The USDA released the September Hogs and Pigs Report last Friday. Since the first of June the USDA data indicates a large decrease in breeding stock of 93,000 (we predicted 100,000) which is just over 7,000 a week. Since the 1st of September 2007 or since we have had financial losses (2 years). The US breeding herd has declined 334,000. Some pundits have said, ‘there has been little liquidation’, we believe is somewhat misleading. We believe the US liquidation is continuing and expect at least 70,000 more sows leaving net production by 1 December.

• The cool weather this summer appears to have helped litter size with a 9.70 June – August average – up from last year’s 9.51. Productivity increases are helping lower the cost of productions but at the same time keep putting more hogs on the market. The productivity increases are interesting but with a 50 per cent sow utilization in the quarter which works out to 2 litter’s per breeding animal per year. Let’s do some arithmetic: 2 litters x 9.70 pigs per litter = 19.4. That is not exactly 25 is it? Still there is lots of room for improvement.
  
  
• The US market hog inventory year over year decrease is just under 1.4 million hogs.

The continual decrease in the breeding herd and fewer small pigs from Canada are having an effect. The 1.4 million head quarterly decline is the largest year over year since 2003. We expect when Canada’s quarterly inventory report is released the combined USA – Canada Market Inventory will hit the 2.3 million plus decrease we projected a couple of weeks ago.

• The largest decline in market inventory is in under 60 lb category – down almost 800,000 – expect this to support January on prices.
  
  
• The Canada – USA breeding inventory reached its peak 2 years before our financial losses began at 7.752 million sows. We expect the combined September Canada – USA breeding inventory will be approximately 7.220 million. If correct, a drop of 530,000 sows in the last two years. Not much if you say it fast, but certainly a sad testament of our industry’s inability to maintain pork demand in the face of higher feed prices. Every sow gone has a story. Lost dreams and lost money.

Summary

The USDA hogs and pigs report confirms liquidation. We expect the breeding herd will continue to liquidate as more producers run out of capital and/or courage. The Market Inventory is lower but productivity increases through helping costs of productions are continuing to have a large impact on enhancing pork supply and holding hog prices down.

Probably the biggest hurdle we have to get stronger prices is H1N1 (unfortunately referred to as swine flu). The fear of death caused by this flu continues to be hammered out there by the media and health officials. We expect in the end it will be a toot in a windstorm (other than the billions it’s cost our industry). We need to get through the next 90 days with no pandemic and no body bags being used. The media is obsessed that fall – winter will magnify the flu impact. We need to teach these village idiots some geography – the Southern hemisphere already had winter and H1N1. No pandemic, no vaccine either. Y2K everyone! Much about nothing. H1N1 manufactured crisis by the media and the drug industry.

We expect to see relative hog price enhancement as soon a H1N1 becomes a non factor and the term swine flu and dead people drops out of the mass media. Domestic and global demand will then pick up. There has been liquidation and there still is liquidation. Fewer pigs and a recovery out of the extraordinary negative atmosphere that pork has been put under will push prices to profitability. When this happens, is the billion dollar question but we expect breakeven by early 2010.

Mexico

Last week we attended the Mexican National Pork Congress and inaugurated the new 2400 sow Genesus multiplier in central Mexico. Our observations:

• Lots of people read this commentary in Mexico which is translated weekly into Spanish on Porcicultura.com.
  
  
• We had a number of Mexican producers tell us we were wrong when a couple of weeks ago we wrote that Mexican prices of 19.5 pesos per kilogram (65 cents US live weight per pound)was profitable. Many told us high feed prices over $300 a tonne were putting their cost of productions over 65 cents – we stand corrected.
  
  
• Two years ago it is estimated that the Mexican sow herd was approximately 1 million sows (there are no official statistics). Today we are told the Mexican sow herd is between 600 – 700,000 sows, a drop of 300 – 400,000 over the last two years. High feed prices ($300 a tonne), hog prices below the cost of production and the impact of H1N1 has hammered the industry.
  
  
• We have done business in Mexico for twenty years. Historically the Central Mexico hog prices are about 10 – 12 cents US live weight per pound higher than the US market. Today it’s the highest spread in history, 25 – 30 cents a pound. A reflection of the huge decrease of live hogs available in Mexico. The price spread is despite the H1N1 fear by Mexican consumers. As consumer confidence returns we expect higher prices.
  
  
• Pig Champ data for Mexico indicates a pigs weaned per sow of 18.3. Adaption and utilization of technology including enhanced genetics would go a long way to lower costs of production. In a financial crisis there are watershed moments when people adjust and make moves for now and the future. Some things that were good enough before aren’t anymore. It’s Darwian Genetics. In Mexico or Canada or the USA – Adapt or die, brutal but unfortunately true.
  
  
• Mexico is lower 300,000 – 400,000 sows; Canada – USA. is a decrease of 500,000 plus in the last two years. We expect by December 1st the USA – Canada – Mexican breeding herd will be down about one million sows. The population of the three countries is 430 million people and growing over 1 per cent per year. It is a continental market; lower pork supply in Mexico will lead to increased pork imports. Less hogs and increased demand from domestic and international consumers will pull prices higher as soon as H1N1 dies. There is still a hog cycle. At some point, we know the survivors will be rewarded. The challenge is living for the day when more cash comes in, than goes out.

Further Reading

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You can view the USDA Quarterly Hogs and Pigs Report - September 2009 by clicking here.