Jim Long President, Baconmaker Genetics / Wood Lynn Farms, Inc.

U.S. hog slaughter last week was 1.887 million head. It was smaller than the week before by 4.2%. It was smaller than the same week a year ago by almost 80,000 head.

Overall, though, U.S. slaughter the last 8 weeks has run very close to year ago:

Considering the mad cow crisis in Canada is diverting 20,000 extra Canadian market hogs/week to U.S. slaughter plants, it's not hard to see why U.S. slaughter is not lower than a year ago even though U.S. pig crops have been year-over-year smaller since the beginning of last summer.

Comparable slaughter volume but better price: Meanwhile, though slaughter volume has been comparable to last year (and market weights are at least 2 lbs heavier), price this year has been better. The U.S. national average lean price last Friday was $52.47. Even though that was the lowest price in the month this August, it was significantly better than last year's average August price, $42.53. We expect the average hog brought at least $20/head more revenue this August than last August.

It would be nice to preserve this year's price advantage relative to volume. Question is, will slaughter in the weeks ahead tend to match year ago like the average of the last 8 weeks? Or will it fall short of year ago like it did last week. The question becomes immediately pertinent because U.S. slaughter volume this week a year ago was 2. 29 million head. We doubt slaughter this week can match that and think this week will be significantly smaller than year ago's 2.29 million head.

Sow Slaughter Doesn't Indicate Optimism

The official USDA slaughter for the month of July was released last week:

• July sow slaughter was 284,000.
• 284,000 is the highest total of any month this year.
• This July's sow slaughter was 3% under July of a year ago.

Because this July's sow herd is at least 4% smaller than last July's it would take a brave soul to suggest anything but on going breeding herd liquidation. In this quarter last year (Jun - Aug) the U.S. breeding herd declined 147,000 and all statistical evidence suggests a major decline this year. The combined Jun - Jul sow slaughter this year is the same as last.

Meanwhile, gilt retention has not increased and anecdotal evidence of significant sow barn construction is difficult to find. Bottom line: The smallest breeding herd in our generation is getting smaller. Though productivity gains will be achieved they will not keep up with the pace of liquidation. Fewer breeding sows is a reflection of inadequate financial returns that do not justify the time, capital and the soul to stay in or enter our industry. Fewer sows will bring fewer pigs and higher prices.

Red Meat In Storage

Red meat in storage at the end of July shows a major decline from a year ago:

There is 85 million fewer lbs of red meat in storage at the end of July this year compared to last. Pork is down 9%. Total red meat in storage amounts to a little over 6 days of production (weekly production last week was 913 million lbs). We expect less pork and beef to be produced in the coming months and having less meat in storage will be positive to hog price enhancement.

Corporate Farming Ban Struck Down

Last week the 8th U.S. Circuit Court of Appeals struck down the amendment to South Dakota's Constitution that banned corporations from owning farm land or engaging in farming in that state. Nine states, including Iowa, have statutory limitations. Nebraska, like South Dakota, has a ban in its constitution. The Appeals Court ruling indicates such laws are unconstitutional. Further litigation and appeals will undoubtedly continue.

The laws went in place to protect the family farm. All states that have such laws are west of the Mississippi. If the laws remain struck down it will allow out-of-state corporations, including packers, to own land, buildings and livestock. Some corporations have already figured out ways to circumvent existing laws in a number of these states. There are obviously many sides to this issue but the only thing for sure is the fight over who controls the land, buildings and livestock is well engaged. The courts will decide.

Mad Cow Update

As cattle prices soared to 82 cents/lb in the U.S. last week, fed steer prices in Canada reached 38 cents/lb. The spread between the U.S. and Canadian price is over US$500 per head. With Canada slaughtering approximately 60,000/week, the total weekly spread amounts to $30 million. Most of it is being made up by the Canadian government (the taxpayers). The government financial aid program ends August 30 with no new program announced.

• Canada has 11 million cattle in inventory. The Canadian government tested 3,000 head last year for mad cow. The Canadian government is now contemplating testing up to 70,000 head/year.
• Per capita beef consumption in Canada has increased 56% over the last few weeks. The increased consumption is obviously aided by lower prices but it is also an indication the Canadian consumer feels comfortable with the safety of the beef supply. This increased beef consumption has decreased pork consumption and pushed hog and pork into the export market, a no-go zone for Canadian beef.
• Canada should be able to export boneless beef to the U.S. after the end of August from cattle under 30 months of age. But there is a complication. The U.S. requires that no cattle over 30 months of age are slaughtered in the same plant. Almost all plants in Canada do both. This could be a big problem for Canada. If so, the export of pork and hogs to the U.S. will continue at the current, accelerated levels.

The complications of mad cow have, and will have, a major affect on Canada's livestock industry. It's hard to see much upside for Canadian producers.

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Source: Jim Long, www.baconmaker.com. Reproduced courtesy Farms.com - 25th August 2003