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Jim Long Pork Commentary: Hog market continues to rocket higher

This week Jim reports on this month's massive price jump for hogs.

26 March 2019, at 1:07p.m.

Last week we saw a continuation of a rapid rise in US hog prices and lean hog futures. Finally, the realisation in the market of the giant abyss in China’s pork production due to African swine fever (ASF) is being dialled into prices.

To say the price increases is welcome news is a huge understatement. We believe many hog producers were at a financial brink.

It doesn’t take an ag-economist to figure out that the price jump in less than a month has been massive. The future has gone from looking like sucking air to making all owners of pigs looking smarter, better looking, and maybe even taller.

Question is: how long will it last? We expect China will take a minimum of two years to get production going up. At this point they are still liquidating inventory. Until that stops it is difficult to calculate time after the two years.

With Vietnam now fighting ASF, China has lost a source of imported pigs. This in itself will create demand for pork from other countries. Our feeling is China will buy imports from as many countries as they can, this in itself will lead to the highest hog prices each country has ever seen.

The saying “rising water raises all ships” comes to mind.

In the next while we expect US 45 lb feeder pigs to reach $100 (last week $80).

US pork cut-outs closed on Friday at $77.79: up from under $60 three weeks ago. Lean hogs we expect will continue an increase of over $1.00 a day, reaching 70₵ in the next two weeks. Packers have excellent gross margins and the market psychology has flipped from thinking over supply to shortage. Retail, export, food service pork buyers will now be getting aggressive to get supply. When that happens, prices surge.

Figan

Team at Figan 2019 in Spain
Team at Figan 2019 in Spain

Last week we attended the Figan Exhibition in Zaragoza Spain. Our Report:

  • Spain is ranked first in Europe and third worldwide, with 2.48 million breeding females. Yearly hog slaughter is around 50 million.
  • Zaragoza is in Aragon province in the North of Spain. Aragon is one of the major hog producing provinces.
  • Spain is now the third largest global pork exporter. In 2004, Spain exported just over 500,000 tons of pork compared to 2,165,000 tonnes of pork in 2017.
  • Spain’s hog slaughter in 2004 was just under 25 million and in 2017 it was just under 50 million.
  • Spain’s swine industry has grown in Europe while most every other country has declined.
  • Spain’s structure of the pork business is different than most of the rest of Europe. While most of Europe are primarily independent producers, Spain is almost all contract producers, organised by companies or co-ops. Contract sow farms, contract nurseries, contract finishers.
  • Company or co-ops own sows, supplies feed, pays pig fees, own pigs nursery and finishes. Many companies have own packing plants.
  • The major producers in Spain include global mega-producers, Vall Companys, and Piensos Costa
  • Near Zaragoza, a new packing plant is near completion owned by Pini Corporation. It will become the largest in Europe with capacity, we are told, of over 30,000 per day.
Los Lindes Farm - Bopepor Group in Gallur, Aragón – new 2500 sow farm. Genesus Duroc bred to Genesus maternal
Los Lindes Farm - Bopepor Group in Gallur, Aragón – new 2500 sow farm. Genesus Duroc bred to Genesus maternal

What is interesting is all the industry people we spoke to told us Spain already has enough packing capacity, so we expect there will be a dog fight in the future which will be hard on packer margins.

In discussions with industry leaders, they expect Spain to go from 50 million slaughtered a year to 60 million sometime in future. They don’t expect it to grow higher due to environmental regulations and government policy.

Spain knows African swine fever (ASF). It hit the industry from the 1960’s to 1980’s. When speaking to Spanish pork industry leaders, they questioned the merit of having it as a reportable disease.

Jim Long with owner Javier Borao of Bopepor Group – over 400,000 suckling pigs sold per year to over 50 countries
Jim Long with owner Javier Borao of Bopepor Group – over 400,000 suckling pigs sold per year to over 50 countries

To be a reportable disease it must be of danger to humans and cause economic loss. ASF is not harmful to humans, the economic loss has more to do with border closures. Spanish officials are arguing this position in European Industry meetings.

Spain is home of the Iberian pig and its pork can sell for well over 500 Euro’s for a ham. Duroc to add taste and flavor is also gaining popularity to be used in crossing with Iberian and white breeds. Efforts are underway to create rules to ensure Duroc label is at minimum 50 percent of carcass. The big question is will the Duroc label be like the United States where only registered Durocs can use label, this in itself eliminates the pretend Duroc mongrel companies.

Jim Long and Sarah Long with Juan Luis, a professional butcher, slicing Genesus Duroc Serrano Ham for Figan visitors' enjoyment
Jim Long and Sarah Long with Juan Luis, a professional butcher, slicing Genesus Duroc Serrano Ham for Figan visitors' enjoyment

Five years ago, Pietrain purebreds dominated the market in Spain with about 80 percent plus usage (now 50 percent). As Spain exports more pork to Asia, Durocs have captured 20 percent of the market. In the future, Pietrain market share is expected to continue to decline at the expense of Durocs.

Last week a new organisation led by Eduardo Costa President was formed called Clúster Nacional de Productores de Porcino (Spanish Pork Producers Cluster).

The new organisation includes pig producers, research and development institutions/universities and commercial providers (genetic, nutrition) pharmaceuticals, equipment, etc) to create a mutual front to defend, protect, lobby, and propose policies in order to have healthier, better and more transparent swine industry for everyone’s benefit.

Not surprising to us and we see a very collaborative industry that has had an industry representatives meeting weekly for over a decade to set the price of market hogs for all of Spain. That’s cooperation!

Below are some links that profile Spanish White Pigs means none Iberian in Spain pork industry:

INTERPORC Meat video - English

"A story made in Spain'' video - English