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Pork Commentary: Relentless Price Increase Begins

by 5m Editor
13 January 2009, at 6:38am

CANADA - This week's North American Pork Commentary from Jim Long.

A week ago 2 January the Iowa – Minnesota lean price was 49.45 cents, on 9 January, a week later, Iowa – Minnesota averaged 56.44 cents, a $14.00 per head increase. We had to get over the holidays, get into seasonal supply decline and the front–end of the smaller inventory of hogs. We are there. This past week the price increased despite US marketings of 2.386 million head which is a large number. Last year in the same week we had more – 2.434 million, 2 per cent higher while the price was 48 cents lean. We will have the largest marketing week of 2009 this week or last. After that watch weekly marketings decline into May to 450,000 fewer than now, which is 90 million pounds of pork less a week. Less pork, less chicken, and less beef are here. An unprecedented price increase is underway.

Other Observations

  • Since 1 November, Canada has exported an average of 16,125 market hogs a week, while last year in the same time frame Canada sent 66,125 a week. A 50,000 a week decline. This has decreased total US slaughter by 2 per cent. Why? Less hogs in Canada and US Country of Origin Labeling (COOL) are keeping hogs at home. Canadian Packers have been able to handle them and will have no problem in the future as seasonal and the liquidation decline cuts supply further.

  • Canada since the first of November has sent an average of 106,000 early weans and feeder pigs a week to the US. Last year in the same time frame Canada exported 145,000 a week. Year over year about a 40,000 head decline. US Country of Origin Labeling and fewer pigs being produced in Canada have cut the supply.

  • If you put the exported Canada market hogs and small pigs together year over year since the first of November it comes to 90,000 less a week. If it keeps up, 4.5 million fewer per annum. The equivalent supply of one double shift 1,000 an hour US slaughter plant. Supply is disappearing.

  • The US market hog inventory of under 60 pound pigs was down year over year 1.248 million in the USDA 1 December hogs and pigs report. This drop in inventory has picked up the 40,000 fewer small pigs a week from Canada. The situation will probably get magnified. In 2008, in the first full eight weeks Canada sent an average of 157,000 small pigs to the US We expect the trend of just over 100,000 a week since 1 November will continue. A decline of 45 – 60,000 year over year. Less pigs always lead to higher prices.

  • Last week we had a discussion with a large feeder pig broker in west central Iowa. He said a lot of the time when he reads our commentary he disagrees. (Editor’s note: Sometimes we read it a week later and wonder ourselves who wrote that). Last week we made the observation that Iowa was down year over year 610,000 pigs in inventory under 60 pounds on 1 December. The feeder pig broker observed that we might be right this time. There are fewer pigs. Every week he sees more and more finishing barns going empty. They can’t find pigs for buyers. The barns that are empty had pigs in them a year ago. Pigs are hard to get because of units quitting, less sows in units (lack of replacements), and some sow units retaining ownership and Country of Origin Labeling issues. If finishers are not getting filled in Iowa, where there are the most packers, feed, can use manure (fertilizer), and farmers with equity to finance – it’ s hard to imagine much better supply anywhere else.

  • Some arithmetic: The 1 December Report indicated the US pig crop was down September – November year over year. 1,100 million head with a 13 week quarter that would be 85,000 fewer a week. If the trend continues through the first quarter 85,000 plus 90,000 a week fewer from Canada that would add up to 175,000 less market hogs a week. A massive decline.

  • The USDA released its Supply and Demand for corn, soybeans, and wheat. We find it interesting the US corn for feed was projected down 600 million bushels for 2008/2009 compared to last year. Wheat usage for feed is up 215 million bushels and corn and wheat net decrease of almost 400 million total bushels. In aggregate a 7 per cent total feed usage decline. Confirms the premise less livestock and poultry out there. A 7 per cent decline is massive and would be quite price supportive for meat protein.

Country of Origin Labeling

US Secretary of Agriculture, Schaefer signed Country of Origin Labeling last week. We have not seen the final wording and until then it’s pointless to comment. Our experience tells us 'give farmers the rules and then they learn how to maximize their position.' In the coming months packers will be desperate for hogs as supply declines 450,000 head a week. Packers are imaginative, and creative.

Summary

There is going to be less market hogs. 450,000 less a week in May compared to last week. Beef supply is down. (Year over year 16 million pounds a week ago). Chicken is down. (Year over year 82 million pounds a week ago). The trend domestically and globally is towards a huge meat protein decline. Higher prices are coming. $14.00 per head increase last week. 90 cent lean plus hogs will happen. The upward trend will be relentless. We need all of it. It’s been bad long enough.