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Pork Commentary: Having 'Jim Long Optimism'

by 5m Editor
9 September 2009, at 11:13am

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

Farmer’s like us everyday believe in the future. We plant a crop, we believe it will rain, be warm enough (there won’t be a drought, flood, hail, frost, etc...) and prices will work out. It takes faith and optimism. It is no different with hog production. We breed a sow, we hope we don’t get disease, hog prices will be okay, feed will be available and priced fairly, etc… Ten months after breeding we sell a hog to market. It takes faith and optimism. All producers by nature are optimistic. Unfortunately, in times like now it’s hard to maintain optimism. Twenty four months of losses, H1N1, and corn ethanol, the global financial crisis pounds us all into negative territory.

In the current conditions there are producers quitting or cutting back their sow herds. In the last two weeks the USA sow slaughter has averaged 70,000 – an indication of real liquidation. Producers are running out of capital and courage. When you have no cash to pay bills, it is only a matter of time until it is over.

For the record, the USA hog slaughter year to date is 3 per cent less than a year ago. Lean hog prices last August were over 80 cents. H1N1 has devastated our domestic and global demand, while feed price spikes have increased our cost of production over the last two years.

We predicted the market to hit 90 cents this summer. We were wrong. Most of, if not all other commentators were around 80 cents. No one predicted 45 cents lean. No one predicted H1N1 (unfortunately tagged swine flu). The point is no one knows the future; the doomsayers who tell us we will lose money for another nine months, don’t know. We never heard any of them tell producers to jump on 2009 October lean futures when they were 80 cents.

We understand one of the celebrity banker’s in our industry as part of his presentations is exclaiming ‘Don’t get caught up in Jim Long’s optimism’. We think it’s a compliment. This industry was built by optimistic people; by nature we are all optimistic, we have to be. If you are breeding a sow today, you are optimistic next July hog prices will be a plus. If not, why bother?

Why do we have Jim Long Optimism?

  • Liquidation is ongoing in the USA and Canada. We expect since the first of June 150,000 sows have been liquidated or the decision has been made to.

  • Feed prices are coming down. The USA corn crop is “bin“ busting. This will lower breakevens.

  • The weather this summer through the Midwest was the coolest on record. Hogs have grown faster – one week? Ten days? Whatever it is, it’s pushed weights up and hogs to market. You only market them once. We believe one million hogs have been pushed 3.5 days ahead, despite higher market weights. Prices would have been totally different this summer if we had 100,000 less a week marketed (one million divided by 10 weeks). We expect marketing’s this fall to be lower than expected.

  • H1N1 (swine flu), has hammered our demand. We expect that it will by Y2K. A lot of noise and then nothing much happens. It’s winter in the southern hemisphere, they have H1N1, and it’s not a disaster. It’s a flu. We have them every year. We expect it will take 90 – 120 days, and when there is not a disaster the all news networks and the drug lobbies will move on to other manufactured crisis’. Demand will then pick up, as consumers, packers, retailers, and foodservice regain confidence in pork.

  • Feeder pigs on DTN Agdayta Livestock Margin have gone from 0 value to $23 in the last three weeks. We expect 45 pound feeder pigs to exceed $55 by January as pig supply dwindles and the feed prices stay in the current range.

  • We do moonlighting swine consulting support for a large firm in New York City. There is a lot of off farm inquiries (hedge funds) for advice on sow liquidation, hog supply, and market prices. The last time we had as many inquiries (China exports) was last summer just before hogs hit record prices. The funds are looking at the scenario for a big run up. We expect they will jump in and push lean hog futures. They don’t care if it’s steel, lumber, corn, etc...

  • Our contacts in Brazil tell us producers have been losing $50 US per head. There has been sow liquidation. How much nobody knows because there are no official statistics. Brazil is a major pork exporter; cut backs in Brazil only help hog price prospects for all.

  • Hams have gone up in price in the last few weeks. Mexico is the USA’s largest importer of Hams. In Mexico hogs are 65 cents USA live weight per pound (19.5 pesos per kilogram). Reports from Mexico tell us up to 35 per cent of the sow herd has been liquidated. More Hams will go to Mexico, especially after the H1N1 scare is over.

Yes we are Jim Long optimistic, it is brutal today but we see recovery coming. Not only for supply cut backs, but from demand pick up over the coming months.