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Pork Commentary: US Drought Continues

31 July 2012, at 8:33am

US - This past week the grain price surge we have seen the last few weeks came to a halt. For the week last Friday September corn closed 26 cents lower a bushel, December closed 1.5 cents lower; August soybeans were 75 cents a bushel lower, November down 84.5 cents lower, and September Chicago wheat was 45.25 cents lower, writes Jim Long.

Somewhat low prices but still approaching record highs, the devastating price jump in feed prices is shell shocking the poultry and livestock industries.

Observations

Sow slaughter is ramping up. There are several reports to us of producers unable to get their sows marketed due to sow plants handling all they want. 450 – 500 pound sows dropped 16 last week; last week $47.46, a week before $50.28, and last year $60.86.

Sows are bringing more than $50 per head less than a year ago. It tells us a lot of sows are available for sausage. The breeding herd is getting smaller, no doubt backed up sows for market is a strong indicator of rapid liquidation.

U.S. corn export sales are not meeting the levels needed to meet the U.S.D.A. revised projections. Last week 5.5 million bushels while 8.4 million bushels are needed to average for the 1.6 billion bushel U.S.D.A. projection for the marketing year. It’s obvious that high corn prices are cutting export demand.

The U.S. congress is working on $621 million disaster relief programs. Livestock producers are expected to benefit if it is passed as proposed. As strange as it may sound, the disaster is far larger than $621 million.

This week livestock groups including NPPC are expected to press the Environmental Protection Agency (EPA) to review the Renewable Fuel Standards (RFS) for ethanol protection. In an Op - Ed in the Wall Street Journal last Friday Larry Pope, CEO of Smithfield Foods, challenged the RFS and called on the EPA to grant a nationwide waiver to the standard, he also backed legislation that would automatically lower the RFS cap depending on the level of corn stocks.

“The RFS has diverted so much corn as a questionable substitute for gasoline that in the face of this drought depleted harvest, major food producing companies such as Smithfield are being forced to seek alternative markets for grain to meet the demands of their livestock and at more affordable prices, Pope wrote in the Op – Ed “Ironically if the ethanol mandate did not exist, even this year’s drought depleted corn crop would have been more than enough to meet the requirements for livestock feed and food production at decent prices.“

U.S. ethanol production now uses annually slightly more than 5 bushels of corn compared to 4.5 billion for livestock feed and about 1.6 billion for export.

What is really funny if it wasn’t so sad is the ethanol producers lobby which is claiming ethanol does not increase corn prices. It is such a convoluted argument that it is impossible to follow. They should be honest burning corn for money makes them money, but to be fair they don’t even claim anymore that it helps the environment. It is now all about the money. If we were a corn grower and didn’t have livestock, out of self-interest we would probably rationalize that corn ethanol was a good thing – it is a similar rationale as tobacco growers.

Last week we attended the Annual Producer meeting held by Maple Leaf Foods, Brandon Manitoba. The Brandon plant handles approximately 90,000 a week – 4.5 million a year. There was a good turn out with about 200 people, many are Genesus customers. The meeting covered a wide range of topics: needles, sow housing, pay lean, higher weight grid, and hog handling transportation. In our opinion Jason Manness of Maple Leaf gave an excellent market analysis, a good mix of grain market reality but one with optimism for the Manitoba Producer Group.

In the awards ceremony, Evergreen Colony (weaned 29.46 pigs/sow/year in 2011) a long time Genesus customer won for the second year in a row of Maple Leaf’s signature award. The award we understand is a combination of grade, yield, weigh, sort, deducts, etc… We congratulate Evergreen for winning top producer out of 300 plus producers. The Genesus Duroc, Yorkshire, and Landrace Program net another winner. Maple Leaf understands as a major domestic and export packer quality pork is paramount to build customer demand and loyalty.

The crops are good in Manitoba. Many producers we talk to have their best crops ever. Most hog producers in the Maple Leaf meeting are excellent hog producers, large land base, good crops, and high grain prices. In many ways an excellent combination, despite this there were many producers fretting of the future. There is sow liquidation in the group. If this group of producers whose scenario is as good as any in North America are really nervous. What are other producers in other areas feeling? Doing?

“It’s not the strongest of the species that survives, nor the most intelligent, but the ones most responsive to change.“ Charles Darwin