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Pork Commentary: Is There Any Floor to this Market?

by 5m Editor
14 August 2009, at 9:24am

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

Cash and Lean Hog Futures Collapsed last week

Friday, 7 August
Iowa - Minnesota 48.21
August Futures 48.80
October Futures 44.90
December Futures 44.05

If the Lean Hog Futures are a reflection of where cash will be this late summer, fall and early winter looks like a $40.00 per head loss for the next six months. That would multiply to a further $2.5 billion in losses in our industry (Canada – USA 2.5 million hogs marketed a week x 40 x 26 weeks = $2.5 billion). According to the NPPC, since September 2007 the USA pork industry has lost nearly $4.4 billion with producers losing an average of $21.37 per pig over the past 21 months. Any way you cut it what has happened and what could happen is an aggregate, production loss of $6.5 - $8.0 billion. If it all plays out we are going to have a lot less sows six months from now. Example: $2.5 million dollars or a loss of $1000 per sow the staying power of many producers is at the breaking point.

Other Observations

  • Gilt slaughter data from the University of Missouri does indicate that the per centage of total slaughter accounted for by gilts remains high, averaging 50 per cent since May 1 that is 0.5 per cent higher than the average for the time period over the last 10 years. A gilt per centage of 49.2 to 49.4 are about equilibrium. Some arithmetic. 2 million market hogs a week - .5 per cent decrease in gilt retention are 10,000 fewer gilts a week being retained. A .8 per cent decrease is 16,000 fewer gilts a week being retained. The 3 months since May 1st could be 120,000 to 200,000 fewer gilts retained. A definite sign of liquidation.

  • The small pig US cash market has collapsed. Last week weaned pigs were $1 - $17.00 that is an average of $11.02. 40 pound feeder pigs $10 -$30 that is an average of $23.16. On the August 7th DTN feeder pig livestock margin calculation a 40 pound feeder pig would have to be bought for 9 cents to breakeven finishing them for December delivery. How ugly is that!?

  • Retailers in June averaged $2.954 per pound for pork – that’s up 2.1 cents per pound from last June but hogs averaged $40 per head less this June compared to last. On one side it’s a huge positive that despite H1N1 and lower pork exports the retailers were able to enhance their prices while selling more pork. It’s a reflection of positive demand from the consumers. On the other hand, it totally ticks us off that we have friends and customers losing their farms while retailers fill their pockets like greedy pigs prospering on other people’s misery. So much for vertical co – operation. It’s raw Darwin business. Dog eat dog. Our one hope is the high retail price gives us the ability to push prices up quickly when hog supply drops and exports pick up.
    1. $50 million in pork purchases for government feeding programs.
    2. Remove the spending cap for additional purchases
    3. Push China to open up for more pork imports (H1N1).
    This letter is a reflection of the state of our industry.

  • Hog weights are up significantly. On the other hand the last two months have been uniquely cool. The same reason corn is behind in maturation is why hogs have grown faster. No one knows for sure the total equation of weight versus weather but we do know you only harvest them once. We expect hog numbers and weights to moderate as weather becomes more seasonal.

  • The world's largest Government owned swine farm, Big Sky reportedly is liquidating 8 - 10,000 sows. (approximately 50,000 down to 40,000). Note to Saskatchewan Government: keep going, do yourself and every independent producer a favor - get totally out! Government hog farms are an oxymoron.

Summary

Last week's price implosion and dismal future prospects has triggered a day of reckoning. We hear of decisions to liquidate. Sow packers are filling up. We know gilt retention is down. It is really tough, it's a crisis, but we believe survivors will be rewarded.