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Pork Commentary: Market Goes on Wild Ride

by 5m Editor
22 March 2011, at 10:11am

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

Last week all commodities were on a wild ride – way down – then way up as the world looked at the implications of the earthquake in Japan. On the week Friday to Friday CME June hogs ended up but just barely.

Our Observations

  • We understood that US packers were seeing no slow down in the pork exports for Japan. Japan is the largest dollar value buyer of US pork.
  • USDA pork cut outs at the end of last week were over lean hog price. 92 cents a pound a strong 10 cent spread. We believe with the USDA pork cut outs seeing no weakness as another indicator that Japan’s pork demand has not waned.
  • Our understanding is that Japan’s Swine Industry is spread relatively evenly through their country. Where they are hardest hit reportedly has about 10 per cent of Japan’s hog industry. We believe Japan’s swine industry will have lower production in the short term while logistics caused by the crisis will lower pork consumption about a similar amount.

Summary

Our cowboy calculation tells us lower production will be cancelled by lower consumption. Net effect for North America – prices neutral in the end.

The tragedy in Japan lead to thoughtfulness on the part of the National Pork Board, National Pork Producers and the US Meat Export Federation to make a donation of $100,000 to ship pork products to feed earthquake victims in Japan.

“Our hearts go out to the Japanese people who have suffered from this terrible natural disaster,“ said Conley Nelson, a pork producer representing the National Pork Board.

Our own experience in travels to 20 plus countries is that the World’s Pork Producers have much the same values and decency. The donation to Japanese earthquake victims is a further affirmation of our belief.

In our opinion the Foot and Mouth disease break in South Korea will be a much larger factor in North American markets over the next several months. 300,000 plus sows and three million pigs have been eliminated in South Korea. That is 5 million hogs per year and we can’t see how this production can get replaced within South Korea in less than two years. North America with 50 per cent of Global Pork Exports will be the primary supplier of this pork. This coming week we will be visiting South Korean Swine Producers and give some more observations next week. The South Korean Swine Genetic Industry has been devastated; Genesus is the largest supplier of high health registered purebred swine genetics to South Korea. It appears multiple flights of Genesus Genetics are Korea bound in the coming months.

Other Observations

  • The US retail price of pork averaged $3.28 per pound in February up 13 per cent from last year. Higher despite 1 per cent more pork available. A strong indicator of demand. In February packers and retailers made good money, while producers mostly sucked air. We expect that US weekly hog marketing’s could drop 150,000 a week from 2,150 million ranges to 2 million in the next 6 weeks. When that happens we have supercharged hog price increases of $40 per head. It will be the producer’s turn to have some extra cash!