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Pork Commentary: Road Trip to Ukraine and Russia

by 5m Editor
7 October 2008, at 8:22pm

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

Last Saturday we left for Ukraine where we spent three days before arriving in Russia. Some observations:

In Ukraine we spent time in Crimea on the north shore of the Black Sea. We visited a large agriculture complex with 20,000 hectare (44,000 acres). Privately owned they have cattle, poultry, swine and grain production.

Currently Ukraine swine prices are excellent at $3.00 U.S. per kilo liveweight ($1.35 U.S. liveweight lb). Cost of production is around 85-90¢ U.S. lb. We understand there is little expansion ongoing in Ukraine with hard to get and expensive credit. Swine prices had been unprofitable just a few months ago.

Ukraine, a country of 47 million people, has seen its swine production cut in half over the last decade. As you travel through the countryside you see dozens of abandoned livestock production facilities whether they be swine, poultry or cattle. The arrival of democracy and the ending of government subsidies and price controls had devastated the existing collective farms. In Ukraine and Russia many of these abandoned facilities have been stripped of all equipment, roofs, bricks, etc. They are in ruins.

The grain production in the Crimea area is irrigated. In both Ukraine and Russia we have seen a benefit to the global grain production sector by the U.S. corn ethanol program (and insanity). Grain prices in both Ukraine and Russia are close to U.S. prices, which are more than double that of a couple years ago. High prices are stimulating grain production in both countries. More land is being planted than ever, its becoming intensive. We have visited one farm in Russia (also a Genesus customer) with 80,000 hectares of crop land (175,000 acres). They have 80 combines and 65 John Deere tractors. The group is negotiating to purchase another 15,000 hectares (34,000 acres). From what we can see there is a massive technological uptake in this region into crop production. Do the arithmetic.

Land is $1,000 U.S. per acre (rent for the same crop land is $20 U.S. per acre). Grains are yielding 6-10 tonnes per hectare (90-200 bushels an acre). It works. To buy land and the best equipment, seed, herbicide, fertilizer, etc. Good worth. The U.S. corn ethanol program is creating a huge competitor for U.S. dominance in global grain markets. Russia and Ukraine combined have reportedly 35 million hectares (74 million acres) of land not being or under utilized. For what its worth we have seen 100’s of miles of good crop land in large fields of approximately 200 acres. There is scale. At a hotel in Russia we met John Deere salespeople from Minnesota. They said its like a gold rush for them.

One group told us in their area crop under intensive cultivation has doubled in the last two years and yields had doubled. A four fold increase.

In Russia swine producers are receiving $3.50 per kilogram with a profit of $150 per head. Prices and profits we in America only envy. The demand globally for grain and meat (pork) is intensive. Russia is importing over half their meat currently. They have the capital, will, grain and desire to decrease their imports radically. It will happen. Those who wonder why grain prices have collapsed as the financial speculators run from the grain market need to look no further than to places like Russia who have increased grain production and now have a revitalized infrastructure based on $1,000 an acre land.

We are in Russia for next ten days and will report further. Of note, even in Russia they are worried about the U.S. financial issue. Everyone we visit talks about it. We are in a global economy, whether we like it or not.

5m Editor