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Pork Commentary: Lean Hog Prices Reach 80¢

by 5m Editor
27 June 2007, at 2:20pm

US - In May, the usual suspect ag-economists (soothsayers) pronounced from the mountain top that the lean hog prices for the year had reached their top. We disagreed (as usual), writes Jim Long.

Last Friday, the Iowa-Minnesota lean hog price averaged 78.34 (60¢ live lb) with some hogs reaching 83¢ lean. The bad mouthers were wrong again. Just revisit last October when predictions of an average 43¢ live lb in 2007 were being expounded by the league of soothsayers. We said 50¢ plus liveweight average in 2007. So far, so good.

We see real positive signs of packer demand at this point with last week’s slaughter 1.932 million and prices of 60¢ live lb reflecting packer competition. We expect in the next few months, some packers will try to bid up prices around the Swift plants trying to discourage the new Brazilian owners (JBS) from remaining in the hog business. The packer business is really quite mano a mano. Over the next few months producers will get a little extra money due to this scenario.

The challenge for the next week is to get around the July 4th holiday. Hog prices appear to always suffer in holiday shortened production weeks.

Weather has been good for growing hogs as we have had little extreme heat and humidity. Weights have held up, but we suspect the finishing floors are more current than weights indicate. At some point, it will get hot and this will slow down supporting hog prices.

Ontario Pork Congress

Last week, we were at the Ontario Pork Congress held in Stratford. The Ontario Industry is approximately 420,000 sows with 90% of the hogs in a 100 mile radius of Stratford. Our observations:
  • Builders and equipment manufacturers told us there is next to nothing being built in Ontario. Some renovations but absolutely no expansion.

  • Ontario has probably the highest percentage of land and grain based hog production in North America. That is producers growing their own corn. There has been little consolidation of corporate production in Ontario. The current major player Maple Leaf Foods has approximately 25,000 sows and they have announced their imminent divesture of this entity.

  • We picked up a type of two solitudes in Ontario producers. The ones who have their own feed and land are doing fine. They are cash flowing, their business model is based on feeding corn and high corn prices reinforce this strategy. Their equity has been reinforced by land prices jumping $1,000 an acre with good farm land trading between $6,000-7,000 an acre. Life isn’t great but it is okay.

  • Contrast this scenario with the ones buying all their feed with no land base. We talked to one feed dealer who was just told by their bank “You’re not feeding your own hogs anymore.” At current hog prices and feed prices breakeven is a dream. There is liquidation ongoing in this sector.

  • A major concern for the Ontario industry is the future of the Maple Leaf Foods slaughter plant in Burlington, Ontario. It handles approximately 40% of the market hogs slaughtered in Ontario. Maple Leaf has announced an intention to sell or close this plant as part of their restructuring plans. Closing of this plant would create chaos. Hogs would flood into the US primarily into Tyson in Logansport and Swift Louisville. The closing would devastate the Eastern Corn Belt prices and probably trigger a counter-vail or anti-dumping case against Canada. There would be few winners.

  • Ontario is unique in the world with a monopolistic hog marketing agency. By law, all hogs have to be marketed by the Ontario Pork Marketing Board (OPPMB). This has decreased competition mostly to the disadvantage of Ontario Producers. Reform has not happened. There has been no Martin Luther to lead the reformation. Instead, OPPMB re-shuffles, produces visionary statements that appear to be prepared by a blind man and then hire former police to enforce their legislative powers. You know you are reaching for industry support when you have to hire a blackshirted brigade. Of course, when you select the former head dog catcher of Toronto (this is true) to be your chief administrator, the idea of police and laws are not far behind. The Ontario Pork Board at last count had over 60 people in their head office. As a point of reference, Smithfield Foods, the largest hog producer and packer in the world, has fewer than 40 in their world headquarters. Sure wonder what they all do in the Ontario Pork Board Office for their close to $2.00 per head marketing levy? Bureaucracy for bureaucracy sake? This would not at all really matter if the threat of the Maple Leaf plant in Burlington closing did not hang over the Canada-US markets. Few, if any, buyers for the plant can be attracted to the idea of dealing with this monopolistic body with its draconian legal power. Time will tell what happens but the mismanagement is threat to all of Canada from a potential anti-dumping trade action.

Doug Maus Memoriam

Last fall, Doug Maus, a friend and colleague passed away after having a heart attack while playing hockey. CEO of Farms.com, Doug left a legacy of friends in his community and our industry. Last week, two events were held to honour Doug’s memory.

The first a 5 and 10 km run called the Hog Jog was held as part of the Ontario Pork Congress. Over $20,000 was raised and donated to the Heart and Stroke Foundation.

Friday, a golf tournament was held in Doug’s honour with over 120 family members and friends participating to raise money for the Heart and Stroke Fund.

It is to Doug’s credit that he touched so many people in his fifty years of life that so many took time out of their busy schedules to honour him.

There are few visionaries in this world. Doug Maus truly was. He saw the potential of small pigs moving to the US from Canada twenty years ago. He saw the potential of the internet when few knew what it was. He saw the need and possibilities of consolidation of swine information systems and amalgamated Pig Champ and Pigtales. Doug had the vision, ability to execute the vision and then provide the dynamic leadership necessary. People followed. People believed. Quite a legacy. Big footprints. We can all hope to leave such an imprint. Few of us will.

Doug was a friend, a friend to many. My life is richer because of knowing him. Few days pass when I do not think of him. Doug, we honour you with our memories.

“That’s what makes death so hard – unsatisfied curiosity.” ~ Beryl Markham

5m Editor