Canada released its 1 July Swine Inventory report last week, with this comes a United States and Canada combined report for the 2^nd quarter. It’s a continental market the aggregate is what counts in our opinion.

2nd Quarter USA - Canada Thousands of head
	2008	2009	2009 as per cent of 2008
All hogs and pigs	80,368	78,184	96
Kept for breeding	7,557	7,347	97
Market	72,803	70,837	97
Sows Farrowed	3,846	3,710	96
Pig Crop	36,432	35,850	98

Observations

• The combined Canada – USA breeding herd peaked (7.752) 3^rd quarter of 2007 (about 2 years ago). Since then we have had continual financial losses in our industry. Since the inventory peak 1 September 2007, the Canada – USA breeding herd has declined 405,000.
  
  
• The 2^nd quarter market inventory of Canada – USA was about 2 million head less than a year ago. Considering a year ago right now we had lean hogs around 85 cents, it is difficult to comprehend the $80 per head difference we are currently seeing year over year. Less hogs but significantly lower prices. It’s hellish!
  
  
• We cut sows by 4 per cent but have a Pig Crop down only 2 per cent. The 2^nd quarter pig Canada – USA pig crop was down only 500,000 + this year compared to last. Supply is not dropping significantly.
  
  
• There is no Golden lining in the Canada – USA report. To get any relief from these extremely low prices we will need a demand pick – up. Breeding herd liquidation is continuing the 400,000 plus we have taken out since September 2007 is being added too.
  
  
• We had reports from the field of many farms beginning liquidation over the last few weeks. By our calculation, that is putting names on known liquidation under way, we have come up to 120,000. We are sure this isn’t all. Continual $40.00 per head losses will continue to make the liquidation list grow. Sows haven’t dropped $50.00 per head in a week because of lack of supply.
  
  
• Demand could be enhanced by South Korea’s announcement 10 days ago to lift most of the import restrictions put in place on H1N1. We had visitors last week from South Korea (Genesus sells more swine breeding stock to South Korea than any other Genetic company). Our visitors told us they were receiving $3.00 US per kilo or about $1.35 US per pound. Opening up of South Korea’s pork imports and the price point spread between North America and South Korea can only enhance total pork exports in our opinion.
  
  
• The hog prices in Mexico continue to be strong with the average price 20 August, quoted as 19.5 pesos per kilogram, with USA to Mexican peso exchange rate of 12.837. That would be $1.51 US kilo live weight or 69 cents US per pound live weight. Mexico is the United States number two largest market for pork. The border is open for pork. This is the largest Mexico – USA hog price spread we have seen in 15 years of doing business in Mexico. This will lead to more pork going to Mexico. Demand is price enhancing.
  
  
• The most recent European Union hog prices are about 1.5 Euros a kilo (1.00 Euro = 1.432 USD), or about $2.14 US a kilo or 97 cents US per pound. The European Union has approximately double USA – Canada hog production and is obviously a major global player. Slaughter prices in USA – Canada are half of E.U’s and can only enhance USA – Canada export opportunities.
  
  
• The USA Cold Storage Report 31 July indicated a pork pull down of 30 million pounds from June 30577 down to 547. A year ago, July 1st was 505 million pounds. Nothing extraordinary in this data but at least inventory went down and is not significantly higher than a year ago when we had historically high prices. The real challenges right now are the reports we get of continued concern of H1N1 flare ups (unfortunately still called swine flu). These concerns are making packers, retailers, and exporters all reluctant to hold anything more than minimal pork inventory in case of a further price collapse due to H1N1.
  
  
• The Canadian Government's aid package has not been greeted warmly. No one seems to understand the criteria or rules (including banks we talked to). What is a viable operation for qualification? What is percentage of loans guaranteed? Lots of questions left unanswered. Big Bang Announcement with little meat. We still can't get the arithmetic of Economists at Iowa State who has calculated liquidation in Canada will hurt US producers by cutting US prices 7 per cent. We want to see what his calculation would be if the US adopted a sow buyout program proposed last week by producer groups including Producers Livestock. It's good to see leadership from the co - ops; unfortunately, the NPPC and the National Pork Board seem to be like a deer in the headlights. Proposing the USDA. buy some meat to give away is a joke. People eat free meat instead of buying it. How does that help? Maybe we will get the ISU economists calculation on how free pork increases prices.

Summary

Ugly, ugly, ugly - that is the scenario we are in. People are losing their farms and as a whole we are collectively gassing $100 million plus a week. Supply will decline but we need increased demand. We believe Mexico and South Korea will likely take more pork. We need a push. We believe it will come at some point by off farm speculators who will see lean hog futures quite low in any historical measurement. When they believe there is liquidation and export demand enhancement we see them entering big into the lean hog pit. It’s all about money. It doesn’t matter if it’s gold, oil, steel, etc... speculators could be our salvation. Old proverb: "Peasants don’t go broke."

Genesus Duroc Boars

Setting New Genetic Standards

Genesus Duroc Boarsare selected from the World’s largest High Health Registered Purebred Herd. Genesus Durocs are selected for rapid growth rate, durability, feed conversion and carcass quality. Genesus Durocs are analyzed using a proprietary carcass program that emphasizes lean meat percentage while complementing selection for intramuscular fat, color and tenderness. All characteristics demanded by the Premium White Tablecloth and Export Markets, Genesus Duroc have been recognized for superiority with several National Genetic and Packer Carcass Awards. Our selection process is extensive.

Rapid growth – Genesus has the industry’s only dedicated Registered Purebred Duroc performance testing facility that uses computer transponders to individually measure average daily feed intake. This allows Genesus to identify High Appetite Boars that grow faster and are robust throughout production. Research has estimated that including individual feed intake measurements taken over the complete grow-finish period will increase the expected response to selection in our sire line index by 43 per cent. A key selection tool in the Genesus genetic program by our geneticists is the Sire Line Index (SLI). The SLI combines EBV (Estimated Breeding Value) for the key economic traits into one value based on their relative economic value for traits important to slaughter hogs. Last year Genesus performance tested 5.014 Durocs. As shown in the following graphs, Genesus has made steady, annual progress in the key economic traits.

Feed Conversion – Genesus genetic improvement programs have always included selection for feed conversion ratio (FCR). Our selection indexes have a significant amount of emphasis on FCR: 29 per cent in the Sire Line Index. In our current evaluation system an EVB for FCR is computed based on the relationships between FCR and age. Lean yield, loin eye area and percentage of lean in the loin relative to 3 primal lean. Most experts agree that feed intake is strongly related to growth rate and fatness. A 1993 study determined that one day less to 220 lb resulted in 1.96 lb less feed and for every .04 inches less fat at 220 lb resulted in 2.34 lb less feed from 55 to 220 lb growth period.

So what has been the result from the selection Genesus has practiced for FCR? The genetic trends for Duroc are shown in the graph below.

Use of Carcass and Meat Quality Data

Carcass and meat quality data is combined with off-test data (growth and ultrasound), pedigree data and off-test, carcass and meat quality data on sibs and relatives for genetic evaluation.

The data collection has enabled Genesus geneticists to accelerate superior carcass quality traits. Packers recognize Genesus Durocs Quality and Uniformity and this leads to our customers having hogs with market options and demand.

Structure – Over the last decade tens of thousands of Genesus Durocs have been tested annually on cement slats in a real life environment. The ability for Genesus Durocs to breed and produce offspring that perform in commercial facilities is well recognized in our industry and by our customers.

Health – All Genesus Duroc boars come from our Primary Nucleus Units. Genesus Duroc Boars health meets and exceeds industry standards. Our seven dedicated AI centers have excellent health and biosecurity.

Registered Purebred Durocs – Many genetic companies sell what they call Durocs. Genesus sells only Registered Purebred Durocs from 100 per cent registered purebred herds. Genesus currently has the world’s largest Registered Purebred Herd. Last year Genesus registered 41 per cent of all Purebred Breeding Stock in the nation. You can be confident you are getting a 100 per cent Duroc boar with Genesus, verifiable by the official National Purebred Swine Registry.