Corn 2013 – USDA projects 14.53 billion bushels from 96.5 million acres planted and an average yield of 163.6 bushel to the acre. A 35 per cent increase over 2012’s drought reduced crop. USDA projects the 2013 crop year average price at $4.80 a bushel while the current price is $6.90.

Soybeans 2013 – USDA projects 3.405 billion bushels from 77.5 million acres with a yield of 44.5 bushels per acre. An increase of 4.9 bushels an acre over 2012. The USDA estimates the average price of soybeans in the 2013 crop year will be $10.50 a bushel while the current price is $14.61 a bushel.

When we look at current corn and soybean prices compared to USDA projections we see a potential decrease of 30-35 per cent in feed costs or approximately $25-$30 per head farrow to finish. (Corn down $2.00 a bushel – soybeans down $4.00 a bushel).

We believe the Swine Sector has mentally dialed in this type of rapid feed price erosion. It is leading producers to hang on and has slowed liquidation of the breeding herd.

Also of note the corn futures markets last Friday were December 2013 $5.52, March 2014 $5.63 & July 2014 $5.75. Significantly higher than the $4.80 average USDA projects over the same time period. Soybeans Months on the board last Friday for the 2013 Crop Year were about $2.00 a bushel higher than the USDA projected prices. Obviously the market has not let go of the chances of another drought.

The US has had five droughts in the last 42 years. None were back to back years. Despite the talk of climate change it was 23 years since the previous drought. We remember a few years ago being at a testimonial dinner for Mac Cuddy who built from scratch a company that produced 25 per cent of all turkey poults in the world with 3,000 employees. His message "You go broke betting on droughts" One drought in 23 years – not good odds.

Trade Issues

The slide in hog prices in Russia down from $3.00 a kilo to $2.00 a kilo and Iowa prices in China seem to be increasing the concern of both countries about the usage of Ractpamine (Paylean) in imported pork and meat. The reality of the increased inability and or difficulty to export to both countries from USA – Canada is a serious issue for hog producers. Lower market accessibility will limit exports and lower hog prices in USA-Canada while supporting hog prices in China – Russia. We expect that continual hog prices in China – Russia. We expect that continual pressure will lead to less Paylean being used. Smithfield Foods Americas largest hog producers and packer has recently said that they have the ability to verify Paylean free pork through their production food chain, to meet market conditions. 40 per cent of US supply-demand Pork goes to Russia – China, 4 per cent in an inelastic commodity market can significantly affect hog prices. This is a serious issue especially if other countries grab onto this as a trade barrier to support their domestic producers? USA-Canada has the most efficient low cost pork industry in the world, with massive levels of pork to export. This intimidates higher cost and less efficient countries and their pork producers. Trade issues ensue.

Cattle on Feed

The USDA Cattle on Feed Report for 1 February shows 6% fewer cattle on Feed than a year ago.

About 750,000 fewer cattle on feed. Less Beef coming is supportive to hog prices. Beef can’t eat what’s not there!

Hog Numbers

Liquidation of the sow herd started last July. There is no doubt in July-August the sow herd got smaller. We expected not to see significant year over year declines in hog numbers before April. This past week though US weekly hog market numbers were 60,000 lower than the same week a year ago. Due to packer’s margins being weak? Packers backing off? Hogs not there?

Year to Date (9 February 2013) Canadian feeder pig exports to USA were down almost 10 per cent (60,000 fewer). The Canada Hog slaughter year to date (16 February 2013) is (85,000) Add hog marketing’s and feeder pig exports it appears Canada’s total pig supply is declining.