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Pork Commentary: Where is the High?

by 5m Editor
17 February 2011, at 12:01pm

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

Last Friday the lean future months of May, June, July and August closed over $1.00 lean a lb. Where is the high? At $1.00 plus lean it’s $200 plus per head for four months.

Unfortunately, corn closed over $7.00 a bushel on Friday, price of hogs are high but the price of corn and feed is taking away our possibility of great profits. The big winners the hog farmer feeding their own corn feed. $7.00 corn plus hog profits it’s as good as it gets. We estimate that no more than 20-25 per cent of all hogs are raised by producers with their own feed. If they own their land even better as $7.00 bushel corn is driving land values higher. The old model that built many of a family farms wealth is alive and well.

Pork Exports Rocket Higher

  • Hog prices have been pushed by strong US pork exports with December at 146,483 metric tonnes in the preliminary data. That’s the highest monthly total since June of 2008. Mexico was the largest importing country at 40,692 metric tonnes, followed by Japan 37,941; South Korea jumped to 9,623 tonnes from 3,122 in September. We expect to see further gains to South Korea in the coming months as the foot and mouth ravages their domestic pork supply.

  • Last week hog prices in South Korea were 4400 per kilogram or about $470 US for a 270 lb hog. You would think hogs being bought for $300 per head less in the US would lead to excellent opportunities to have some pork sent there?

  • Other Asian markets of note; Philippines $300 US for 270 lb hog, Viet Nam $230 US for 270 lb hog. Thailand $260. Appears to us the best option for Koreans to get Pork is USA-Canada.

Other Observations

  • We continue to see no sow herd expansion. As we have written before being in the swine genetics business leads us to look for new or existing units that are buying breeding stock. Unless we are real lame we are not seeing many opportunities to do either. On the flip side there are strong replacement sales as many producers are replacing older sows and or upgrading their genetics. To put in context Genesus breeding stock sales were 63 per cent higher in 2010 than 2009 but we did not see herd expansion. Genesus booked breeding stock sales for the first half of 2011 reflect and sales increase of 45 per cent on top of last year’s 63 per cent, but still none into empty units in USA – Canada. What we are observing is many producers who have survived the low markets recognizing to stay competitive they must upgrade their technologies did this includes better genetics. The same old is not satisfactory for many forward thinking producers, but still good sow units sit empty.

  • The feed did corn market is scaring the crap of many producers. All ask “How high can this go?“ We have no idea. We do expect though $7.00 corn will lead to every acre available planted everywhere not only in North America but the whole Northern Hemisphere. $7.00 corn will lead to increased fertilizer use (reports we read say fertilizer sales up). Maximum herbicide and insecticide use. The old surest cure to “high prices is high prices will probably play out“ We all know farmers will overproduce given a chance.

  • Last year the drought in Russia was the trigger that helped push grains higher. Currently in Russia a new sow unit which Genesus is stocking has major construction delays because of the mud caused by high precipitation.

  • We had an interesting email from a President of an Ethanol company explaining we were foolish for not seeing the benefits of corn ethanol. Obviously their person is underemployed if he has time to write a 500 word Magna Carta on the benefits of corn ethanol to us. We guess what we are saying is hitting home. Corn Ethanol will go down in history as one of the most insane government policies ever created. The concept that burning our food to fuel cars is beyond comprehension. Now the mass media is picking up the doubling of corn prices, the major move in meat prices, and appreciation of land prices. Then we move to geopolitical events; food riots government regime change, the moral dilemma of pricing food beyond the means of many third world people to fuel SUV’s. We expect events could move fast on Corn Ethanol, as west coast –east coast people realize their disposable dollars are being eaten up by government subsidized corn ethanol things can change rapidly. The east-west coast congress now far outnumbers any ethanol backing numbers. Corn ethanol could very well become the scapegoat for many economic problems. We would not be surprised if legislation is not adopted in the next two years that will make corn ethanol a very unattractive business venture.

Summary

Lean Hog Prices continue to push higher. The summer month’s futures are all over $1.00 lean which would lead to market hogs over $200 a head. Global price points for hogs are all higher than USA – Canada. With 50 per cent of the worlds pork exports USA – Canada is poised for strong exports in 2011. Fact is the preliminary USA December Pork Exports were the highest since June 2008. We called $1.00 lean six months ago when future lean hogs were .80 we were bullish hog prices. We did not see increased hog supply and our global wanderings told us world demand would pull exports. You see nothing happening in either supply or demand not to remain price bullish well into 2012.