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Pork Commentary: Hogs and Pigs Report Offers No Panacea for What Ails Us

by 5m Editor
2 April 2008, at 10:26am

CANADA - The USDA March Hogs and Pigs Report was released last Friday, writes Jim Long. Unfortunately, it offers at first glance little positive news for our industry.

What the report indicates is a decline of 23,000 sows in the last three months. After multiple quarters of increases, the first quarterly decline. Liquidation has started.

We expect major declines in the months ahead. Liquidation takes time and time is something many do not have, case in point. Its public knowledge Hormel Foods had announced at the end of February a liquidation of 9,000 plus sows. The reality is that it began the end of January. Orderly liquidation takes four months. The point is an announcement does not automatically take the sows out of production. Of the 9,000 plus announcement, maybe 2,000 to 3,000 were gone by March1. It takes time.

Breeding Herd
(Thousand head)
March 2008 6,138
Dec 2007 6,161
March 2007 6,110

Market Hogs

There are lots of hogs in inventory; 4 million more than a year ago, 59,770 versus 55,749.

The only silver lining is Canada’s pig inventory was down one million in its last report. So, if we look at this as a continental pork supply, it will be a 3 million head increase maximum. Still a lot, but better.

General Observations

Last week, we were at the Canadian Swine Breeders Association annual meeting (Genesus was number one, once again in Canada in 2007 with 30% of all registered breeding animals). At the meeting, there were swine breeders from across Canada. What we heard was that Atlantic Canada, which has few hogs, is losing 50 to 60% of its producers. Quebec is in the process of liquidating 40,000 sows, Ontario 40-60,000 sows, Manitoba/Saskatchewan 15,000 sows, Alberta 25-30,000 sows. Aggregate 120,000 to 150,000 sows. 10% of production.

There was discussion from producers contacting the Canadian Pork Council about the Canadian government buyout plan. There is concern that the $50 million budget will be enough. The buyout funding will purchase at least 150,000 sow liquidation with most of this on top of our prior numbers. In fact, we find this hard to believe but we are in a very discouraged industry and who the heck knows where this will all end up.

It just keeps getting worse. Spectrum a hog production, feed company and genetic supplier (Danbred) went into financial receivership in Manitoba last week. Spectrum had approximately 30,000 sows in related production. Some associated sows have already been sent to slaughter. We are in a tough business.

There are strong indications another western Canadian producer with over 30,000 sows is also in receivership.

If you really want to wonder how your lot in life is, compare ourselves to the Russian industry. We had visitors last week from Russia. Currently they are receiving $1.15 US lb liveweight ($250 for a 220 lb hog). Feed costs are similar to here. Wouldn’t we all like the same scenario?

We also had Korean visitors last week. They are paying $10.50 US bushel for corn. Makes $5.00 sound cheap.

The Iowa-Minnesota lean hog price was about 57¢ lb lean last year at this time. Currently, it’s about 55¢. It’s truly amazing that with about 10% more pork being produced that prices are so strong compared to a year ago. As we drop production seasonally, if this demand remains it should allow prices to get stronger.

Conclusion

The Hogs and Pigs Report is far from bullish. Liquidation takes time. Our only short term hope is that the global pork supply drops ahead of ours and gives us an export demand and price bump. We expect this to happen.

Unfortunately, the main solution is attrition in the industry. Some have to die for the majority to survive. If you are not committed and have no faith in the industry, get out. It’s doing no one any good, including yourself, hanging on. We expect further collateral damage. More bankruptcies in Canada and the US. Probably, if rumors are correct, one or more US pork powerhouses are teetering on failure. The hole we are digging in equity is huge. Certainly not a business for the faint-hearted.

Further Reading

More information - You can view the full USDA Quarterly Pigs and Hogs Report - March 2008 clicking here.

5m Editor