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Pork Commentary: Market Rallies after USDA March Report

by 5m Editor
6 April 2010, at 11:56am

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

After the 1 March Hogs and Pigs Report lean hog futures jumped. With that, our lonely voice in the wilderness that has been for months talking 90 cents lean hog futures got some soul mates.

From the Vance Publishing – Pork Network

"The report justifies higher prices," said Jim Burns, an independent hog futures trader at CME. "You could easily see 90 cents in some of the summer months."

According to Jim Wycoff, President of jimwyckoff.com, a market analysis, the gains ‘puts back in place a two – month old uptrend drawn from the February – March lows.’

Mr Wycoff said he ‘can’t rule out’ a rally to 90 cents.

June lean hog futures closed last week at 83.375 up 5.30 from 78.025 the week before. That’s a $10 per head jump in a week. That is about $10 per head gain achieved on every lean hog futures month in 2010. It was a good week for hog producers.

Gilt Retention

USA December–February gilt retention was approximately 660,000. It was 7 per cent below the prior year, 17 per cent short of the 3 year average, and the smallest amount since before 1991. This is the smallest gilt retention for over two decades. Is it any wonder the breeding herd declined 90,000 in the December–February quarter. There was too much focus on decreased sow slaughter last quarter by the pundits who thought breeding herd liquidation had stopped. They missed the other half of the equation. We are in the breeding stock business; we have been exposed to the everyday cash flow crisis our customers and prospects have experienced. Some didn’t have money for gilts. They kept sows longer, or didn’t replace them. Consequently, the lowest gilt retention in two plus decades. The tenured economists in their shiny offices just don’t see the everyday cash crisis of producers. Sadly, they are out of touch. What has happened is not an academic exercise but a real life pain unprecedented in the history of the hog industry. Any wonder about herd liquidation? In our opinion liquidation continues.

Small Pigs

USA cash 40 pound feeder pigs averaged $77.49 last week with highs hitting $85.00. Cash early weans averaged $48.09 with highs of $53.00. Real strong seasonal prices are truly a sign of decreased supply and stronger demand. Lower corn prices are pushing the prices higher. We expect early weans to stay over $40 for the next year.

USDA Prospective Plantings

The USDA prospective planting for report last week indicated an expectation of 2.4 million more acres of corn this year compared to last, 700,000 more acres of soybean. This is positive for keeping feed prices staying near where they are over the coming months.

USA corn reports are lagging USDA projections. This is in our opinion partially a result of decreased livestock and poultry production in the global markets that traditionally purchased US corn. Decreased livestock production is also one of the reasons pork exports are rebounding from 2009.

Summary

The March Hogs and Pigs Inventory Report have given the market a catalyst to push to higher prices. Current 70 cent lean hogs have been here for a minute but that has just got us back to trading even. Prospective higher hog prices in the future have not yet in a real way replenished anyone’s cash reserves. The time is near for real profits but the wreckage of the last two and a half years has left a huge equity crater. Consequently, in our opinion, liquidation has not yet stopped. Old facilities, lack of capital and courage is still cutting the breeding herd.

The hog market is on ascension, we expect the next one and a half years will have strong prices. We are not alone now in seeing the 90 cent lean hog scenario.

GENESUS ANNOUNCEMENT

We are pleased to announce the appointment of Brad Cramer as General Manager, Genesus Inc., based in Oakville, Manitoba.

For the last ten years Brad has been the Chief Operating Officer of Stomp Pork Farm Ltd. in Leroy, Saskatchewan.

  • Stomp was a 25,000 sow system.
  • Brad was responsible for 240 employees, 34 sites involved in pork production and 2 feed mills.
  • Brad was responsible for US operations that consisted of 60 production facilities.
  • Brad also managed packer agreements, risk management programme, financial analysis and bank relationships.
  • Brad joins Genesus on 5 April.
  • Brad, his wife Crystal and their two children are moving to Manitoba in the coming weeks.

We would like to welcome Brad. We believe that Brad’s personality, business experience and swine production knowledge will augment Genesus as we all work together to build the best swine Genetics Company in the world.

Jim Long
Mike Van Schepdael
Bob Kemp