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Pork Commentary: Optimism Essential for Swine Producers

by 5m Editor
6 December 2011, at 5:14am

CANADA - We have been accused more than once of being overly optimistic in regards to future hog market prices and profitability. We are optimistic but we have a strong belief our optimism is a characteristic of most of our readers, writes Jim Long in this week's Pork Commentary.

To be a hog producer you have to be positive. Breed sow, wait 10 months to get some money, 10 months is almost beyond what anyone knows the market price will be. It takes faith. Disease, feed costs, government policies, currency exchange, labour, environment, animal welfare, etc… It takes special people to ignore all of the negatives. Recently we read an article by Margaret Wente in The Globe and Mail Newspaper that highlighted this phenomenon.

Some points:

  • One survey found that 81 per cent of entrepreneurs thought their chances of success were 7 out of 10 or better...
  • A third of entrepreneurs said their chance of failure was 0.
  • One of the most important biases of all toward optimism. Human beings are generally optimistic. And optimistic individuals – you know who you are, because you usually are in charge – underestimate the odds they face, while vastly overestimating their odds of success. Without irrational optimism, Christopher Columbus would have never left Spain.

Optimists tend to think their fate is entirely in their own hands. They believe that skill and hard work will invariably lead to success. This is another delusion (illusion), but it’s a useful one. It means persistent in the face of obstacles and resilient in the face of defeat. They can also talk people into helping them.

In fact, we all suffer from delusions of optimism. That’s why we think our barn renovations will come in on budget, even though we know they hardly ever do. Yet rose colored glasses vastly improve our quality of life. Without them, we wouldn’t start in the hog business.

Rose colored glasses make life nicer. Optimists are happier.

The more you think about our penchant for writing optimistically it might partially explain the large readership we have globally. We are an industry full of optimists looking for positives.

Optimistic News

December corn closed at $5.86 a bushel last Friday. Down from $7.71 from three months ago, $5.86 is manageable for us to be profitable at the hog market prices expected over the next few months. $5.86 is more than enough to continue to push corn and grain plantings up globally over the coming months. The old adage ‘the surest cure for high prices is high prices’ will always be true.

  • USDA cut outs were $88.61 per pound at the end of last week. Very close to the three areas lean price of $86.19 per pound. This is a small margin for Packers. Especially considering US hog marketing’s of 2,325,000 last week. Obviously Packers are bidding hard for hogs being really helped by strong exports. A point of reference a year ago lean hogs were 66.50 a pound. USDA pork cut outs were $79.00. A $12.00 plus spread currently it’s a $2.50 spread – that’s demand. That’s positive.

Summary

Here’s to you, the optimists. The one that have faith, we firmly believe that strong export demand, domestic demand, a hog supply that isn’t significantly growing, less chicken, and less beef. All will lead to hog prices in 2012 that in all likelihood be record high in 2012.