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Pork Commentary: Russian Road Trip - Week 2

by 5m Editor
21 October 2009, at 10:56am

RUSSIA - This week's pork commentary by Jim Long again focuses on the Russian hog market.

It’s Monday and we have left Moscow heading to Zurich Switzerland. We have just finished our second week in Russia.

Our Observations

  • Feed in Russia is about as cheap as anywhere in the world. Wheat is $90.00 US per tonne or about $2.50 US per bushel. It makes you wonder if the vast quantities of wheat in Russia at this price will not keep a lid on feed prices in North America when global grain trade is in play. You can see why companies like Cargill (major presence in Russia) have a leg up in market intelligence and global grain movement.

  • Obviously low wheat prices though making it hard for grain farmers is a boom for Russia hog production costs. Hogs at $1.35 US live weight per pound and $2.50 per bushel of wheat. Hog producer’s utopia.

  • We visited one of our customers last week. They are the largest farming operation in Russia and Europe. These are their facts 220,000 acres of crop land, 1 million laying hens, 50,000 broiler chickens a day, 7,000 dairy cattle, 3,000 sows (Genesus), sugar beets, 22,000 beef cattle, and 11,000 employees. All products are processed by themselves, then sold in one of their 200 plus retail stores. From what we know this must be the most truly vertically integrated agri – business in the world. As we said to the managing director ‘You are almost bigger in land holdings than Portugal!’ Like Americans, Russians have no problem with the concept of scale.

  • Last week we covered several hundred miles in the Southern Russia Kubanregion (land mass between Black and Caspian Sea). Wall to wall grain farms with many coming in production in the last two years. Americans corn ethanol program and the increasing of global grain prices have stimulated the rebirth of Russian grain production. Russian producers can thank the American Government and taxpayers (corn ethanol boondoggle).

  • To understand the scope of farms we visited another Genesus customer with 120,000 acres of cropland, another Genesus customer with 40,000 acres, prospects with 100,000 acres and 30,000 acres. They all want to feed their grain to livestock.

  • Russia is importing roughly 30 – 50 per cent of its meat (we hear different numbers). High tariffs keep prices supported. There are hog production facilities under construction but the global financial crisis has slowed things down. Russia is the largest exporter of natural gas and oil in the world. Oil is over $70.00 is creating Russia national capital for agriculture investment.

  • Russia swine producers are still playing catch up with technical and employee training. The industry by and large has few knowledgeable swine people to train or lead swine production. Normal production is 14 pigs per year. Consequently, at Genesus we have made available to our customers a 1700 page Russian language production teaching manual detailing all functions on a swine farm, customized Russian language production recording software and in some instances, we have placed full time production experts to teach and co – manage. We hope the recent opening of our Genesus Russia office in Moscow will help give us augmented service. John MacIntosh who has lived in Russia 17 years will be our director.

Markets

US hog marketings continue to run under a year ago last week. 2.295 million which is 62,000 fewer than the same week a year ago. We expect year over year marketings will continue to be lower as the effect of ongoing sow herd liquidation cuts production capacity.

It was good to observe USDA cut – outs increase 3.00 from the end of the prior week. Cut – outs at 56.40 and Iowa – Minnesota at 49.31, give us hope that demand for pork is improving some. Of note it does not appear H1N1 (swine flu) fear is affecting Russian markets. To some extent we observe the media (CNN) and Government paranoia is the highest in North America. Aren’t we lucky!

The carnage continues to affect different players with one of Canada’s largest hog producers bailing on 7,500 sows. Cash losses are weakening even the most perceived to be strong organizations. $30.00 per head losses on top of financial shortfalls of 26 months is devastating. The hole we have dug is deep, when profits return (which they will). It will take a long time to get producers back to where they were two years ago. We got to get through the fall and early winter but June at 74 lean gives some profits and hedging opportunities. There was a time a couple of months with no months on the board allowing a position of potential profit.