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Pork Commentary: Russian Road Trip

by 5m Editor
15 October 2009, at 8:33am

RUSSIA - Jim Long, President and CEO of Genesus Inc., writes, "This past week we have been in Russia attending the large agriculture exhibition Golden Autumn in Moscow."

Our observations:

  • The Global Financial Crisis hit Russia like many other countries; several projects stopped on the spot. Now it appears the economy is recovering, but financing is still hard to get.

  • Hog farmers are living in what we would consider in North America as a Utopia. Market hogs are bringing around $250 per head and profits of $100 per head plus. Actually, we had a couple of Russian producers tell us they were unhappy with $100 per head profit as they had, for a while, been making close to $150. Boo hoo!

  • There continues to be much interest in expanding swine production. The Russian Government has earmarked $35 billion US dollars for agriculture investments. We were told by a couple of producers that approvals are extremely slow.

  • Brazil seems to be a scapegoat to Russian producers for what they say is “dumping pork”. Not sure it’s dumping, but Brazil’s hog price is 40 per cent of Russia’s.

  • There are still millions of acres of decent agricultural land laying fallow in Russia. Large tracts are being bundled for cropping which is a huge stimulus for Ag equipment. Land is being rented in these large tracts by investment groups for around $7.00 an acre for 49 years. We can thank the US corn ethanol program that drove up the price of grains for encouraging the re-development of crop land. We believe $7.00 an acre for land has created a long-term grain farming business.

  • Several lease land deals from the government has the provision that livestock must be developed on the land. For example, one group we talked to has assembled 44,000 acres in the last year. They are just beginning construction on their first sow unit with a goal of 15,000 sows. The Russian swine model is you grow your own grain, put the manure on the land and slaughter your own hogs. Truly integrated.

  • We are hopeful this group will work with Genesus. At a reception at the Canadian Embassy the company’s director was adamant to have a picture with us and the Chairman of the Canadian Senate Foreign Affairs Council who was a guest of honour. He told the Chairman their group had decided on Genesus because, they were confident Genesus was the best in the world. It was nice to get such recognition in a foreign country to a leading member of the Canadian Government.

  • Also at the embassy reception was Canada’s Minister of Agriculture – Gerry Ritz. We asked him his thoughts on the new loan guarantee program for Canadian swine producers. He was pleased that the Government rule prohibits banks to have their guarantee honoured if they foreclose on a swine farm. This he feels will protect farmers from aggressive banks.

  • As we write we are on a plane flying from Moscow 800 miles south to Krasnador – situated between the Black and Caspian Seas. This is Russia’s best agricultural area. We are meeting customers and prospects where we’ll give further Russian observations next week.

Markets

  • Internet allows us to follow our markets at home. We see corn continue to increase hitting $3.62 a bushel Friday. USDA keeps increasing yields and production and the price continues to increase. Sure would be nice if increased pork production could lead to higher prices.

  • Iowa-Minnesota last Friday 48.37 lean which probably means a lot of producers continue to lose $30.00 per head. These financial losses continue to keep sow slaughter strong with 68,000 plus in the latest reported week. We expect the US-Canada sow inventory is decreasing 10,000 plus per week.

  • This past week we saw some strength in the lean hog futures with the June contract closing Friday at $72.375. Not fantastic, but almost $50.00 per head better than now. The money in Chicago is betting that by summer demand will be higher and supply lower. We expect the same.

The US hog marketing last week were 2.299 million down from last year’s 2.374 million or 75,000 head. The latest Iowa-Minnesota weights were 268.4, 2.5 lbs higher than the same week a year ago. Considering not many weeks ago, year over year weights were 8 lbs greater, the narrowing of the year over year weights is positive for supply currentness.