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Pork Commentary: USDA March Hogs and Pigs Report Bullish

by 5m Editor
30 March 2010, at 10:28am

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

The 1 March USDA Hogs and Pigs Report is extremely good news for hog producers. Breeding herd down, market hogs down. The only thing not down will be prices which will in our opinion be at historical highs this summer. Some observations:

US Breeding Herd

The US breeding herd on 1 March was 5.760 million, down 90,000 in the last three months and down a whopping 473,000 sows from 1 December – 27 months ago. There is no doubt the hog cycle is alive and well. Months upon months of losing money has pounded our industry relentlessly. Producers have run out of cash, credit and courage. The economist pundits who have been saying there is little liquidation must have been sitting in their shiny offices with their fat salaries rather than getting out on the gravel roads. They have missed the anguish and financial pain of the industry. We expect in the almost 500,000 sows of last production, there are few if any happy endings. There have been few graceful and financially rewarding exits. It’s been ugly.

Now the good times are coming. The survivors will be rewarded. The US breeding herd production base is the smallest in the last 70 years.

US Breeding Herd
(Thousand Head)
1 December 2007 6,233
1 March 2009 5,922
1 March 2010 5,760

A drop of 473,000 sows in the last 27 months.

US Market Hog Inventory
(Thousand Head)
1 March 2008 61,018
1 March 2009 59,828
1 March 2010 58,228

Market inventory is down 1.6 million from a year ago, down 2.8 million from two years ago. No matter how you figure it, over the coming weeks US average marketing’s will be down at least 100,000 per head a week from 2008. In 2008 we had record high prices. That will be an average 20 million less lbs of pork per week; about 600 fewer tractor trailers of pork per week. The relentless liquidation of the breeding herd is cutting supply at a furious rate.

We also see an industry so beaten up by what has happened to it, that they have forgotten that prices this last year were pummeled by the H1N1 (swine flu) debacle. Swine flu is gone. It’s disappeared like Y2K did. In the swine flu wake, a several billion dollar hair cut for the US, Canada and the global pork industry. The main winners. The drug companies who sucked governments into buying vaccine that sits with millions of doses unused; some of the same drug companies that want to slide into our farms to help us?

Pig Crop

The December-February pig crop at 27.853 million is the smallest since March 2007, 3 years ago. Since then the US population has increased by 12 million people. Demand is greater.

Other Observations

We expect when Canada’s swine inventory is released in the next month the combined US-Canada breeding inventory will be down almost 700,000 sows over the last 27 months, while the combined market inventory will be down close to 5 million head. Total hog supply in the coming months will be down a massive amount. It’s a continental market and total supply is a major price driver.

  • The lower supply of pigs is going to keep strength in the small pig market. We expect cash early that is wean pigs to stay above $40.00 for the next year, unless there is a major increase in feed prices.

  • How long will we have good prices? The hog supply is in place due to the biological time table of swine for almost a year. With the financial hole and lack of credit available for producers, there is no way in our opinion that production can increase before the fall of 2011 (could be longer). That means at least 18 months of good prices. In our opinion cash lean hogs will average between $75-80 over the next 18 months. About a $15-20 per head profit at current costs of production including accumulated debt.

  • We expect cash lean hogs that on Friday were $66 are at the lowest we will see for the next 18 months. Over the coming weeks we expect a relentless increase in cash hogs and we continue to see a scenario for hitting 90¢ lean this summer.

Summary

The worst is definitely over as even the most bearish Chicken Little economist will be challenged to come up with the sky is falling scenarios after this USDA March report. Those of us left standing, the beaten down trod on producers have made it. Cash flow will be black for the foreseeable future. Our industry has been devastated by an unforeseen tsunami of high feed prices, a domestic and global economic crisis and the plague of H1N1 (swine flu). Now it’s our turn to make our money back and then some. Its dam the torpedoes, full speed ahead!

Further Reading

- You can view the USDA Quarterly Hogs & Pigs Report by clicking here.