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Pork Commentary: China Syndrome

by 5m Editor
5 October 2007, at 5:09pm

CANADA - This past week, we continued to Biomin Asian Nutrition Tour in China. There were three stops; Guangzhou (Canton), Nanchang and Beijing, writes Jim Long. Our observations:

  • China’s infrastructure is rapidly being updated and expanded. We all have heard the stories about the rapid construction pace in China. From our observations, the stories do not give what’s going on justice:
    • Many new highways with new cars to go on them.
    • Construction cranes and new buildings going up everywhere you look – the size of building complexes are massive.
    • New, large, modern airports.
    • The size and scope of undertakings are huge, being of a scale you would suspect from a country of over one billion. They do not build one apartment block at a time, but twelve.
  • It doesn’t take an economist to observe the rapid transition of China to an economy, not only based on exports, but on a rapid rise of consumerism. High end cars, clothes and other personal goods can be seen for sale and in the streets. Its unprecedented such a rapid transition of so many people to consumerism. It will shape the world economy and costs of the world’s good for our generation. The competition for the world’s scarce resources will drive all commodities, if China’s rapid acceleration into consumerism continues. Good news for Agriculture, in our opinion. Good news for the pork industry. The Chinese love pork.
  • Chinese market hogs are bringing 95¢ to $1.10 US liveweight per lb in China, depending where you are located. How good is this? One Chinese producer with 5,000 sows farrow to finish told us that he would make approximately $20 million US in 2007. That’s with production, give or take either side of 15 pigs per sow per year. To say Chinese swine producers were contented would be an understatement – making $100 per head will do that.
  • The disease problem in China seems quite real. Prrs, Circovirus, all the pneumonias, you think of it, they got it. Everyone we talked to had lots of dead pigs. How many? Not sure. But lots, probably well over 20%.
  • The editor of China’s second largest pork magazine (Pig World) attended the Beijing Biomin meeting. When talking to him, he told us that our talk of production of 25 pigs weaned and up to 30 plus was a technology shock to the Chinese producers who are around 15 pigs as an industry. He said they believed us because our videos and data were comprehensive, but it was, in a good way, intimidating.
  • At every talk, we explained that market pressures have forced North American producers to adapt technology to increase productivity and efficiency. USA-Canada are in a continental pork infrastructure and now by far the largest exporter of pork in the world. The only way that you can develop exports is price and quality. We kind of found it interesting that, in the end, our productivity and export dominance was intimidating to the Chinese. Not many North American industries can say that in China.
  • Feed prices, in China, like everywhere else have increased. Feed conversion is becoming more important. We expect some smart producers will bring in improved genetics, but one consequence of high profits is the necessity to get better is minimized.

Summary

In the last two weeks, we visited China, South Korea, Japan, Viet Nam and Cambodia. Profits in China, Japan, South Korea are in the $100 per head range, Viet Nam $40. Life is good. The markets are huge with pork being a meat of choice. A small sliver of these markets is big, when we are talking about 1.5 billion people. One speaker said that if China’s per capita pork consumption reached US per capita levels, there is not enough corn in the world to feed the hogs.

In North America, we have an industry more efficient and technologically advanced. We do not have the degree of disease issues. North American slaughter plants are of scale and efficiency that are far superior. We have the feed. South Korea and Japan depend on grain imports.

A concerted effort to get market access to the Asian countries could lead to floor pricing in our market. The rise in consumerism and the subsequent growth in pork consumption throughout Asia could be a panacea for the North American pork industry. We all need to be thankful that our industry has huge packers with the capital, scale and wherewithal to aggressively push into these markets. Our job, with the NPPC and CPC is to support them and push our politicians for the importance of market access. We can and will compete.

Markets

Went away for a couple of weeks and the markets dropped into big time red ink. Last Friday, Iowa-Minnesota was 54.45 lean, about 10¢ below most producers’ breakeven. There will be many producers dropping $20.00 per head. Can’t say that there wasn’t opportunities for everyone to hedge October lean hog futures when they were in mid 70’s. Those who pulled the trigger are $40.00 a head better off. We have been accused of always being too bullish. We never were for the fall and encouraged people to look at price protection. We never thought the market could maintain 70¢ plus in the face of weeks of 2.2 million plus hogs. Unfortunately, we were right. It probably will get uglier.

September Hogs and Pigs Report Not good news – Farmers, being farmers, cannot stand too good a thing. Expansion is ongoing despite an industry in the red. Three years of profits has created equity levels that are pushing expansion.

September 1 Inventory (thousands)
2006 2007
Breeding Herd 6,079 6,145
Market 56,835 58,506

The breeding herd expanded up 66,000 head from last year and maybe more importantly 35,000 in the last three months. Expansion is on. Will negative margins get it stopped? Market hog inventory is up 1.6 million head, year over year on a 25 week production schedule, an increase of about 60,000 head more a week. Better get used to losing money. It’s not going to be pretty. The only hope is the Chinese come in and buy the pork that they are short. They are more apt to do it now that prices have dropped $40.00 per head. December futures at 62.25 and February 67.90 lean look awful good compared to where this thing could be. Hang on. Hope we are wrong, but looks like a train wreck.

Bullet Proofing your Hog Business against a market you have no control over

Weaning 30.2 live pigs per sow per year is something that was unheard of only a few years ago, but today on one farm in Manitoba it is a reality.. Canada and the United States have 7.5 million sows on 40,000 plus farms.The latest annual PigCHAMP data indicates pigs weaned per female per year are 20.63.

President and CEO Jim Long of Genesus Genetics says 30 pigs per year has been the dream of the industry for a generation. Dream has become a reality.

“We are proud to announce the first farm in North America to reach 30 pigs in a calendar year is a Genesus Genetics customer,” said Long. Woodland Colony of Manitoba reached 30.02, a farrow to finish operation. These results are a testament to the ability and professionalism of the Woodland staff; Manager Jack Hofer, Andy Gross, Breeding Manager, Mike Hofer, Farrowing Manager, Rick Hofer, Derrick Hofer, Irvin Gross and Dwayne Hofer.

Long said Woodland ships to market in 155 days, birth to market mortality is 11 per cent while receiving grade premiums at the very top of their packer’s grid. Woodland’s goal for 2007 is 32 pigs weaned per sow in the calendar year. The bar keeps rising.

In an interview during their celebration dinner in Portage la Prairie with the 60 customers that achieved over 25 pigs per year per sow in a calendar year, Long said their Genesus Genetics product is working very well in the market place.

“The first six months of this year, our sales are up 47 per cent, way beyond our expectations,” he said. “What it shows is confidence by our current and past customers and the ability of us to capture new customers.”

Getting more weanling per pig makes it a little easier to make money.

“I’ll say it this way. I haven’t ever heard of any one going over 25 pigs per sow per year not able to pay their bills,” said Long. “It is a way to position yourself and your business to be bullet proof to a market place we have no control over.”

As far as he knows, Genesus customer Woodland Colony is the first herd of in North America to achieve 30 pigs, weaned per sow in a calendar year.

“I think the reality is if anybody involved in the business 5 years ago, it was like a dream, like a fable, like the Promise Land,” he said. “You never even allowed yourself to think it was possible. It was an academic exercise.”

Six customers had over 29 pigs, which means other producers are knocking at that number of 30 pigs per sow. Long doesn’t know if they will achieve 30 because it is very difficult, everything has to go right.

“you have to be intense all the time in your production 365 days of the year. It is hard for people to do that,” he said. “We like to think our genetics are a significant portion of how they were able to do it. If you don’t have the pigs born, you can’t wean them, and that’s just the way it is.”

Woodland hog boss Jack Hofer says the achievement is a team effort, running a genetic line, with a huge genetic potential, and maximizing genetic potential with pro-per nutrition, feed and breeding management.

Raising the gilts to 220 days without boar exposure has also greatly benefited the colony’s pig production to achieve the 30.2 pigs per year.

Hofer says giving the gilts boar exposure when they are more mature bypassing the first estrus, and breeding them when they reach the second estrus after the second boar contact has the gilts producing huge litters.

“Once we wean them, we try to keep them alive,” he said.

Hofer’s team saw a decided difference moving from boar exposure at 180 days to 220 days, when they are more mature.

“You show the gilts boar exposure not because they are big, but when they are mature,” he said. “Instead of 180 days, we give them an extra 40 or 50 days more. Just because they are bigger, doesn’t mean they are mature.”

Woodland Colony built a barn for so many feeder pigs, but the more advanced in their weanling rates, the more often they kept running out of room. They went up to 940 sows, but dropped back down to 923 because of the extra pigs.

Costs went down big-time, and profits tripled by going the extra pigs per year.”

5m Editor