Last week we attended the Iowa Pork Congress in Des Moines. Iowa is the largest hog producing state in America. People attended the Congress from all over Iowa and other states as it is the premier winter pork event.

Our Observations

• Lots of people asked us if we still believe the summer markets will reach 90 cents lean. We have a strong impression that many producers are running out of gas. We had several producers tell us they had lost $22.28 per head over the last year.
  
  
• Last week we used the word apprehensive to describe the mood of producers at the Minnestota Pork Congress. We have the same opinion from Iowa. Several producers and industry participants told us we need to get to a positive cash flow in the next 3 to 4 months or for some producers they cannot or will not continue.
  
  
• Several producers told us their operating lines are in annual review. They lost money in 2008. They have to do projections for their banks. Unfortunately, current lean hog futures do not reflect a profitable year for 2009. It is hard to put lipstick on this pig and make it look good.
  
  
• On the positive front, the discussion of lots of finishing barns being empty continues. One business group told us in their system they have identified 175,000 nursery and finisher spaces empty that had hogs in there a year ago. As one of their people said “That 175,000 is just in our little world”! Several others from Iowa and other states told us similar stories. Empty barns everywhere! Obviously there are no pigs to go in them. All pigs have a home. Unless we missed something there has not been a surge of field raised hogs. The combination of liquidation of sows in Canada and the U.S.A. is coming home to roost.
  
  
• We were told be a producer who attended the congress seminars that one of the industry’s economists is predicting for 2009 a $64 average lean price – a loss per head of $4.00 with no sow liquidation. The producers asked us what we thought of this. We replied that we expect like all the other economists, 64 cents is a calculation of current lean hog futures because that is as far as these guys assumption nerve will take them. Second, if there are 64 cent hogs for the year there will be sow liquidation. Too many producers have to get profitable in the next few months or they are gone. Capital and coverage is at a premium.
  
  
• One of the consequences of industry financial trauma is the revelation for some producers that what they have been doing and living with is no longer a viable option for the future. Diseased herds with low productivity are pushing the cost of productions well over industry norms. Selling diseased early weans is a big discount. Consequently, some producers are looking at the current sow price relative to market hogs. They are looking at selling the sows and repopulating with a new herd of high health – genetically improved breeding stock at a very attractive cash flow position. Sows relative to market hogs are at historically high premiums. For some it is clean up and improve or fall further behind.
  
  
• At the congress we had pardoxal conversations that despite killing currently over 2.25 million head there will be not enough hogs this summer to keep all packing plants open. That some would close from lack of supply. Not sure what this means but reflects the lunacy of our industry. If there are no hogs to keep plants open how the heck will we not have 90 cent hogs?
  
  
• We want to thank the two hundred odd who attended the Genesus reception in Des Moines. Even some of our competitors came as it must have been the place to be. It appeared that attendees at the reception had a good time and fine fellowship. We thank all that attended.
  
  
• *Jim Long will be guest speaker this week at Manitoba Swine Seminars – subject: Pig Production in Russia.*

Markets

Iowa – Minnesota last Friday was 59.84. A year ago it was 51 cents. $18.00 per head better but still not enough. Most producers are currently losing $20 per head or more.

The latest weekly sow slaughter was 71,200 a year ago the same week. 68,700 maybe liquidation is continuing.

The USA weekly hog marketings were 2.267 million a year ago same week 2.273 million. Remember the December Hogs and Pigs Report showed inventories over 60 pounds even compared to the previous year. It was under 60 pounds (-6 per cent) that showed the big decline. Under 60 pound on 1 December are hogs coming to market in April. We have to hang on until then.

In our opinion, this market will not be driven higher by futures. It will have to be lead by Cash Markets as it was last spring. Lean Hog Futures to some extent are irrational. Last August, October – December Lean Hog Futures were over 75 cents. At that time we wrote that there was no way fall hogs could remain that high when the June Hogs and Pigs Report showed U.S. weekly marketings would be over 2.35 million in the fall. Too many hogs and too much pork. We wrote at the time expect a 60 cent lean average in the fall. Now we have May, June at around 75 cents. The same as last August when we expected 2.35 million a week. Now we expect 1.9 to 1.95 million hogs a week in May – June but the futures are 75 cents. This makes no sense. It is irrational but it is what it is. We expect week upon week of marketings of around 1.9 million or almost 500,000 less hogs a week compared to the fall of 2008 will ignite the cash market on fire. The hogs are not there. Too many barns are empty. Demand is holding. People will eat meat. There will be less poultry and beef. We still believe in 90 cent hogs in June despite 75 cent futures. We do not waver.