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Pork Commentary: National Pork Industry Conference Report

by 5m Editor
17 July 2012, at 9:22am

US - Last week we attended the National Pork Industry Conference held at Kalahari Resort in Wisconsin Dells, Wisconsin, writes Jim Long.

Our report:

  • Not sure on exact numbers but we expect up to 800 attended. The participants were a good cross section of serious hog industry members.

  • The conference was well organized and lead by Larry Graham and Glen Shields. They did a great job keeping everything on schedule. Obviously it wasn’t their first rodeo.

  • Genesus was a lead sponsor. The Genesus reception Sunday night was well attended and gave a great opportunity for conference attendees to mix and socialize. The main topic of conversation was drought.

  • We were also given an opportunity to speak at the conference and we addressed the five key US pork export markets and how we see their domestic swine industry dynamics effecting future US pork exports. We were told by several people our presentation was the most positive for the future of our industry that they had heard at the conference this despite us saying ‘Many producers will go out of business in the coming months.’ This tells you the tone of other presentations.

Other Observations

  • Speakers addressed sow housing, animal welfare, and consumer attitudes. The sense we get is that we are playing mostly defense as an industry. The collection of problems laid out makes you wonder why you want to be a hog producer. It is best to drive on and remember it was environment lobby that was going to put us out of business five years ago. Now we don’t spend much time on the environment in conferences. Now it’s animal welfare as the new threat to fund lobbyists on both sides of the issue. As my Father always said ‘Follow the money trail.’

  • The drought was by all accounts the most talked about subject of participants at the conference. Not so much in proceedings but in general conversation. People are scared: what is the price of feed going to be? The impact of the drought is widespread. Producers see it, and feel it. Visual testimony of wilting crops makes it a grim reality.

  • The flip side is China will have this year its largest corn crop in its history, but corn in China is $11.00 per bushel, and hogs bringing $250.00 US each. At 13 pigs per year Chinese hog producers are not making money.

  • Genesus has nucleus multiplication in Russia. Harvest there is underway and crop yield reports are quite positive.

  • Corn in Brazil last week was $4.50 US per bushel. If you were buying corn to import where would you buy it from? US corn exports will be cut drastically. There are reports corn is coming from Brazil to the US South – East. It is not hard to figure out how that would work well.

  • David Ward Vice President of Client Services for CIH showed a slide in his presentation in Wisconsin. In the last ten years the very worst profit margin for the hog industry using future markets for hogs and feed, was exactly right now. The chart was amazing year after year for ten years this time of year absolutely worst for hedging. Maybe there is some hope that things will get better? History mostly repeats itself.

  • Jeff Simmons, the President of Elanco gave what we considered the best presentation at the conference. His premise: as food producers we have the moral high ground to use available technology to produce food to feed a hungry and growing world population. That one of the greatest challenges we have as a global society is how to double food production in the next decades to meet the projected population needs. We will need the smartest and brightest to get it done. On a personal note we have seen the global food challenge as we have visited may countries. Hungry people are unhappy people. Unhappy people lead to volatile situations in society. It is best we get the food produced.

  • Steve Meyer, economist gave a swine market projection. His crystal ball for US swine markets... drum roll. CME Lean Hog Future prices last week.

  • Joe Kerns, President of Kern and Associates addressed the grain and oilseed market. An interesting point was that blenders (gasoline retailers) have 3 billion gallons of Corn Ethanol production credits in reserve. Consequently they don’t have to use the 3 billion gallons of corn ethanol if they don’t want to. 3 billion gallons is equal to one billion bushels of corn. This could lead to more corn available for livestock in the drought.

  • Mr. Kerns also indicated that there are no pre-determined fines for blenders who do not meet mandated corn ethanol usage. We wonder what would happen if corn is real short and expensive. Oil companies (blenders) take the moral position that it’s best to have food for people then burning the food in a world awash with oil and natural gas? That would be a politician’s dilemma. Take away for us cheap oil – high corn prices put the corn ethanol industry in a tough position even with usage mandates. We are in a dynamic time and nothing can be a surprise.

Summary

High feed prices will cut hog production. The industry is scared of the future. Some expansion plans will grind to a halt. Record high temperatures are not only contributing to the drought but also is leading to higher sow mortality and record temperatures will affect the pig crop in the future. It takes work to keep up a breeding herd. Gilt retention has and will slow. Some producers will quit willingly and some forced out. Some production systems are in tough shape and won’t be able to stand the $20 - $30 per head losses this fall that we will have if feed prices stay where they are. From discussions few producers are protected on feed costs. Most expected $4.50 corn this fall - $7.50 was not on anyone’s radar.

We expect the combination of sow mortality, breeding problems from heat, less gilt retention, and liquidation equals less production by next spring – summer. We expect lean hogs $1.00 plus next summer as production is cut ($20 per head over current lean hog futures). This at the same time chicken and beef production will be in all likelihood lower. We expect cash hog prices next summer hitting levels the highest in history. Unfortunately there could be 100’s of millions lost before we get there. A real tough time unless it rains real soon; when does drought become famine?