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Pork Commentary: Road Trip to Russia - Continuation

by 5m Editor
17 October 2008, at 10:04am

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

A week ago we wrote about the first leg of our 17 day trek through Ukraine and Russia. This week the conclusion and our observations of the trip.

  • First of all, there is no way one can comprehend the destruction of Russia’s livestock infrastructure unless you ride for hours and see large livestock facility after large livestock facility lying in ruins. It takes no rocket scientist to realize why Russia is importing over half of its total meat protein. It will take billions of dollars of investments to revitalize Russia’s meat protein sector. Russia’s total meat per capita consumption is 30 kgs (66 lbs) – the USA 100 kgs (220 lbs). Higher standards of living and availability will increase Russian meat consumption.
  • Coming from North America where farmers live on their farms, it is startling to see no houses in the countryside. Farm land is organized in 180 acre fields (80 hectares). All owners or workers live in towns or villages. You can drive for miles past farmland and never see a home. One benefit – farmland is not taken out of production by urban sprawl.
  • Land holdings are huge; we met groups in Russia with over 200,000 hectares (440,000 acres). The industrialization of Russian agriculture is on rapid modernization, after twenty years of infrastructure deterioration. We toured five new large swine production complexes at five different companies – all modern using the latest technology. The need for swine genetics is huge. Russian genetics routinely are producing 35 mm back fat (1 ½ inch), days to market of 230 days, feed conversion 4 to 1, and litter size under 10. At market hog prices of $1.50 U.S. liveweight lb., some Russian producers are losing. Obviously it would be a shame if these types of national genetics were used in new million dollar swine complexes. Unfortunately, we were at a new farm which had received junk market hogs as breeding stock from one of the leading European genetic companies. We were ashamed of our industry. You have to give customers value, not rip them off.
  • When talking to swine producers, there are major concerns on swine nutrition and feed. Not sure why, but quality control and ration formulation is a big challenge. A company that can deliver a quality control program in nutrition has great possibilities. Pricing of feed and premixes seem to be all over the place. As the Russian industry moves to maturation just as in the U.S. and Canada, ridiculous feed margins will be eliminated. We heard of some Russian feed companies charging $80.00 a tonne for feed manufacturing plus ingredients. We were at three production facilities building their own modern multi-million dollar feed mills. Nothing like obscene feed margins to stimulate farm feed production. These same producers have thousands of hectares (acres) of their own grain for their own feed. True integration.
  • As we wrote last week, the world financial crisis was a major topic of conversation on our trip. In Russia, interest rates have risen to 18% over the last couple of weeks. In agriculture, the Russian government subsidizes these rates by up to 10%. Credit though has become tight. We met production groups that have put expansion plans on hold because of the credit crunch. We expect there is a slow down, but expansion of meat production will continue.

On a political note, we were not far from Chechnya and Georgia, both which could be described as political hot spots. For what it’s worth, we were close to both, but we observed nothing out of the ordinary. There is no sense of danger. Also, the U.S. election ongoings are major news. Canada’s election is not a factor.

Other News

  • While we have been gone, the grain and oilseed market has collapsed. Russia’s grain prices have followed suit. It’s a global market. Unfortunately, for American grain producers, the corn ethanol debacle that has pushed up grain prices has stimulated Russian grain production. Ground that had not been planted is now, and yields are up. Modern seed, fertilizer, herbicide, and equipment will do that. Huge tracts of land have been put into production. There is no return. The U.S. is, and has, created a major competitor in world grain markets. Corn ethanol has hurt the long term markets for U.S. grain by creating a major competitor.
  • My late friend, Doug Maus, used to call the Chicago Board of Trade, Las Vegas with no rules. The last couple of weeks watching the run for cover of the speculators (nice name for gamblers) out of the Board of Trade is a reminder of the irrational euphoric nature of the markets. $10.00 corn! Remember that spin. It was crazy, but it got traction and hurt many livestock producers. Now grain producers who could have sold for over $6.00 bushel are seeing billions of dollars of opportunity evaporate. (12 billion bushel x $2.00 loss = $24 billion). Nasty business.
  • In Russia, we were told that increased domestic food production is an economic and security issue. We were told that the strength of the United States was its ability to produce food in surplus. (e.g. The U.S. does not rely on other countries for food.) Russia is pursuing increased food production for food and national security. The percentage of disposable income on food in the U.S. is approximately 10%; Russia about 30%. Less domestic income spent on food increases the general standard of living and happiness.

Summary

It was my first time in Russia. People there, like everywhere else we have travelled, were hospitable and gracious. The more we travel, the more we see the commonality of people. We all want the same thing – family life, sense of security, better standard of living, and a sense of worthiness. The younger Russian generation is learning English at a rapid pace. It’s the world’s language of business. We met two men operating companies with 5,000 employees taking the time for English lessons. The best part of this is communication can create a better understanding between all people on many issues.

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.

Further Reading

- Go to our previous news item on Jim Long's trip to the Ukraine and Russia by clicking here.