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Pork Commentary: Drought

12 July 2012, at 8:01am

US - The US corn price rolled higher last week with spot corn hovering around $7.00 a bushel pushing the cost of production of hogs up due to feed prices by $15 - $20 per head in the last three weeks, writes Jim Long.

This is not a business for the faint hearted. Widespread dry (maybe drought) and heat conditions have hit the market like a sledgehammer.

If it rains it will be okay - if it doesn't it will be miserable. It usually rains. Pray for rain!

Observations

  • High price corn will cut exports.
  • Producers with irrigation are feeling quite wise.
  • High price corn will cut usage of corn for ethanol. We understand the ethanol plants have stopped production due to margin challenge. Corn ethanol plants are currently losing we have been told an average of 25 cents per gallon. If this continues, expect further plant shut downs as it's a business that has an on off switch.
  • There are also reports of corn being imported into the Southeast. Three ships from Brazil.
  • Rumours last week that the U.S. government is looking at changing the mandate percentage on ethanol usage in gasoline. Who knows if it's true? One thing for sure oil companies who have no corn ethanol plants will have no problem stop using something they are forced to buy from competitors. A drought could affect the insanity of burning food for ethanol forever.

Other Observations

This week we are speaking at the National Swine Industry Conference in Wisconsin on how the global swine markets affect the U.S. Following are some of our points:

  • 90 per cent of all pigs in the world not raised in North America
  • U.S.A. exports over 25 per cent of its pork production. Canada does 50 per cent
  • Main pork importing countries from U.S.A. - Canada
  • Japan
  • Mexico
  • China/Hong Kong
  • South Korea
  • Russia

Current Hog Prices

*
  • A 240 pound hog in Japan is currently bring $450 U.S. per head *
  • In Mexico market hogs are 21.70 peso/kg or 74 cents U.S. per pound live weight *
  • China's current slaughter price ranges depending on the region from 95 cents - $1.05 U.S. per pound. A 240 pound market hog is about $240. *
  • South Korea market hogs are $1.35 U.S. per pound (3900 won per kilogram). A 240 pound hog is about $320 per head. *
  • Russia a 250 pound market hog is $350 US.

As you can see, the hog prices of the major pork importing countries are real strong. Prices are always a reflection of supply and demand. When you have countries that all have lower disposal income (exception Japan) lower than the U.S. and Canada the hog price is obviously being pushed by demand not supply. We expect that U.S. pork exports will stay strong over the coming months and we need it.