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Pork Commentary: New Record Weekly Marketings

by 5m Editor
24 December 2007, at 11:49am

NORTH AMERICA - We now know that the US packing industry is capable of killing 2,449,000 hogs in a week. That’s what they did a week ago and it’s a new record, writes Jim Long in this week's commentary.

The relentless onslaught of hogs continues with last week 10.3% greater than a year ago. It’s a miracle that with so many hogs coming to market, prices are still at the 50¢ lean lb range. This is a reflection of demand, both domestically and internationally.

We should applaud our packers. They have proven their ability to ramp up production and keep pork moving. We have said, several times in the past, that one of the major factors that gives the US swine and pork industry a huge global edge is the scale, efficiency, capital resources and competitiveness of the US packing industry. 50¢ lean is far from good, but prices would be an unmitigated disaster if US packers did not step up and push pork into global markets. The United States’ economy ranks No.1 in global competitiveness and No.1 in global innovation. The US packing industry is a testament to these attributes.

Road Trip to Iowa and Nebraska

Last week, we spent in Iowa and Nebraska. Some observations:

  • Producers are nervous about feed prices. Corn is about $4.25 a bushel, or at board prices with no basis adjustment. Talk of $5.00 bushel corn is everywhere. Soybean meal keeps going up and up.
  • There are lots of plans to put down more wean to finish barns in Iowa. 2,500 head buildings are standard. Some say manure is worth $90.00 an acre, and with increased building costs the manure value is the tipping point getting the barns built. Fertilizer prices that keep going up and up are also a big factor.
  • We are told that milking systems in farrowing crates are costing $4.00 a head to operate. This is leading producers to look for genetics that have maternal milking ability to raise their own pigs. At $4.00 per head times 50 pigs weaned per gilt lifetime equals $200.00. The difference between high milk producing genetics and others is getting huge.
  • Not exactly the hog industry, but we had a chance to go to a dairy farm near Harlan, Iowa that has a new 6,000 cow facility with a 5,000 cow barn being set up near by. 11,000 when done. All cows are housed in huge, power ventilated barns. Milking 24 hours a day, the cows enter one of the two giant rotating wheels to milk. It was a phenomenal sight. Production is way above average and it reminded us of the capacity and scale that US agriculture is never afraid of. Size and scope never seems to be a limiting factor.
  • Last week, we met several swine producers that are seriously considering further expansion. These producers are not afraid of the future. Confidence in continued export demand is a leading motivator.
  • When we see mounds of corn piled up beside elevators in several places, it makes you shake your head about the price. The usage in corn ethanol production is distorting the costs of the livestock and food industry. President Bush’s recent plan to legislate greater bio-fuel production will have huge implications on domestic and global food costs. We hope the social, economic and political implications that will be felt throughout the world can meet the moral bar of a just society.
  • There are some commentators who are putting forward the idea that the huge investment in capital infrastructure will prevent a decrease in swine production, going forward. That the hog-corn ratio that has always indicated the direction of future supply is next to irrelevant. We are contrarian. The capital and courage needed to expand sow production is limited. Case in point – the egg business. Huge capital investment with industry consolidation far more intense than the swine industry. A year ago, large eggs were 60¢ dozen. The industry lost money, stopped expanding and cut back production by 2%. Large eggs per dozen are now $1.50. Are we missing something? Eggs are a capital intense business. They adjusted. The egg industry has record prices. Low prices always make high prices. We will see $1.00 lb lean hogs in the next 18 months. Write it on the wall. The hog-corn ratio is not dead. A 13 to 1 ratio will make fewer hogs. Always did, always will. Some will give up or be forced out. The ones who persevere will be rewarded.

5m Editor