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Pork Commentary: Markets Take a Rest

by 5m Editor
16 March 2010, at 10:55am

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

Last Friday, Iowa – Minnesota averaged 69.47 lean a pound down $2.50 from the previous Friday, while the USDA pork cut – outs averaged $74.11 the end of last week. To get cash lean hogs to move higher, cut – outs have to improve. It would help a tremendous amount if weekly hog marketing’s would get lower. Last week’s US marketing’s were 2.132 million down 1.4 per cent from the same week a year ago. We expect by late April marketing’s could be closer to 2 million a week. We don’t expect the hog price to show much further strength before then.

  • Vomitoxin, moulds in corn, etc seem to be quite prevalent throughout much of the Mid West. Mould inhibiters help and so does general testing to eliminate use in swine rations. Unfortunately, some molds and vomis are slipping through. This will hurt litter size, farrowing rates and growth of hogs. All will cut pork tonnage in future months.

  • The overall economic crisis has done other things to hurt production. In a bid to lower costs we are aware of producers who have cut back vaccine use. Some have even made the fatal mistake of eliminating circo virus vaccine. This has in turn increased their mortality and led to more off pigs. Truly bad economics if there is one vaccine that appears to give an excellent return on investment it is circo virus vaccine.

  • We are hearing from feeder pig brokers of an almost record amount of off or credit pigs in loads of early weans and feeder pigs. Some of this could be attributed to high prices of early weans ($45) or feeder pigs ($70) that lead to buyers quality expectations to be higher and using credits to lower average load prices. The feeder pig brokers though are saying inspection of small pigs is showing real quality issues. We expect industry economics, feed quality issues, lack of vaccine usage, and an old sow herd is a cocktail leading to poorer quality pigs.

  • Last week the USDA announced an agreement between the US and Russia to allow US pork to Russia. New rules for export verification regarding Russian microbiological and tetracycline group. Antibiotic residue requirements were the ticket. Russia imported $476 million in 2009. H1N1 issues and delisting of several US plants (drug residue?) were the main cause of the sharp decline.

There should be opportunities for US pork as Russian hog prices are running around $1.50 US per pound. There have been several breaks of African swine flu primarily in the south of Russia (Kuban region). This has lead to a large region being quarantined and reports of several herds being put down. The African swine fever issue is a huge concern for all Russian producers as its spread could be financially devastating to the whole industry. The re – opening of the Russian pork market for the US pork exports will be positive for US hog prices.

Brazil

We have been hearing from Genesus associates traveling in Brazil that the corn and soybean crops are exceptional this year, getting the right amount of rain and sunny days have made soybean and corn so healthy and beautiful there. They expect record crop this season, the soybean has started to get yellow at this point to be harvested in about a month, while the corn is growing so fast to be harvested in June.

Prices:
today soybean price is 500 Reais per ton = 265 US/ton
Corn is 283 Reais per ton = $165 US/ton
future price trend is going down.
Hog prices: 2.35 Reais/kg or $0.60/lb liveweight
Cost of production: 1.90 Reais/kg or $0.47/lb

All producers they talk to are ecstatic with the bountiful crops. The USDA reported record Brazil and Argentine corn – soybean crops last week, it appears our field observations concur. Brazil and the United States are major competitors in Global Pork Trade, both countries will benefit when each other’s price goes up in tandem.

Summary

We don’t expect much appreciation in hog prices until the last half of April. This is when we expect to see the beginning of seasonal production declines. Russia opening up for US pork is price supportive. Price points of hogs throughout the world will pull US – Canada prices. Markets are taking a breath – we expect a wild ride this spring – summer with very strong prices. We might be delusional but we will not be surprised to see lean hogs hit 90 cents.