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Pork Commentary: Swine Inventory Plummets

by 5m Editor
4 November 2008, at 10:20am

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

Last week Statistics Canada released Canadian swine inventory numbers. The plummet in inventory manifests the attrition that has been ongoing in the Canadian inventory since 2006. Canada’s currency strength, high feed prices and threat (now reality) of U.S. country of origin labeling all culminating in financial losses has decreased Canada’s breeding inventory 13% from January 1, 2006 (1.634 million) to October 1, 2008 (1.416 million). It’s been ugly, and in our opinion, the liquidation still continues as we write.

Canada’s market hog inventory has decreased 19% from October 1, 2005 (13.586 million) to October 1, 2008 (11.379 million). The only silver lining, Canada in 2005 was quite short of slaughter capacity and that dilemma has been alleviated with the market inventory plummet.

We expect the January 1st Canadian breeding inventory will decrease another 30,000 sows. We know of producers currently liquidating as some victims of low prices and the failure of finishers unable to honor long term early wean contracts. All collateral damage of high feed prices mostly caused by an ill advised corn ethanol program that distorted the economic balance between grain and meat protein producers. Pox on the houses of the do-gooder tree huggers that promoted the ethanol insanity. Many farm families and swine companies have been devastated by runaway feed costs not only in North America, but in much of the rest of the world. Burning our food. History will not be kind. It’s a sign of societal excess and economic delusion. Much as Marie Antoinette is pillared throughout history for “Let them eat cake.” The beginning of this millennium is marked by the “Burning of food.” We should be ashamed.

Canada
Thousands of head
2006 2007 2008 2006 as % of 2008 2008 as % of 2007
All hogs and pigs 14,900 14,360 12,795 86 89
Kept for breeding 1,582 1,544 1,416 89 92

United States and Canada

When we combine the pigs under 50-60 lbs Canada-USA inventories for September-October, we see a big positive.

Thousands of head
2007 2008 2008 as % of 2007
USA - Sept 1 under 60 lbs 22,650 22,572 99%
Canada - Oct 1 under 20 kgs 4,238 3,780
Total 26,888 26,353 98%

We are in a continental market, and when we see the combined Canada-USA small pigs down 2% year over year that it is great, as we have had quarter after quarter of 5% increases year over year. This is a reflection of the significant decline in the Canada-USA combined breeding herd which is down 4% or 288,000 year over year. 288,000 fewer sows Canada-USA cuts in our opinion, over 5 million market hogs out of what could have potential production in 2009. We expect in the quarter we are in a further 60,000 to 90,000 will come out of the breeding inventory as attrition continues. Currently, producers are losing either side of $30.00 per head with nothing in the marketplace enhancing positive cash flow. Indeed, in all the time we have been in this industry we have never seen so few new sow barns being built. Consequently, any liquidation has little counter balance of expansion from new sow barns. We just keep going down in sow numbers.

The 2% decline in small pig inventory year over year is a sign of the times for 2009. We expect by summertime the 2% will be 4% decline year over year. The decline of 2% is contributing to the increase in small pig prices on the spot markets. By December-January Canada-USA combined slaughter levels will be below year over year. This will support hog prices.

Summary

We are always cup half full. Can’t help it. We see positive signs for 2009. Fewer hogs for sure. Fewer chickens as not only egg and chick sets are down 6% plus, but with the largest producer –Pilgrim Pride (over 40 million chicks a week) in big financial trouble, the ability for the chicken industry to rebound production is limited just like what has happened to us in the swine industry. Less cattle on feed. Cow slaughter up 18% year over year. Less cattle in the future. Bottom line: less pork, less chicken, less beef. Lower supply always results in higher prices. Always has and we believe always will.

We believe domestic consumer demand will hold. There is no indication that pork consumption ever moves much from either side of 50 lbs. There is no co-relation to economic boom or recession. Heck, was there not just a global commodity boom? All meat proteins missed any profitability from it. More than that, meat protein production has lost billions of dollars. We already had our recession. It’s going to be our turn to make some money.

5m Editor