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Pork Commentary: Carnage Continues But Ethanol Ideal is Over

by 5m Editor
10 April 2008, at 11:38am

CANADA - Last week Jim Long reported that Spectrum, a Manitoba feed/ 20,000-sow production operation was in receivership. Another Western Canadian production system was also in trouble and this week comes the sad news that Stomp Farms, a 25,000-sow system in Saskatchewan is also facing bankruptcy.

There are reports of other losses and the situation is dire.

Genesus has also taken calls from several readers about the liquidation of a 30,000-sow pork powerhouse in the US. We do not want to mention names until we get facts, but last week, we a pork powerhouse lawyer did speak to us regarding our inference about pork powerhouses that were teetering. The lawyer, however, did assure us that their ownership says everything will be okay. Perhaps we should have asked the lawyer if he wanted us to report to everyone that they were going to be good.

We do not want anyone to be hurt as we respect every entrepreneur who has put it on the line. The facts are that the carnage is here and we all know our only salvation is a decrease in hog supply and we are not reveling in other’s misery.

Liquidation Summary

All indications are that Canada has and is in the process to remove 150,000 plus sows. The government sow kill will start soon. This will cut sow slaughter as program sows will be rendered. This should support sow price and maintain sow kill capacity for US liquidation. Our estimate:

Canada
  • Atlantic Canada -10,000
  • Quebec -30,000
  • Ontario -50,000
  • Manitoba -20,000
  • Saskatchewan -25,000
  • Alberta -30,000
  • Total -165,000

An idea to correct the marketplace would be for the government of Saskatchewan to pull the plug on Big Sky (50,000 sows) and take the sow buyout. The new Saskatchewan government has announced their intention to sell shares (they own 69 per cent). This new government was never part of this socialist approach to agriculture. They would do a great service to all producers in Saskatchewan and Canada to take the sow buyout and exit our industry. One million pigs out of production from a money losing disaster would be a good thing.

USA and others
For the United States our Guess on Liquidation is as follows:

  • Smithfield 50,000 sows announced
  • Hormel 9,000 sows announced
  • Powerhouse (A) 30,000 in liquidation
  • Others 70,000 sow inventories in herds and liquidation
  • Total estimate 159,000

Mexico is likely to see a decrease of small herds - a reduction of 10 per cent of production is 100,000 plus sows.

North American Summary

We come up with a total of over 400,000 sows being eliminated. This should equal 6 million market hogs plus in North America. Last week, Iowa-Minnesota’s price closed at 56.48. A year ago the price was about 58¢. We marketed 10 per cent more hogs last week compared to a year ago. We have tremendous pork demand. A small decrease in supply will increase prices rapidly.

Other News

Korea

We were with Korean producers this week. The price of market hogs in South Korea is $1.20 US liveweight lb. It was 90¢ lb and has increased rapidly in the last few weeks. Why? South Korea’s sow herd was just over 900,000. There are estimates that the herd has liquidated by 100,000 to 200,000 head. Breakevens are around $1.20 lb US liveweight. Corn is $10.50 US bushel. There is no government support for hog farmers. Producers tell us the South Korean government wants to lower hog production for environmental and economic reasons. We asked if they thought their price was going to go higher. They said no. Imports from USA and Canada will fill void. More markets for North American Pork and that supports our price.

Europe
Last week, the European hog price was about 90¢ US liveweight lb. North America’s 48¢ US liveweight lb. You’d like to think that we can compete in the world markets with that price difference. Europe’s price has gained $50 a head in the last ten weeks. Why? We have read official European reports that Europe had decreased their sow herd by 5% (750,000 sows) by January 2008 and was still decreasing. 90¢ US lb and $8.50 US bushel corn is about a breakeven in Europe. The price has increased rapidly in Europe because the hogs are not there. Supply and demand. There is no magic.

Conclusions

We believe the hog price has bottomed in North America. Demand is excellent relative to supply. In the coming weeks, lower global pork supply will push our prices higher. Recently, the total meat supply of pork, beef, chicken and turkey has been weekly, year over year, 100 million pounds plus more than a year ago. We expect this difference will decrease as poultry producers are now beginning to cut back. Beef supply will decline and believe it or not we expect pork supply to be less of a percentage difference increase year over year.

Expect in the coming weeks a rapid decline in weights, as slaughter decreases. We expect a minimum appreciation of $40 per head in market hog value over the next 8 weeks.

Ethanol Insanity
The corn ethanol insanity has ruthlessly hammered livestock producers around the world. Swine production is decreasing. Swine prices are increasing. On another positive note, Time Magazine’s cover story this past week was a picture of a corn cob wrapped in money with the title ‘The Clean Energy Myth’. Its over! Like the Dot Com boom, when Time Magazine gets on the story it’s the kiss of death. Food inflation and now environmentalists are saying corn ethanol does not make sense. This will give cover to the politicians to take away the corn ethanol subsidies, tariffs and delay or suspend mandated ethanol utilization. Dot Com’s, sub-prime mortgages, corn ethanol. List of temporary phenomenon finished by reality.

5m Editor