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Pork Commentary: Relentless supplies continue to pressure prices

by 5m Editor
21 November 2007, at 11:37am

CANADA - This weeks North American Pork Commentary from Jim Long.

10 per cent more hogs

Last week, the US marketed 2.362 million market hogs, 10 per cent more than the same week a year ago (last year 2.140). The relentless supply of hogs continues to pressure the hog price lower with the Iowa-Minnesota lean price last Friday averaging 45.50 (33.50 lb. liveweight). A year ago, Iowa-Minnesota’s was around 60¢ lean (45¢ liveweight). Year-over-year, this is a $30.00 per head decline – not a good time to be a hog producer. Some producers’ farrow to finish revenues are not enough to cover feed costs, let alone any other expenses. We estimate that the economic loss for Canada-U.S. hog producers is over $100 million a week (2.7 million head plus a week x $40.00 per head loss = $108 million). Let’s hope we get to February in one piece with February lean hog futures at 60.40 or $30.00 a head better than current.

Other observations

  • Iowa-Minnesota weights released last week indicated that liveweights were 268.9 lbs, down from the previous week’s 269.7 and down from the same week a year ago at 269.8. A counter-seasonal weight drop of almost a pound is concrete evidence of hogs being pulled forward. If this continues, we will have less hogs at some point.

  • Sow slaughter two weeks ago was 69,600. We believe the herd has stopped growing and we expect fewer sows in the December-January Canada-US combined breeding herd.

  • This week is the Thanksgiving holiday and usually not a good scenario for hog prices, as packers have less time to get hogs slaughtered. Expect a similar scenario this year.

  • US pork exports in September exploded, up 8% from a year ago. Low hog prices and a low U.S. dollar relative to other currencies have put a giddy-up into exports. All pork that goes somewhere else is less pork needed to be consumed domestically. Without this export increase, market prices would be even worse.

  • US pork cut-outs last Thursday were 58.47 – 13.00 total better than the Iowa-Minnesota price. Packers are seeing a $20 per head plus margin, a great incentive for them to kill everything they can. Keep hogs moving: Packers in November are like farmers – make hay when the sun shines.

  • Low prices are affecting the value of contract barns, especially in areas where demand to finish is waning. In parts of Canada, we are told nurseries can be contracted at $4.00 down from $7.00 per head. The push to wean to finish is magnifying the loss of value. For many, nurseries could become white elephants, with little value. Finishers in some regions are down to $10.00 per head, but not in the Midwest.

  • In conversation with sow brokers, we are getting the idea that Canada is liquidating its sow inventory by at least 3,000 sows per week, primarily in Alberta and Ontario. This rate of contraction will affect hog numbers as we go forward. The financial losses of $40 to $50k per head are obviously taking a toll on producers.

  • Demand for early wean pigs is picking up. Several brokers told us that after months of buyers never calling, there appears to be interest. The old adage ‘who’s calling who?’ is a classic saying that reflects the ebb and flow of the spot market. One broker tells us that we will see $50.00 early weans this winter. The fact is, we are marketing more hogs weekly than there are pigs to put in the finishing spaces. As space in barns becomes more apparent, so will demand. We will slaughter 300,000 head a week less next summer than currently and that’s why June futures are 75¢.

  • It really bothers us, seeing producers under the financial pressure they are currently experiencing. People who put their resources, life, commitment and dedication into this less-than-easy business deserve better. It is an honourable business producing meat protein to sustain peoples’ life and well being. Something is somewhat distorted when this honourable industry is financially pounded. We expect things as usual will turn around, but unfortunately, there will be casualties. There will be fewer of us when the dust settles. A sad legacy that in some ways diminishes each and every one of us as we lose brothers of common aspirations.

5m Editor