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Pork Commentary: Manitoba Hog Days

by 5m Editor
10 December 2008, at 12:56pm

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

Last week we participated in Manitoba Hog Days, the annual trade show for the Manitoba Swine Industry.

Our Observations

  • Manitoba has approximately 370,000 sows and probably has the most modern production infrastructure in Canada. Manitoba has the only modern two shift plant in Canada which is owned by Maple Leaf Foods (approximately 18,000 a day).
  • Producers have had enough. The financial losses of the last 1.5 years have taken many who have not already quit to the breaking point.
  • Although there is some sense of doom many also see the light at the end of the tunnel. A weaker Canadian dollar, lower feed prices and higher lean hog futures all are contributing to a cautious optimism.
  • The last of the major Manitoba Sow Liquidation that was indicated in September (approx. 15,000 sows) is now reaching a conclusion. Most were SEW units that did not for various reasons make it to the price increase. These units will stop flowing small pigs to the USA in the next few weeks.
  • Manitoba Hog Days probably had in attendance every major SEW and Feeder Pig Broker in North America all looking for small pigs. It appears in the last few weeks we have gone from a surplus pig supply to a shortage. Amazing! For the sow producers who got $5.00 in July – a welcome message.
  • The sudden decrease of the Canadian Dollar is affecting Canadian Hog Producers returns. At the first of July it was par with the US dollar. Last Friday, it closed at 79 cents. What this means is a $100.00 US market hog is bringing $126.00 Canadian or 26 per cent more than in July. This is helping all Canadian producers and packers with competitiveness. Most costs are in Canadian but the selling price is based on the US markets. This will stop all Canadian Sows Liquidation but do not forget a decrease of 300,000 sows has already happened.
  • Some swine equipment people told us they have never seen the business this slow in 25 years of business. It goes to figure that an industry that has no cash liquidity is not purchasing equipment unless absolutely necessary.
  • Packers told us the Canadian Dollar devaluation is helping their competitiveness in not only operating and debt costs but in the export market. While Country of Origin Labelling is going to encourage hogs to stay in Canada and help keep their lines full. Nice combination for them.

Feed Market

The corn, soybean, and wheat market continues to plummet. Let’s review.

Markets July 11 December 05
Corn $6.84/bushel $2.93
Soybeans $16.12/bushel $7.83
Wheat $8.18/bushel $4.57
Oil $147.27 $41.49

Feed prices have dropped considerably. Hog breakevens likewise. Not sure there is much more downside to grain. Corn Ethanol markets will probably put a floor in the prices. Wonder how many Crop producers sold corn at the high? Probably not many. Just another lesson in the history of the commodity business. As per usual, high prices lead to low prices. High prices cut demand while increasing supply. All year we wrote about grain production increases throughout the world triggered by the record grain prices fueled by US corn ethanol policy. We did predict $4.00 corn but never under $3.00. Not bearish enough.

Hog Markets

We have been asked if the new lower feed prices will not prevent us from having 90 cent lean hogs this summer. Answer: May, June, July hogs were all bred over 90 days or more ago. There can be no more hogs produced then what the biological timetable of production allows. It’s too late to increase summer 2008 hog numbers.

On the demand side, the US had 2.373 million hogs marketed this past week and the pork cut – out Thursday was $60.24. Lots of hogs but a strong price under the circumstances. A cutout price higher than a year ago which bodes well as a reflection of domestic and export. Especially when you consider a 20 per cent appreciation of the US Dollar which is making US product more expensive globally in itself.

We reiterate our position. The aggregate collapse of total poultry, pork, and beef production year over year will be unprecedented. We are moving in unchartered waters.

The prices it will take to ration the meat available will push hogs to 90 cent lean plus. We do not doubt it. The loss of billions of dollars in the meat sector domestically and globally, and the subsequent production decline will more than offset any decrease in demand due to international economic factors.