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Pork Commentary: Russia Again

by 5m Editor
15 July 2009, at 9:50am

RUSSIA - This week, Jim Long says that there will be no comment on North American markets "as we have a lesser clue than normal on what is happening."

This past week, like President Obama, we were in Russia. So there is no confusion, we did not travel in his entourage. We did visit the Kremlin but did not get the same level of reception as President Obama. Fortunately, we did get our temperature checked when we landed in Moscow for H1N1. I wonder if President Obama had his temperature taken by the Russian authorities? It is good to have people worried about your health! I have to admit, at temperature taking time no one jumped up and announced that we are in the swine industry.

Observations

  • Russia’s slaughter price for market hogs continues to be extraordinary. Extraordinary to us is $1.15 US live weight or about $1.40 US lean per pound. We project any decent producer in Russia is making $100.00 plus per head. Wouldn’t we all love to have that experience?

  • High hog profitability is stimulating Russian swine expansion. There are several existing and new entrants planning on major hog building construction.

  • All operations that we have met are farrow to finish. There is no feeder pig market of any significance. The largest producers grow a significant amount of their own grain and have their own feed mills.

  • Expansion will not happen fast in Russia. It takes about a year and a half to get necessary permits for construction of facilities.

  • Russia is currently importing approximately 30 per cent of its pork needs. Producers in other countries would think that it would be a good idea for Russia to import more pork. Russia currently has pork import quotas and permits that restrict imports. From conversations we had in Russia, we expect import regulations to stay in place. It appears to us it is Russian government policy to achieve pork self sufficiency. To do that we calculate one million new sow places have to be built. The quickest way to get expansion is to have producers make lots of money (getting done). As long as Russia is not a member of WTO (World Trade Organization) they do not have to play with international trade rules.

  • There are about 150 million people in Russia. They like pork. As per capita income increases domestic demand will increase. Chicken is the only competition. Beef is not a factor.

  • USA corn ethanol policy continues to bring Russian farm land into production. Higher global grain prices are one heck of stimulus. The going rate for farm land is $15.00 US per hectare (2.2 acres) for a 49 year lease. We saw thousands of acres of land not under cultivation yet. Many of the groups entering hog production have 10’s of thousands of hectares and see it as a way to market their grain. When we see the land not yet under cultivation we wonder if USA grain farmers can compete against land rent of $7.00 per acre and expect to get $5.00 a bushel from corn? The old adage high prices are the surest cure to high prices comes to mind.

  • When we were in Russia we saw the President of John Deere being interviewed. He was with the Obama entourage. Deere plans on building equipment in Russia. It is a way to beat equipment custom duties but also a reflection of Deere’s belief in Russia’s future in grain production.

  • Russian agriculture had little investment for thirty years. As you travel the country side ruins after ruins of livestock facilities sit abandoned. In the 80’s and early 90’s when the Russian economy transcended from communist to private enterprise the industry imploded. Now there is a rapid quest to bring Russian agriculture forward with all of the latest technology. Whether it is tractors, combines, swine equipment, genetics, etc… That is why John Deere is investing in Russia.

  • Russia has to make a rapid transformation. After 80 years of communism they have had less than a decade to evolve to capitalism. There are no corporate or family dynasties of multiple generations. All ownership is one generation deep. It is a nation of first generation entrepreneurs; they are aggressive and in a big hurry. It is in many ways refreshing and absolutely unique.

  • All reports in Russia gave high marks to President Obama’s visit. It appears that there was much progress on some customs issues. During the visit Russia approved more US states for pork imports to Russia. In our opinion, the USA has much in common with Russia. Both are big with lots of natural resources, both are nationalistic, and both believe in scale. There is more in common than not. We know we have never done business with people we don’t talk to. I’m not sure countries are any different.