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Pork Commentary: Reprieve in Grain, Oilseed and Energy Prices

by 5m Editor
28 October 2008, at 11:17am

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

VIV China

This past week we were in Beijing at VIV China. As we all know, China is the major producer and consumer of pork in the world. In 2008 it is estimated China will market 5 times the U.S. (world’s no. 2 producer). China is expected to market 586 million hogs in 2008. It’s huge and in some ways hard to comprehend. To put it in perspective, we were looking out the window flying from Beijing to Hong Kong. We remarked to another passenger that there just never seems to be anywhere you do not see large populations. He replied, “Well it takes a lot of places to put 1.3 billion people.”

Take it a step further; it also takes a lot of pork to feed 1.3 billion people, especially when it's estimated that 63% of China's meat consumption is pork. (Pork is 22% of U.S. meat consumption.) In 2007 it is estimated that China produced 42,878 million metric tonnes of pork. In 2008 the estimate is 44,593 million metric tonnes of pork, while it imported .505 million metric tonnes. China's pork consumption is estimated to be 44,900 million tonnes. The USDA is estimating China's pork consumption will increase 5% in 2009. A 5% increase is about 25 to 30 million more hogs a year. Give or take, you need 1.5 million more sows. You do not need to be a rocket scientist to figure out why a genetic company like Genesus thinks China might not be a bad place to spend a little time trying to fall over some business.

The U.S. is the largest supplier of pork to Hong Kong, Taiwan and China, taking 23% of U.S. pork exports in 2008. We expect China, Taiwan and Hong Kong imports from the U.S. will remain in 2009 similar to 2008. Why? There are few other countries where surplus pork is available from. Canada is down in production. Brazil has cut production, but most importantly, the European Union is down over one million sows. In all countries, domestic consumption will usually trump exports. You can’t export what you don’t have. This will support U.S. live hog prices in 2009.

European Union

The latest European Union report indicates total swine inventory was down 6% compared to 2007 at 143.4 million head or down about 9 million head. Let's assume it takes 30 hogs to make a tonne of pork; a decrease of 9 million head is a decrease of 300,000 tonnes of pork production, which is produced in six months of production, or it’s about 600,000 tonnes of pork decrease per year. China is expected to import 550,000 tonnes in 2009 from everywhere. If statistics are right, the E.U. is going to have a lot less pork to send anywhere, including China. This is bullish for hog prices in the E.U., North America and everywhere else.

High grain prices have liquidated sows in North America, the European Union and Brazil. There will also be less beef and chicken with both industries having been pounded by the same scenario. We expect demand will be lessened for all meats in most parts of the world due to the world financial challenge. This will restrict prices, but thankfully global meat supply will be down in 2009, which will help prices.

Observations

It appears we have all received a reprieve in grain, oil seed and energy prices. This is obviously helping our cost of production. No one saw this coming. Corn was off almost $3.00 bushel, oil off $80 a barrel. We are moving fast in uncharted waters. Canada's exchange rate has moved down 25% since July to the U.S. dollar. It's grab, hold, hang on and look out.

We even read reports of U.S. corn ethanol plants shutting down because they couldn't buy corn. That's a story. It really means that they can't afford to pay the price. Too bad that corporate welfare companies which are subsidized and protected by tariffs still can't make it work. Boo hoo!

Last week U.S. Agriculture Secretary Schaefer brought a hailstorm of criticism on himself when he pondered giving more support to corn ethanol plants which had bought corn at $3.00 a bushel higher a while ago. This brought rightful damnation on Mr Schaefer. Livestock producers had thought in the past that he had tilted heavily to the ethanol lobby to livestock producers' detriment. This is the evidence. Burn our food as a government policy has and will always be insane.

Subsidizing to burning our food is a luxury our society could never morally and financially justify. A poll last week indicated over 60% of U.S. consumers feel that the U.S. corn ethanol program has contributed to higher food costs. It's too bad the citizens have more common sense than the people they send to Washington.

We continue to believe corn ethanol programs will slowly die. Others think the same: Vera Sun, one of the largest ethanol players shares have not gone from $35.00 to around $3.00 because people have confidence in their future and ethanol's future. It's almost over.

Pork Demand

If we're going to increase domestic and global pork production, we need to produce pork that people want to eat. There is a packer in Twin Falls Idaho called Independent Meats that has initiated a hog buying program that is based on pH, 10th rib backfat, LEA, lean colour, firmness, texture and marbling:

All characteristics that they have determined give the consumer a better eating experience. Independent primarily markets to white table cloth restaurants and high end retail. The upside is this high quality product brings more money in the market place which allows Independent to pay its producers strong premiums. In the past you have read in this commentary about our belief in increasing demand through tasty pork.

Our company Genesus has invested over eleven years of time and money in weekly carcass analysis to evolve swine genetics that will deliver on this promise. Last Friday Independent Meats gave out its annual awards for producers' delivery to the highest quality hogs in the last year.

We are proud to congratulate the top four winning herds all Genesus customers: Midway, Sage Creek, New Rockport and Chris Griffin.

Genesus Duroc and Genesus maternal lines delivered the product that Independent needs and wants to meet the demand of the white table cloth and high end retail. Quality drives demand. Our survival and prosperity as an industry (any industry) is giving what the customer (consumer) wants. Higher demand = Higher prices. Each and every buyer of pork should be satisfied on taste, tenderness and juiciness.

Markets

We had expected lean hogs around 60¢ this fall. That’s why we encouraged people to protect themselves when lean hog futures were 75¢. We could not see 75¢ holding with marketing’s coming around 2.3 to 2.35 million head a week this fall. Wish we were wrong.

Good news is that feed prices have declined beyond our wildest dreams. The speculators (gamblers) have run for cover and the grain market has fallen hard. We expect week over week hog marketing’s, Canada-USA combined will be below year over year consistently from December and on. Also, long term positive few if any new sow units will get built in the next two years? Building costs, equity levels needed, and lack of capital are major detriments.

Last week we had strong indications the supply scenario is changing. We have an Independent (not the pork packer) division that markets Genesus small pigs for our customers. Last Friday the phone was ringing steady with people looking for small pigs. Barns are empty. Corn prices are down. In July through September no one called for small pigs. My father used to say you tell demand by "Who’s calling whom".

Of note, buyers do not care if they are U.S. or Canadian small pigs. COOL (country of origin labeling) does not seem to matter when you have an empty barn. We expect the same scenario when packers have empty shackles.

This thing is turning; expect $65.00 feeder pigs and $45.00 plus early weans in the new year. All signs of lack of supply. 2009 will be good.

Remember in the last major economic recession of 1981-1982 the hog industry made good money. People will always eat meat, but they might cook it at home. There has never been a correlation between hog profitability and the economy. It’s the hog cycle, not the economic cycle.

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.

Latest Trial* Results
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 % 3.30 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 380s. 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