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Pork Commentary: Lean Hog Prices Continue to Rise

by 5m Editor
16 December 2009, at 7:32am

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

The USA lean hog prices continued to increase last week with Iowa – Minnesota reaching $62.97 on Friday. This is up $2.50 or $5.00 a head in a week. A winter storm in the Midwest cut back marketings in the middle of the week and probably was a major contributor to higher prices with year over year weekly marketings being down over 100,000 head. In 2008 2.339 million and in 2009, 2.215 million.

Other Observations

  • Year over year National Base lean hog weights are now lower than a year ago. Last week, Monday – Thursday average carcass weight was less than 202 pounds. Last year the same week National lean hog weights averaged 204 .01 pounds lower year over year weight and lower hog numbers is going to cut pork tonnage and support hog prices. Last year the same week the National Average lean price 51 – 52 per cent was $55.48 lean lb. Last Thursday it was $62.19. After months of higher year over year weights and lower year over year prices. The pendulum has swung.

  • Cash early wean pigs averaged $40.95 last week with highs hitting $46.00. Confidence is returning. There still seems to be enough buyers with the capital and courage to own pigs. Every time in the past when the market gets bad we hear that when the market recovers there will not be enough buyers for early weans. This must be a myth or rural legend. There are buyers and they’re bidding. Lots of people want the easier play of owning finisher pigs. Sow barns are hard work and need specialised capital. We expect to see early weans over $50.00 in January.

  • Last week Larry Pope, CEO of Smithfield Foods said he hoped the Environmental Protection Agency should “abandon any notion” of allowing higher levels of ethanol in car fuel, as the bio fuel sector is demanding. Smithfield was ‘encouraged’ by the EPA’s decision last week to delay a ruling on raising the ceiling for ethanol concentrations to 15 per cent from 10 per cent.

  • Even the current rules had, by diverting corn to bio fuels refineries “directly and substantially driving up feed costs for livestock and jeopardizing the economic viability of hog producers” Mr Pope said. Mr Pope is correct in our opinion. Probably none of us can do more for lowering our costs but for each of us to directly contact the Director of the EPA and Secretary of Agriculture demanding that ethanol subsidies and mandates be stopped. The insanity of burning our food is socially and morally irresponsible while the economic and environmental advantages are next to non – existent. Make a call, write a letter. Our experience tells us it can be effective when it comes from the heart of America.

  • Smithfield Foods last week also announced its financial results for its last quarter. As the US and world’s largest hog producer its results are a barometer of our industry. Hog production losses were $167.30 million (August, September, and October). The cost of production was $53 lb; the selling price was $36.00 give or take a $30.00 per head loss. This is a snapshot of our whole industry. Smithfield has about one million sows. This tells us the Canada – USA production base lost over $1 billion in August, September, October quarter. IT IS UGLY! Smithfield which is shrinking its breeding herd sufficient to take 2.2 million hogs a year out of the USA pipeline by 2011, said that more work is needed to bring the markets supply back in line with demand. A good thing for hog market optimism is Smithfield’s stock at $16.46 is double May’s price with Smithfield’s huge hog production base the markets increased confidence in the hog industry is positive for us all.

Pork Exports

In October, the US pork exports were approximately 136,668 metric tons – the highest month of the year and only 3.3 per cent less than the same month a year ago. October pork exports jumped 24,000 metric tons from August. In October Japan and Mexico lead the way with about 50 per cent of export totals (Mexico’s live hog price 74¢ lb US). We expect with a weak US dollar and strong hog prices in the rest of the world we expect US pork exports to increase as H1N1 (swine flu) threat continue to diminish.

Summary

Hog supply is declining. Weights are dropping year over year. Pork tonnage is declining year over year. Pork exports in October were the highest of the year. All hog price enhancing. We need better prices now. Financial losses have been huge. We see a scenario of breakeven prices by February. The summer months we are strongly optimistic. There is a chance of 90 cents lean.