario Pork Producers Marketing Board (OPPMB). Until now, all of Ontario’s 6 million plus market hogs had to be, by law, sold through OPPMB. The new mandate allows producers to sell their own hogs to whomever they choose at whatever prices they can get. As you might have read here in the past, we have felt the previous monopoly powers held by OPPMB lead at times to the lowest hog prices in the world (fact). This change is good news for Ontario producers and might give them a better chance of survival in the global economy.

Summary

Lean hog futures have fallen. We still are bullish on 2009. There will be fewer hogs. This past week U.S. marketing’s were only 18,000 head more than the same week a year ago. We expect by December year over year U.S. weekly marketing’s will be less year over year. The weekly spread will continue to widen. Chicken egg sets continue to decline. Cattle on feed numbers are declining. Cow slaughter is 18% higher year over year. The chaos in financial markets, feed price instability, losses in all meat sectors means less meat protein. Financing for new sow units? Good luck! We will not see any significant new sow barns for two years. You need capital and courage. Finishers will continue to get built. They are getting financed in the corn belt partially for manure. More finishers – less pigs, means higher small pig prices.

We do not see further growth in pork exports mainly because of appreciation for U.S. dollar affecting demand. We think pork exports will hold, and with fewer hogs, U.S. prices will be stronger.

Some wonder if an economic recession will hurt hog prices. We do not think so; last time 1981-82 (major recession), we had some of the most profitable hog years. People still want meat; they just won’t go to restaurants and cook at home instead. When you look at macroeconomic ebbs and flows, there has been no historical co-relation to hog profitability. If anything, we as hog producers have had our own recession for the last 1.5 years. It’s time for it to be over.

A smart successful person we know always said, “Beware of the easy trades.” Grain, corn, oilseed production fall into that category. Easy to do. Everyone wants to do it. Everywhere in the world. Grain prices have fallen in half from their highs. Sanity has returned. Grains like oil are commodities. A small increase in supply and a small decrease in demand, and boom price correction. The fools that predicted $10.00 corn were just that … fools.

Hog Markets

There is hope. This isn’t the time to be faint-hearted. Feed prices are down. Cow slaughter indicates beef herd liquidation. Sow slaughter remains high. Chicken egg sets off over 11%. Less meat protein supply is just on the horizon. People all over the world want more meat protein. Lean Hog Futures for 2009 are lower than cash will be. We still see $1.00 plus lean hogs in the summer of 2009. It’s been hard; we all live it every day. Unfortunately, many good producers are getting wiped out by the price/cost debacle we have lived. Get through 2008; 2009 will be good.

Genesus Challenges PIC 380

Recently there was a trial* comparing several thousand head of Genesus Duroc sired market hogs put side by side with PIC 380 sired market hogs.

Trait Genesus Duroc PIC 380 Change
Back Fat (inch) 0.69 0.67 -0.02
Loin Depth (inch) 2.76 2.57 +0.19
% Lean 55.32 54.9 +0.42
Yield % 75.13% 74.73% +0.40
A.D.G. 1.79 1.51 +0.28
Days in Finishing 107.24 126.76 -19.52
Mortality 3.3% 5.75% -2.45
* Same auto sort barns - Same time frames - USA high health herd - Genesus females

Genesus Durocs out grew by 18%, had better carcasses and had lower mortality than PIC 380’s. PIC literature rates the 380 as better in carcass profitability and cost of production than PIC 408, PIC 280, PIC 327, Newsham XL, Danbred 771, Babcock Duroc, Genetiporc Vivanda 300, Monsanto Choice Genetics EB5, Genetiporc 5000, Danbred 671, and Monsanto Choice Genetics EBX. Was it an error of omission that PIC did not show results of Genesus Durocs?

Bottom-line: Genesus will offer a sample of free Genesus Duroc semen to any producer who wishes to compare results to PIC 380. Any place, anytime, anywhere. Genesus is ready to show the superior growth, carcass qualities and production livability of Genesus Durocs to what PIC rates as the most superior boar in the market place. Contact us at 866-436-3787 to arrange for a free semen and trial protocol. At Genesus we put our money where our mouth is. Take the Genesus Challenge.

5m Editor