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Pork Commentary: Wild Times – Foot and Mouth, Swine Fever, China Market, etc.

by 5m Editor
8 August 2007, at 8:26am

CANADA - The swine industry is not for the faint-hearted. Why?

Foot and Mouth disease in Great Britain

  • All livestock exports have been stopped from Great Britain with the announcement of a foot and mouth (FMD) outbreak in Guildford, Surrey. The last time there was a FMD break in Great Britain, it cost the British economy an estimated $20 billion plus US dollars.

  • The Virus found is the same virus used in a vaccine production facilities not very far away from the Institute of Animal Health and the Merial facility (a joint venture of Merck and Sanofi-Aventis). Not good news for the UK government or Merial, if the problem originated at either. Let the lawsuits begin. A lawyer make-work project.

  • The British swine genetic business which is just recovering from the lost markets in the 2001 FMD crisis will now face another bar on exports.

  • A FMD outbreak makes us all realize just how fragile our destiny can be. Such an outbreak in North America would devastate our markets. Lets hope for everyone’s sake it is contained in Great Britain.

Swine Fever Romania

  • A swine fever outbreak in Romania at Smithfield Foods’ operation in the Timis region is reported to have 20,000 pigs ordered for immediate slaughter. Carcasses will either be buried or incinerated. A highly infectious disease and Romania’s inability to eliminate swine fever is preventing it from exporting to other European countries.

  • This dilemma is just another example of where contagious diseases can have a huge impact on our livelihood.

Road Tour of the Midwest

Last week, we were in Michigan, Indiana, Illinois, Missouri, Iowa, Nebraska, South Dakota, Minnesota and Wisconsin. About 1875 miles, with many stops. Some observations:

  • The corn and soybeans we saw looked good – the only stressed area we saw was in Northwest Iowa/Southwest Minnesota. Other areas looked good. One area of surprise was Southern tier counties of Iowa, where crops looked excellent compared to normal. Corn was $2.85 a bushel in some areas, with more than one discussion was had about where all the corn was going to be stored this fall as traditional storage capacity will not hold what is coming. We expect corn this fall will be $2.25 to $2.50 a bushel in some areas.

  • We saw several corn ethanol plants and windmill farms under construction. The construction boom can be seen everywhere, particularly at hotels. Every night it was a struggle to find rooms, as construction crews are filling everything in sight. One night, we had a camping experience, with roll-aways and air mattresses in a hotel. The last night of travels we found no rooms and just kept driving all night. Just in case you wondered, Chicago’s traffic is picking up at 4:30 a.m. The main point of all of this is that all this construction is pouring money into the rural economy. Corn ethanol is insane, but there are some winners. We did hear though that it’s getting harder to get investors in new corn ethanol projects. Maybe the smart money is realizing corn ethanol production is not a good long-term investment.

  • Most everyone we talked to tells us their production model is now 2,400 head wean to finish barns – one or two to a site. Now some cash croppers will build sites and lease barns, but not look after pigs. They want the depreciation, cash flow and manure. Some estimates of current manure value ranged from $50 to $110 per acre. To lease these barns, you now have to provide the labour. Can’t cash crop six weeks in spring and six in fall and miss your time in Arizona looking after hogs, can you? The equity level of American agriculture is creating a generation of fulltime, but part-time farmers.

  • It appears to us that the finishing barns of the Midwest are full of hogs. We had several discussions with producers that have barns double and even triple stocked. More pigs than the barns can handle. The circo-vaccine is working and there are more pigs being kept alive. From a production point of view, this is the time the barns should be full. Usually slaughter is 15% higher in the fall than the summer. If the barns aren’t full now, they never will be. Its part of the production cycle. We asked some producers why, with feeder pigs at $40 a head and livestock breakevens showing, you can pay $68 a head, why would they not pay more or buy more. Simple answer – pay more (we do not have to) buy more (we have no room).

  • Talked to some packers in our travels. The last couple weeks, there has been a surge of producers selling hogs in the fall months at the higher price levels. Three times out of the last 50, October hogs have been higher than August. Farmers know you don’t go broke taking profits.

  • China, China, China – Everywhere we went this was a main topic of conversation. It better happen or we’ve got a lot of pork to get rid of this fall. We talked to several groups that you would expect to have knowledge of what the China scenario is. Take home message - Pick your own story because everyone is guessing, just like us. China’s confusing messages are just that, confusing. The only thing for sure, hogs in China are $1.15 US lb live weight. A sure sign of low supplies. They need Pork. The US is the logical source for large pork exports. We expect meaningful exports to China over the next few months.

Conclusion

Hogs are in the mid 70’s this fall, but we found no optimistic producers. The survivors of the late 90’s and early 2000’s are afraid that the other shoe will drop. As an industry we have mature producers, and a mature attitude about what can happen.

5m Editor