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Pork Commentary: Markets Getting No Traction

by 5m Editor
10 February 2009, at 7:14am

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

The Iowa – Minnesota Lean Hog Price is getting no traction. The average lean price fell last Friday to 53.10, down 6.00 from the week before. With breakevens farrow to finish of at least 70.0 it’s not hard to calculate $30.00 per head losses. It is ugly! USA. Marketings last week were 2.222 million – 27,000 more than the same week a year ago. In some ways maybe it’s not hard to figure out the lean price when a year ago it was 53 and we have more hogs going to market this year.

Is There Any Relief in Sight?

*We believe there is going to be a lot less hogs at some point. Why?

The USDA 1 December Inventory of Hogs over 60 pounds was:

Thousand Head
2007 39,400
2008 39,330

The USDA on 1 December indicated only 70,000 fewer hogs over 60 pounds than the year before. The big break in supply was in the under 60 pound category.

Thousand Head
2007 22,545
2008 21,297

The under 60 pound category on 1 December was 1.248 million head fewer year over year. If it takes 10 weeks to get to 60 pounds that would equate 120,000 fewer hogs a week less year over year. We calculate that the under 60 pound pigs will not come to market before April.

Canada Trade Data

There are fewer hogs and pigs coming from Canada to the USA.

Week Year over Year 2007 2008
Feeder Pigs & Sows 163.44 97.86
Market Hogs 73.30 15.73
Total 236.74 113.59

A massive decrease in supply from Canada is happening – 120,000 give or take in the latest week. 60,000 plus fewer in small pigs. Is there any wonder there are so many finishing barns throughout the mid west sitting empty. Then, come about April, the lower USA inventory of 120,000 head per week and 50,000 plus fewer market hogs coming from Canada add up to 170,000 less hogs a week year over year. That’s when things will get really interesting. Week upon week of not only seasonal but also supply declines is when this dog will hit the end of the chain.

Price Discovery

We have heard a lot about risk management, contracts, and shackle space over the last while. One of the things we wonder about is price discovery. When one contracts a fixed price or prices off a cash market we understand some of the reasoning. The challenge we see for our industry is the lack of hogs sold on a negotiated price. Iowa – Southern Minnesota is the basis for many contracts. Last year, just over 3 million hogs (+3 per cent) were sold on the Iowa – Southern Minnesota market on a negotiated basis. It’s a small number relative to total supply. Are we in danger of losing legitimate price discovery at such a low percentage? Do more of us have to sell cash to establish a better barometer of what is happening and encourage competition? Should as an industry we each sell 15 per cent - 20 per cent - 25 per cent of our supply to encourage competition? Shackle space concerns we do not see as an issue for the next couple of years as we have fewer hogs. With lean hog futures currently languishing, cash hogs are going to be the catalyst for higher prices. Packers cash bidding daily in a marketplace with significantly smaller total availability (- 150,000 a week) will in our opinion stimulate higher hog prices and in turn pork cutouts higher. Anything we can do as an industry to push prices higher is something to consider. We have lost enough money and need to fill the equity hole.

Manitoba Swine Seminar

Last week we had the opportunity to be one of 17 speakers at the two day Manitoba Swine Seminars. There were just over 400 registered attendees. We would like to thank the organizers for the invitation.

Summary

USA Swine Inventories, Import Trade Data plus antidotal evidence tells us that hog slaughter will plummet sometime in April – May. Chicken and turkey supply is running 70 million pounds less a week than a year ago with absolutely no supply recovery in sight. Cattle Inventories are lower year over year. All US meats and poultry categories supply will be down for the first time this year since 1975. There are no indications of lower pork demand from consumers. Hog slaughter prices in the rest of the world are all higher than the USA and Canada. This will continue to support exports. We remain bullish to take all meat sectors down. The only way to ration supply is higher prices.

Appointment

All at Genesus wish to welcome Doug Hays to our expanding Sales and Service Group.

Doug, a graduate of Northwest Missouri State University in Agriculture Business resides with his wife and three children in Farragut, Iowa.

Doug’s business experience includes swine management and genetic marketing. Doug was most recently responsible for the day to day operations of Toopigs Genetics US operations. Doug will be focusing Genesus’ efforts in Western Iowa, Nebraska, Western Missouri and Kansas.

Dough Hays
712-385-8368
dhayshms@westianet.net
We would like to thank Pigcareers.com for helping us connect with Doug.