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Pork Commentary: Hog Production in Tricky Position

by 5m Editor
7 September 2011, at 8:42am

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

  • Corn closed Friday at $7.60 up $3.00 a bushel from a year ago. That’s at least a $25.00 per head farrow to finish increase in cost of production year over year.

  • On Friday, soybean meal closed at $385 per ton up $100.00 per ton from a year ago. Put the corn and soymeal price increase together it’s a cost of production increase of at least $30.00 per head year over year. A big increase and one that with October Lean Hogs 85.80 Friday we expect financial losses in the coming weeks.

  • If there was any consideration of breeding herd expansion we believe it has come to a halt. We believe that the USA-Canada breeding herd is getting smaller every week. Cash early weans around $20.00 doesn’t work for the sow owner. This in itself is lowering the breeding herd. Throw in $7.00 plus corn and the risk to reward for any expansion is daunting.

Chicken

  • The chicken industry is suffering serious financial losses. Sanderson Farms, the 4th largest chicken producer lost $55.7 million last quarter. Pilgrim’s Pride the second largest producer lost $128 million last quarter. The chicken industry is reacting to this grim reality. The latest egg sets were down almost 13 million (-7 per cent) from the same week a year ago.

    Throw in the announcement that Chicken Integrator Townsends Inc. is closing down the first of October due to losses and Allen Family Foods have filed for liquidation. While some chicken industry observers are speculating 8-10 companies are struggling with potential bankruptcy. Put the pile of all these stories together and you get a strong feeling the chicken industry has been hit hard and there will be less chicken in the coming weeks and months. The chicken industry run to gain market share from beef and pork is looking like it was assisted suicide.

  • This past week we had meetings with some Genesus South Korea customers. Their country is still recovering from the devastating Foot and Mouth disease that lead to 1/3 of their production to be destroyed. They told us the market price in South Korea is equivalent to $2.50 US liveweight a lb. ($5.50 a Kilo).

    This is down from over $3.00 per lb. now that pork is being allowed in tariff free. We expect US – Canada pork exports to South Korea will stay strong until at least the summer of 2012. All feed is imported into South Korea but at $2.50 a lb. the producers with hogs are making over $300 per head. They are one happy group.

  • On a real personal note we are very pleased that Genesus has supplied over 60 per cent of all the breeding stock imported in South Korea from everywhere in the world since 1 June, when imports where first allowed since the Foot and Mouth break. In our meetings last week we asked our South Korea partners why do they think we have such dominance. They replied "Performance" Genesus over the past five years has shown South Korean producers, more pigs, growth and that there strong. Strong being under disease conditions less problems and strong better feet and legs. As President of Genesus the reason “performance” was gratifying. South Korea producers have lots of genetic choices as every genetic company from all over the world has been in South Korea trying to get sales.

  • Another Genesus customer Evergreen Colony recently was chosen as the Maple Leaf Foods – Signature Award winner for 2011. The Signature award is a weighted combination of backfat, loin depth, index, yield and sort. Evergreen was chosen based on 12 months of carcass data out of producer pool that supplied over 4.3 million market hogs to Maple Leaf Foods – Brandon in the 12 month period. Only one number one – Evergreen – a 20 year Genesus customer using Genesus Duroc sires being bred to Genesus Yorkshire Landrace. Evergreen weaned 29.5 pigs per sow in the last calendar year. Congratulations to Evergreen! Congratulations to Maple Leaf Foods. As we say Genesus – The Total Package. More Pigs, Better Pigs and more Profit for you.

  • A big win for US pork producers with Mexico scheduled to remove the retaliatory duty on US pork in October, because Mexico’s trucks will be allowed in the United States after a ten year dispute. Removing Duties on pork by Mexico, the United States second largest buyer of pork should be price supportive for US producers.

Summary

Feed Prices are daunting – chicken is cutting back under financial distress. The coming weeks for hog producers will be margin challenging. We expect there is breeding herd liquidation and we are setting up hog prices to meet and exceed this year prices next year.