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Pork Commentary - Momentum in Hog Market

by 5m Editor
19 January 2010, at 11:03am

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

There is momentum in the hog market. From the depths of mid-August when cash lean hogs were 48 cents per pound and the lean hog futures indicated every month in 2010 would have lean hog prices below breakeven. We have seen a historic counter seasonal price rally. Last Friday's Iowa–Minnesota lean price was 69.88. That is $40 per head higher than August. In August, we wrote that prices would recover dramatically as hog supply declined, demand both domestically and globally would improve and the Swine Flu paranoia would subside. We took the arrows at the time for our belief with speeches given by some doomsayers warning of Jim Long Optimism. We stuck to our guns.

From our travels we saw the decline domestically and globally in supply. We saw the higher global hog price points. We predicted the large upswing in US pork exports year over year especially in Mexico. We saw the financial pains of our genetic customers. We were out on the gravel road, not sitting in our office with charts and graphs pondering an academic economic exercise. This industry has been built by blood and guts; unfortunately, too much financial blood has been spilt in the last 30 months. The haemorrhaging is over, barring an unforeseen disaster like the lunacy of swine flu, prices will be above break-even for the next two years. There are no hogs; packers are chasing hogs after the short weeks of Christmas, New Years and the massive Midwest snowstorm week. Despite this still the hog prices went up. Prices are a true indicator of supply and demand. It's hang on cowboys, we are going for a ride!

Corn

The USDA gave hog producers a late Christmas present last week – record corn production. Corn dropped 50 cents a bushel in the week. Our cost of hog production went down $5.00 per head. South America's soybean crop is expected to be higher. Hog prices – higher, Lean hog futures – lower, corn down 50 cents a bushel. It is hard not to feel there is not a future for hog production.

H1N1 flu

Millions of doses of H1N1 vaccine are available with few interested in being vaccinated. The drug companies all got paid for their products. Manufactured crises can be profitable. We saw stats of approximately 11,000 people have died globally with H1N1. The estimate of all other flus is up to 500,000 people deceased annually. Billions paid to the drug companies. A billion plus lost by all of us in the hog industry domestically and globally. To what end?

Big Sky Farms

The world's largest Government-owned hog farm, Big Sky Farms is in financial distress. Big Sky's reorganisation plan, if we understand correctly, is to pay unsecured creditors 15 per cent of what they are owed. Nice haircut! The lunacy of governments owning hog farms has become even more bizarre. It is not right for the grain farmer, and the little suppliers get pummeled financially as an industry. No government should own hog farms and compete with its independent producers.

Banff

We will be at the Banff seminars this week. We will report our observations.

Iowa Pork Congress

Next week, we will attend the Iowa Pork Congress and we will report our observations. At the Iowa Pork Congress you can visit us at the exhibit Wednesday night 5 pm at the Holiday Inn downtown. Genesus is going to have a reception to which everyone is invited to attend.

It is a celebration for Genesus placing globally its one millionth gilts; this is an accomplishment we are proud of and one we want you to share with us. Like you and many others, we started small with a dream. With hard work and perseverance, we have been fortunate to build a genetic product and brand that is globally competitive. The accomplishment of one million gilts totally depended on our customers continuing to get value and satisfaction. We thank them all. Throughout 2010, Genesus will celebrate globally one million!

Summary

Hog prices up, hog markets tighter, corn prices down, and exports are surging. The momentum is ours, 2010 is shaping up and we continue to see scenarios that will take hogs to 90 cents lean.