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Pork Commentary: Tough Week to be Optimistic

by 5m Editor
24 December 2008, at 3:54pm

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

Tough week to have optimism, Iowa – Minnesota averaged 49.76 lean last Friday. February lean hog futures closed Friday at 61.70 while May closed at 78.47. We’ve got to get over these holidays and get into the seasonal marketing declines. Short marketing weeks never seem to be positive for growing price appreciation. A positive from last week was US markets were large at 2.379 million hogs but this number was 91,000 less than the same week a year ago. Last year’s 2.470 million was the largest weekly US marketing ever.

Other Observations

  • Our South Korea contacts tell us that in their country market hogs are bringing $3.00 US a kilogram or about $1.40 US liveweight a pound. This makes you think North American packers have a big price spread to hit in capturing some pork export business. $1.40 a pound – that would be nice. Sure would fill our equity hole fast! The price is a reflection of the livestock liquidation that has happened in South Korea and much of the rest of the world.

  • In Mexico the hog price is 18 peso a kilogram or approximately 55 cents US liveweight a pound. Liquidation has cut Mexican production. The price spread between the US and Mexico market of over 15 cents per pound will continue to encourage US exports to Mexico. Surviving Mexican producers are now approaching break even as their feed costs decline.

  • Mexico last week launched a World Trade Organization complaint against the United States in regards to Country of Origin Labeling. Mexico is objecting to the USA Cool legislation not only as a violation of World Trade Organization rules but also the abject disregard to the North American Free Trade Agreement between Canada, United States, and Mexico. It’s quite unfortunate that Cool legislation was a crumb thrown to a certain farm state senator several years ago when he could not stop packer livestock ownership is now creating trade friction between friendly countries while also burdening the US hog and cattle industry with a layer of bureaucracy that will cost untold millions with little payback from the market place. Take a bow Mr. Farm State Senator. Costing your constituents with no return.

  • We do not pretend to understand the subsidy and tariff protecting the corn ethanol business. Not sure what $33.00 per barrel for oil does to their product demand and breakevens but we’ve got to believe they do not have much upside from really cheap oil. What does $25.00 per barrel of oil do? We’ve got to believe that whatever it does to the food burning business is good for us in livestock production.

  • If marketing and brand protection is accomplished by standing up and taking on problems head on. Maple Leaf Foods has to be given high marks. In the past week Maple Leaf initiated a massive advertising campaign featuring their CEO Michael McCain front and center taking responsibility and explaining a comprehensive policy for ongoing food safety. This coincides with a media open house at the Maple Leaf food processing plant that had the issue. The media blitz by Maple Leaf is not only important for their corporation but for our industry. All of us are hurt when a food safety problem occurs. It damages our industries reputation and possibly demand. It’s important for all of us to support Maple Leaf as one of the major Pork Companies in North America. Their problem is our problem.

  • In the category we find it interesting but maybe you don’t. PIC had attempted to get five of their created breeds accepted for registration as purebreds by the Canadian Purebred Swine Association. This request was recently rejected by 80 per cent of member voters. What we find interesting is that PIC after forty plus years of no official registration found itself motivated to have official government sanctioned recognition. We expect that the 80 per cent vote rejection was mainly because of PIC’s own definitions of their composite breeds. On the self serving front we see it as recognition by PIC of the need and legitimacy of official purebred registration. Our own company, Genesus, has invested significant amounts of money over the years in maintaining official registrations as is currently the world’s largest registered purebred nucleus and GGP herd.

  • Chicken is a major competitor for pork. To get pigs you have to have sows. To get chickens you need breeder hens. The latest US inventory of breeder hens is the lowest since 1997. There are 30 million plus Americans than in 1997 creating much larger total consumption. A smaller breeder hen inventory is another positive in our continuing premise that there will be not only less pork in 2009, but also less chicken.
Meat production
Last Week Available
(million lbs carcass)
Difference
2007/2008
2007 2008
Pork (Canada and USA) 562.0 557.0 -5
Beef (USA) 508.3 474.8 -32
Chicken (USA) 949.62 896.4 -53
Turkey (USA) 150.63 149.6 -1
Total Decline -91

91 million lbs less total meat production year over year. We will be eating into meat in storage. In the coming weeks the year over year meat decline will continue. This dog is going to hit the end of the chain. Hog prices are going higher. 70¢ lean by the end of February, 90¢ plus in June. Have a Merry Christmas!