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Pork Commentary: Lean Hog Prices Rocket Higher

by 5m Editor
20 February 2009, at 7:51am

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

Friday’s Iowa – S. Minnesota lean hog price averaged 62.09 a whopping 9 cents higher than the previous Friday’s 53.10. This is an $18.00 per head appreciation. Packers obviously want hogs to maintain their market share. An increase of such magnitude in one week indicates the volatility of the current market .

Last week’s USA hog marketings were 2.226 million – 5,000 more than a year ago. We have come down about 200,000 head a week from last fall’s highs. We continue to expect weekly USA marketings to decrease to 1.9 million a week in May – a further 300,000 head decline. Anyone who doesn’t believe 500,000 head per week declines (100 million pounds) from fall to spring will not ignite our market prices should go to the doctor.

What About the Recession Hurting Pork Demand?

It’s agreed by most that the last 2 major recessions were in 1973 – 1975 and 1981 – 1982. In the Financial Post last week there was a chart measuring the severity of our current recession to the previous two cited.

USA Recession Comparisons
0 Real GDP Industrial Production Unemployment Inflation 30 Year Mortgage Misery Index
CURRENT -1.1 -6.1 7.6 -0.1 5.2 7.6
1981 - 1982 -2.7 -9.9 10.8 +14.6 18.5 22.0
1973 - 1975 -3.1 -13 9.0 +12.2 12.2 19.9
**Misery index - pain of economic crisis. Adds the unemployment rate and the inflation rate.

It would appear to us that the current recession by these measurements is no worse than 1973 – 1975 or 1981 – 1982. In all likelihood the perception of the deepness of the current recession is magnified by the internet and 24 hour news channels. In 1973 – 1975, there were 3 USA T.V. networks with a 30 minute newscast daily and no internet. In 1981 – 1982 there was no internet and it was just the beginning of cable news. In this recession we are inundated with wall to wall bad news 24/7. Hard to stay positive.

What’s this got to do with the hog market? In the last two major recessions the hog price reached historical highs.

USA Live Hog Market Average
1975 47.10 Previous historical high price to 1973 - 1975 recession 23.60 in 1947
1982 52.60 Previous historical high prior to 1981 - 1982 recession 47.10 in 1975

In the last two major recessions hog prices reached new highs. Obviously, demand was excellent compared to pork supply. There was a recession but people continued to want pork and pay for it in the face of declines in GDP, Industrial Production, Employment, and increases in inflation, interest rates and misery index. History repeats itself. We expect new historical price highs this summer. All the people who say demand will decrease - we ask why? Show us the history to back up your premise. Maybe consumers won’t go to restaurants, maybe they won’t buy a new car, but don’t bet against a meat eating society maintaining consumption. The facts are the facts. 90 cent lean hogs are coming. Warn the retailers!

Price Discovery

Last week we discussed the slim amount of hogs traded daily on a negotiated cash basis. We wondered if 3% of all hogs traded as such were in some ways detrimental to price discovery and appreciation of markets. Certainly when the Iowa – Minnesota moves $18.00 a head as it did last week it’s hard to say the market is not sensitive. Feedback we received from readers focused on their surprise that such a small percentage of hogs are negotiated. Also, it was noted the $12.00 to $14.00 per head difference that the Eastern Corn Belt is discounted to Iowa – Minnesota. We were asking why? We have no idea. It doesn’t make sense because freight to the west is cheaper than the spread. Probably like all markets, it’s cheaper because they can get bought at that price.

As weekly supply drops to 1.9 million head this spring and 500,000 head of packer capacity is under utilized. Packers desire to maintain market share of retail shelf space, food service, and export markets will push prices higher. Packers customer’s will have pressure to pay more for pork. We need to push our prices higher for the sake of producers and packers. More negotiated hogs when we are down at 1.9 million head will accelerate hog prices. Everyone makes their own individual business decisions. Moving 15 per cent-20 per cent-25 per cent of your hogs to negotiated will probably be good for you and other producers. We all have a big equity hole to fill.

Other Observations

  • 51,000 fewer small pigs and 55,000 less market hogs from Canada to the USA in the latest weekly data. Finishers are continuing to empty in the Midwest.

  • Poland’s November inventory had 14.2 million pigs down 4.6 million (19.2 per cent) from the previous November. That is real liquidation.

  • The Bible Family of Illinois won a big court decision for themselves and our industry when a nuisance charge due to alleged odor was ruled in their favor by a jury. We have met Matt Bible and we hope he can get on with his business without further harassment. It’s issues like this that make this a hard business.

Summary

We believe the current recession will not hamper hog price increases. In the last 2 major recessions new historical high hog prices were reached. As USA weekly marketings go down to 1.9 million a week expect major price appreciation. 90 cent in June. Hogs are coming.

5 GENESUS Customer Herds Surpass 30 pigs

We would like to congratulate the 5 Genesus Customer Herds that surpassed 30 pigs weaned* in calendar year 2008. They are:

Camrose (USA)...... 31.9 (2nd consecutive year over 30)
Riverview (USA).... 30.02
Woodland (Canada)..... 30.04 (3rd consecutive year over 30)
Grand (Canada)...... 30.01
Evergreen (Canada)..... 30.00
*pigs weaned mated female year - Jan 1-Dec 31, 2008

These are dominating results. It takes tremendous management intensity 7 days a week to reach these outstanding results. These are not 4.5 day a week managed operations. The results are a testament to the advanced genetics provided by Genesus. Smart mangers also make the right decisions. The genetic capacity of Genesus is raising the bar in production potential. If you are not using Genesus you are not reaching your maximum profit potential.