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Pork Commentary: US Drought Continues, Feed Price at Record High

8 August 2012, at 9:27am

CANADA - The US drought continues unabated, while grain and subsequent feed prices continue to touch record highs. It is miserable. The whole grain – feed scenario is playing havoc in the global meat protein sector. It’s a market that has the direction and pattern of a headless chicken, writes Jim Long.

Our Observations

Sow liquidation has started there is no doubt. Sows are being aborted and shipped. A.I. orders are being stopped as breeding has ended. Gilt orders are cancelled. The herd will be shrinking at a rate the last few weeks of 10,000 per week minimum.

We will get criticism for saying there’s liquidation. Some will say it might encourage some to keep going the old ‘Last Man Standing’ economic position. We say it doesn’t matter what we write, the industry comprises scores of individuals with their own circumstances. They each will have their own scenario, some in control of their destiny and others controlled by the banks.

Our opinion is few producers have much feed purchased ahead or price protected. Many got advice from the wizards who told them not to buy grain. Don’t take a position record crop is coming. It kind of made sense except it didn’t work. Now we have a swine sector, cattle industry, and poultry industry being bludgeoned by negative margins. We expect the US meat protein production sector will be losing $300 million plus per week by September. This market turnaround will lead to an unprecedented decrease in meat protein production by the second quarter next year as poultry, pork, and beef supplies crater.

The only hope for not having the meat sector from shrinking rapidly is the corn ethanol mandate which would up corn were altered which would up corn availability and lower its price!

The corn ethanol lobby doesn’t want mandates to be adjusted. They say it won’t lower the corn price. We say if corn prices won’t drop Mr Big Corn Ethanol Lobbyist why are you scared of the mandate being adjusted?

Misery loves company

Brazil live hogs in the low 40 cent per pound US live weight. Train wreck.

In China the chicken industry having big bloodletting – China $12.00 per bushel corn has its consequences.

Great Britain expect the sow herd to decrease 10 per cent by Christmas (10 per cent in USA. – Canada would be 700,000 sows).

As we write we are on a plane to Germany. In the next three weeks we will be in Eastern Europe, Russia, China, and Japan. We will report our observations.

More than ever as an industry our destiny is linked by Global circumstances, and local matters but only so much. Our sense is America’s drought is affecting the whole world, not only North American meat supply will decline but so will the worlds. What we are living is a catastrophic drought event that will have implications for years on how we all do business. It will never be the same.

The flip side of the implosion is there is little doubt in our mind hog prices next summer will be the highest in history. We had $1.00 hogs this year, how will there not be less hogs next summer?