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Pork Commentary: Road Trip Czech Republic, China

17 August 2012, at 7:34am

GLOBAL - This past week we traveled to the Czech Republic, and China, next is Japan and Russia, writes Jim Long.

Our Observations

On our first stop in the Czech Republic we visited Prague, the headquarters of Agrofert, the largest hog producer and packer in the country. Agrofert’s Genesus Nucleus Multiplier is just starting production.

Prague is one of the nicest cities in the world, with excellently maintained century old buildings. My 15 year old son, who has travelled with me to see other countries, considers Prague the best of all cities.

Czech pork producers are being challenged too by the high feed and hog prices, not high enough to have profits. Czech crops have suffered from drought with grain yields lower than normal. In the Czech Republic market hogs have recently been bringing about 70 cents USD per pound live weight, finishing feed is from $300 USD per ton. Soy is $ 625 USD per ton. Like other countries, producers are nervous of the future.

China was a lot better than the last trip. If you remember, last trip we had a car accident and ended up hanging around a hospital for 10 days. China is still a beehive of pig activity as a rapid dash by investors, ag groups, and feed companies to find money and land, and then build pig barns. The massive modernization of China with half the pigs in the world is ongoing. This trip we saw farms being built on mountain tops, half an hour from any real road that is only reachable by SUV’s.

Prices of hogs are at 15 RMB per kilo which means market hogs are bringing about $250 US per head. Corn is $11 – 12 USD per bushel. Good producers can make money. Average producers, at 14 head per sow per year, not so well. Pig disease is still a major concern.

We heard that China’s chicken industry is in a blood bath. Good chance this will curb the china chicken production supporting the hog price in the future.

Other Oberservations

While travelling we continued to get reports of Canada- America sow producer quitting or cutting back. The high feed prices are certainly making many to take stock of where they see themselves in the future.

We had a few emails that have questioned if what are termed “big guys“ will be hurt by the current pork industry scenario. Who knows for sure, but as you think back of the past where are investor groups like Premium Standard Farms, Heartland Pork, Sands, Bell Farms, Purina Mills, etc. etc. All the big and large enterprises the market place was cruel, and all shareholders were hurt. Bottom line is in a commodity business no one is immune because of size alone. There will be carnage in the scenario that lies ahead of us.

Last week, USDA crop reports painted a dim picture of grain and oilseed supply. The drought has been devastating. 10,779 billion bushels is 2+ billion less than, some predicted 2 months ago. The Obama Administration has reacted by delivering a planned purchase of $150 million pounds of meat including pork for school lunch and other government initiatives. We guess it might help some but do we assume the consumer who benefits from the program doesn’t eat any meat otherwise? If they really wanted to help buy it and burn it for fuel. Whoops that sounds too much like corn ethanol, and burning our food. We are against that, need to be consistent.

Further pressure will continue to revise the Corn Ethanol Usage Mandate. Every day it seems more politicians come out against the current situation. Senator Grassley of Iowa is not one of them writing an op-ed for continued support corn ethanol mandates while at the same time he ridicules food companies and specifically Smithfield Foods for lobbying against corn ethanol. It’s too bad the drought is driving the Ag community between pro and con ethanol groups.

Summary

It’s tough to be a hog producer. There will be less hogs, but less chicken, less beef, in the world next year. It will in all likelihood be dismal for months. We will still expect the highest hog prices in history next summer.