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Pork Commentary: Lean Hogs Jump $16.00/Head!

by 5m Editor
10 March 2009, at 6:51am

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

A week ago Friday, the Iowa - Minnesota lean hog price was 54.21. Last Friday, Iowa - Minnesota averaged 62.08. A gain of 14 per cent or about $16.00 per head. Who said lean hog prices can't jump! The USA marketed 2.228 million head last week about the same as a year ago. In March 2008 the average lean price was 54.04 for the month, in May last year it averaged 79.59.

2008 Lean Hog Price Monthly Average
March 54.04
April 62.41
May 79.59

There is no doubt we will have significantly fewer hogs coming to market this May compared to last. We cannot find any time in history when a significant decrease in hog supply year over year did not lead to higher hog prices. If you can point out the exception please do so. No one has yet.

Other Observations

Last week we attended an excellent presentation sponsored by Purina Canada. It was given by Dr.Tim Loula of the Swine Vet Centre in St. Peters Minnesota which is probably the largest swine vet clinic in the United States

Some of his points were:

  • Dr. Loula has been a veterinarian for 25 years and never before has he seen so many empty finishers. Recently he and some colleagues put owner's names on approximately 500,000 empty finisher spaces.

  • Circo virus vaccine has improved everyone's results including those who never had circo. In his opinion the circo vaccine effect necessitates new feed ration formulas for all genetics.

  • You need to put self - feeders on farrowing crates - the results they have seen are overwhelmingly positive.

  • He has spent time in China on swine farms. The lack of bio - security and disease levels are beyond comprehension. Dr. Loula painted a picture of a Chinese industry that will have huge challenges to increase productivity.

  • In Dr. Loula's travels through the world (approximately 25 countries), he has come to the conclusion the best place long term to raise hogs is in North America or Brazil. The hog price in Brazil last week was 42 cents live weight per pound.

Recession

We have pointed out several times that during the recessions of the last 40 years the hog price hit new plateaus. We were not considering the 1990 - 1991 recession a major one but lest if anyone missed our point:

Hog Historical Price Highs
Previous High Historical High
1972 24.80
1973 - 1975 47.10
1981 - 1982 52.60
1990 - 1991 54.80

During the last 3 major recessions new historical highs were reached in hog prices. I'm not saying it will necessarily happen in this recession but it's hard to say it can't. Consumers have proven in the past they will continue to purchase pork at record prices. There is no doubt.

Big Sky Farms

Big Sky Farms of Saskatchewan has about 50,000 sows. Big Sky is owned approximately 70 per cent by the Provincial Government. It is probably the largest government owned hog farm in the world now that free enterprise has been adapted by former communist countries. Saskatchewan has in all operations just under 100,000 sows total in the last census of swine. Consequently, Big Sky is approximately 50 per cent of the province's sow herd.

Last week the Minister of Agriculture of Saskatchewan announced a program just for Saskatchewan. A $20 per market hog subsidy for all hogs marketed from 1 July 2008 until 31 January 2009. Seven months - abracadabra! Instead of having the loss in Big Sky which the government owns 70 per cent give them a subsidy. Some rough estimates 50,000 sows x 12 hogs marketed per sow in the seven months or 600,000 hogs x $20 = $12 million dollars. It makes us want to vomit. Here is the provincial government hiding their own losses.

Every hog producer in North America has the right to be outraged. Not only do we have to compete with a socialistic aberration, now we have special subsidies created out of nowhere to support it. $12 million is our estimate. The Government of Saskatchewan had in the past pledged publically to divest their interest in Big Sky. How bad must it really be to have to resort to such a subsidy program. How can the government justify taking taxpayer's dollars to prop up the loser that has been and always will be Big Sky? CLOSE IT DOWN. Cut your losses and stop producing subsidized hogs that drive down the prices of independent producers everywhere in North America. It is unethical.

Canada's Federal Agriculture Minister, Gerry Ritz (interestingly from Saskatchewan) said last week "The Government of Saskatchewan raised this scheme at the federal provincial meeting last month - every other province rejected it. This kind of program cannot go forward. Federal funding for this type of program would likely result in retaliation from trading partners" he said. Bottom line: The Saskatchewan Government is threatening all producers in Canada with possible trade retaliation. If they got rid of the sinkhole Big Sky they would not have the need to hide their losses with blatant subsidies. It's wrong that independent producers have to compete against government owned hog farms and their self serving funding programs. Indeed if the subsidy program was not created for Big Sky but for independent producers the government could have Big Sky reject or return the money. We won't bet on it though.

Ontario Pork Producers Marketing Board

Over the years you probably read us talk about the Ontario Pork Producers Marketing Board. OPPMB has had absolute monopolistic marketing rights for all hogs in Ontario (for 50 years) or about 6 million head a year. They collect around $2.00 per head in checkoff $8, $10, $12 million dollar a year is the range over the years. The OPPMB bureaucracy evolved to 100 employees. There were 180 councilors, 15 directors, a chairman, vice chairman, general manager, etc...

This to schedule hog deliveries and organize a price discovery that over the last five years has managed to deliver the lowest price in the world. OPPMB's only success in our opinion was siphoning producers money to fund a bloated ineffective bureaucracy.

A few months ago the Government of Ontario mandated reforms for the OPPMB. These new initiatives included the right of hog producers to sell to the highest bidder - a revolutionary concept. Unfortunately, these novel reforms are on hold due appeals by a small group of status quo supporters with support by the entrenched bureaucracy. In the mean time we hear lots of other things are going on. There is much positioning within the OPPMB on who is going to continue to get the free trips and first class air tickets, first class hotels to visit countries including China. Curtiss Littlejohn, the chairman we understand has travelled there several times. Why? We are not sure. The Oppmb does not sell pork. Results of the trip? We are not sure. First class hotels, first class air tickets. Sure beats doing chores when you are collecting a per diem.

The OPPMB annual meeting is soon. Tradition would have Chairman, Curtiss Littlejohn stepping down. His time is up! There are rumblings in the countryside that he wants to stay on. Kind of like a Hugo Chavez moment. A word of advice to the chairman. Go. No more per diems carnivoring. Your time is up.

The OPPMB marketing monopoly must end. Producers must have the right to sell to the highest bidder. It is so misguided that former police officers (pig police) have been hired by the OPPMB to search out producers who defy the monopoly because they do not want to go bankrupt accepting the lowest hog prices in the world. We have heard of producer's children being scared while waiting for their school bus by the lurking pig police. They are trying to find these "bad" producers. Enough already. Give producers the freedom they deserve. The Government of Ontario must finish the job it has started reforming and freeing producers from the clutches of an antiquated entrenched bureaucracy.

Summary

Our nature is to be positive but unfortunately the Big Sky and Oppmb issues we do not see as positive for independent producers. While unlike the main stream media that have to worry about advertisers, or a job we don't . Like you, our fate is tied to its success or failure of the swine industry. Ten years ago my late friend Doug Maus CEO of Farms.com told me to write what I think and he would put it on the internet. We did and have, over time not been afraid to tilt against the windmills. Sometimes we are right and sometimes we are wrong. When Doug Maus passed away, and the new management at Farms.com wanted to edit our commentary, we left. No one is going to censor or control us. When we see injustice or hypocrisy in our industry we will not be bridled. Sometimes we may sound harsh and critical but we have a voice and to some degree a trust to say what we believe.

On a positive front, last week's price move of $16 per head is a sign of more to come. We are adamant that lean hog prices will hit 90 cents lean. Fortunately, there is no historical data to support the idea of recessions will keep hog prices from reaching new highs. The supply of hogs is falling domestically and globally. Supply of beef and poultry is declining. 2009 will be the first year since 1975 that poultry, beef, and pork are all down in supply at the same time. Last year, March averaged 54 cents lean, May 79 cents, and 90¢ hogs are coming. Hang on.