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Pork Commentary: Record Price Pork Bellies Become News Story

by 5m Editor
11 August 2010, at 1:15pm

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

Abracadabra – the US consumer woke up to the media reports last week of pork bellies (ie. Bacon) reaching record prices with wholesale belly prices reaching over $1.50 per pound. This is a historical record. A year ago wholesale bellies were in the 40’s. This is a classic case of the surest cure for low prices are low prices. Unfortunately when the national media discovers a story it is many times the sign of the stories zenith. Bellies will stay high but we don’t expect new records in the coming weeks.

Low pork and bellies in cold storage and weekly hog marketing’s continually lower than last year in compounding supply issues relative to demand. Last week the US hog marketing’s were about 140,000 fewer hogs than the same week a year ago. Give or take 25 million pounds less pork for the week compared to a year ago. Week upon week of lower pork supply is pushing prices higher as the only way to ration limited supply is higher prices. There is little wonder hogs are bringing $40 plus more year over year. We can’t say we are surprised as we predicted significantly higher prices this summer compared to the usual suspect ag-economists that as late as January were predicting lean hog prices in the 60’s this summer.

We guess it is a difference in perspective. Every day we are exposed to the cost of hog ownership and we have seen the financial challenge producers have experienced. Far from an academic exercise we saw the real pain of swine production of an industry losing $6 billion in equity. No way this collective pain was not cutting production. Gilts weren’t being retained. Production corners were cut for lack of capital and courage. There would be less production. We also believed and wrote that the US H1N1 (swine flu) experience (scare) of 1976 would be repeated. Lots of noise! Nothing much would happen and people would soon forget. They have forgotten H1N1. Certainly record high belly and bacon prices are a clear indication of that reality. Consumers are voting with their dollars that they want bacon. Bacon, a product that has taste and flavor, it is certainly not what you would call low fat. This in itself might be telling our industry what the consumer wants and are definitely ready to pay for.

Other Observations

  • The Russian drought has certainly jolted our feed costs. Since 27 July, September corn has gone up 45 cents per bushel ($3.62 to $4.05) wheat is up from $4.64 on 29 June to $7.25 per bushel last Friday. We are leaving for Russia – Ukraine this Friday and will be in the areas that are drought affected. We will report our first hand from the ground observations.

  • Weekly Iowa – US Minnesota hog weights are close to a year ago. This year 267.0 pounds last year 266.8 pounds. A few weeks ago this year’s weights were almost 4 pounds higher than a year ago.

  • Higher feed prices have taken some edge off the early wean and feeder pig market. Last week US cash early weans averaged $42.05 and cash 40 pound feeder pigs averaged $56.30 with a huge range of $44 - $65. Last year feeder pigs were about $15 and were at their extreme low. Over the next few weeks we expect to see early weans – feeder pig prices to stabilise. There is still a pig shortage and we expect feed prices will stabilise when the reality of a record corn crop sinks in to corn prices.

  • We all have heard of the farmer owned Illinois Packing Plant Meadowbrook that failed and is sitting empty with millions of dollars lost. A contrast to the Meadowbrook unsuccessful venture is Conestoga Packers in Ontario wholly owned producer plant. This group of 150 family farms is currently handling 14,000 head a week up from 3,000 a few years ago. Recently Conestoga announced further expansion in processing which could add up to 40 new jobs to the current 350. Conestoga is working. A testament to the vision and leadership of the family farmers who have stuck together to truly build a pork product from the farm to the fork. A belief and commitment in themselves and their industry for today and the future.

Summary

Hog prices are going to stay strong in the coming months. Hog supply is short. Demand is strong. There is no significant expansion. The empty sow barns are not being restocked yet and new sow barns are a figment of imagination. The equity hole is being refilled. Unfortunately the equity hole is still a crater.