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Pork Commentary: Lean Hog Prices Push to $1.00

by 5m Editor
26 April 2011, at 10:38am

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

Cash lean hogs continued to push higher last week with 53 – 54 per cent lean hogs averaging 95.76 lb US at the end of the week up from 82.70 US a year ago or about $27.00 per head. It is certainly better, but when you consider Omaha corn a bushel was $3.45 a year ago and now it’s around $7.50 a bushel it is not so special. The $4.00 per bushel year over year increase is about $32.00 per head jump (eight bushels per head) in cost of production. That is a $27.00 increase in hogs per head versus a $32.00 per head increase in feed costs. That means we are spinning our wheels especially if you are buying feed. Producers that grow their own crops have on the other hand very good cash flow. The traditional model of grow your feed, feed your hogs, and put manure on your fields probably has never been better.

  • Last week the very top price lean hogs brought $105.79 lean per pound according to the USDA Prices are certainly appreciating.

  • The latest weekly US sow marketing’s indicate 55,657 an indication of breeding herd stability in our mind. We have never had breeding herd expansion when the hog to corn ratio has been below 15, currently it is 12, a year ago it was 22. The US breeding herd did not expand last year with a 22 hog to corn ratio, we don’t expect expansion at 12.

  • In the Swine Genetic business it is in Genesus’ best interest to sell breeding stock. Consequently, we are always looking to see who will be stocking empty sow units or new sow units. From our vantage point we observe numerous sow units sitting empty in different parts of Canada – USA. They have been sitting empty for months. Many of them deteriorating from inactivity. It is hard to get capital as bankers and investors are cautious. Many empty units are entangled with debt and credit issues; compounding this is many empty sow units have more debt than anyone will pay in the current market conditions. As far as new sow units being built there are probably less being built than in the last twenty years. What this means in our equation is that nothing is happening to significantly increase pig production in USA – Canada. Lean hog prices will stay strong through the summer of 2012.

  • There is much wringing of hands due to the delay of corn planting because of wet weather. We aren’t crop experts but we expect the record 43 per cent corn crop planted in a week (1992) could be surpassed with the equipment and intensity there is today. $7.00 plus corn has crop farmers ready to roll like never before. Thankfully the Government is not in charge of organizing the corn planting.

Global Swine Markets

High feed prices will restrict expansion of Global Swine production over the coming months. As we reported last week in the Genesus Global Market Report on a US dollar equivalency live weight per pound. The US was 67 cents, Mexico 73 cents, Brazil 68 cents, Russia $1.31, China $1.02, Spain 82 cents. Canada at 61 cents per pound has the lowest hog prices in the world.

The point is, Global Swine prices are historically high. This reflects on supply and demand. Nothing we see in our Global travels tells us there is any significant expansion underway. High feed prices are keeping everything in check.

Corn Ethanol

Last week we received the following email from a hog producer – corn grower in Iowa where they have more hogs and grow more corn than any other state. It is a perspective that we don’t really agree with but we believe it was well thought out and written. Our society is based on diversity of thought – we respect such.

Have enjoyed your commentary on the hog markets for the past 10 years or so. Have met you at the Swine Shows and am a weekly reader of your column. We are a fifth generation North Iowa forever raising pigs family farm. We used your Genetics when we farrowed right up until we stopped but we still iso wean over 20,000 head of hogs.

I wanted to share a survey taken by the Iowa Pork Producers last fall that I thought was interesting. Around 500 producers took time to fill this out. Here are some results I wanted you to see from grassroots hog production in the state of Iowa if that means anything anymore.

  1. 500 producers returned the survey
  2. 66 per cent of them attend the Pork congress
  3. 73 per cent are owner operators
  4. 94 per cent PQA/TQA

BIOFUELS

  1. How should the federal ethanol standard be handled in the future

    26.6 per cent keep it the same

    47.2 per cent increase the blending amount

    11.8 per cent reduce it

    14.4 per cent no opinion

  2. Support of blenders and import credit - Tax

    53.2 per cent keep it the same

    7.7 per cent increase both

    24.3 per cent reduce both

    14.8 per cent no opinion

    74.6 per cent own no shares in biofuel plants and 50 per cent of the corn they raise is fed to hogs

As you can see your comments about the evils of ethanol is preaching to a different crowd of pork producers here in Iowa. A rising tide floats all ships and ethanol has done that for farmers. You need to weigh the tax credits of bio-fuels against huge tax credits for big oil. How about military spending to guard the oil as well as lives lost and damage to environment? Haven’t read much on ethanol spills tanking a Gulf of Mexico or earthquakes putting radiation in the air lately. New jobs plus new refining and tax revenues find it hard to be against ethanol in the country. Farmland is up in value and taxes are up to educate our children in schools. Machinery dealers are sold out. The tide is up!

And the argument for rising food costs is bogus considering the small amount of every dollar we receive at the farm gate. Also remember that DDGS go back in our rations. We are finding that family livestock farmers feeding their own corn generally like ethanol for what it’s done. We get our check from the market and not an LDP. Generally those that don’t like ethanol are the ones who thought they were going to be the biggest in the pork industry without planning that we are now in a Global market.

As a pork producer of 40 years there are better rabbits to chase than ethanol that will make more impact for hog producers in the days ahead.