December 14, 2009
Pork Commentary
By Jim Long President - CEO Genesus Inc.
Lean Hog Prices continue to go higher
The U.S.A. lean hog prices continued to increase last week with Iowa - Minnesota reaching $62.97 on Friday. This is up $2.50 or $5.00 a head in a week. A winter storm in the Midwest cut back marketings in the middle of the week and probably was a major contributor to higher prices with year over year weekly marketings being down over 100,000 head. In 2008 2.339 million and in 2009, 2.215 million.
Other Observations
- Year over year National Base lean hog weights are now lower than a year ago. Last week, Monday - Thursday average carcass weight was less than 202 pounds. Last year the same week National lean hog weights averaged 204 .01 pounds lower year over year weight and lower hog numbers is going to cut pork tonnage and support hog prices. Last year the same week the National Average lean price 51 - 52% was $55.48 lean lb. Last Thursday it was $62.19. After months of higher year over year weights and lower year over year prices. The pendulum has swung.
- Cash early wean pigs averaged $40.95 last week with highs hitting $46.00. Confidence is returning. There still seems to be enough buyers with the capital and courage to own pigs. Every time in the past when the market gets bad we hear that when the market recovers there will not be enough buyers for early weans. This must be a myth or rural legend. There are buyers and they're bidding. Lots of people want the easier play of owning finisher pigs. Sow barns are hard work and need specialized capital. We expect to see early weans over $50.00 in January.
- Last week Larry Pope, CEO of Smithfield Foods said he hoped the Environmental Protection Agency should "abandon any notion" of allowing higher levels of ethanol in car fuel, as the bio fuel sector is demanding. Smithfield was ‘encouraged' by the EPA's decision last week to delay a ruling on raising the ceiling for ethanol concentrations to 15% from 10%.
- Even the current rules had, by diverting corn to bio fuels refineries "directly and substantially driving up feed costs for livestock and jeopardizing the economic viability of hog producers" Mr. Pope said. Mr. Pope is correct in our opinion. Probably none of us can do more for lowering our costs but for each of us to directly contact the Director of the EPA and Secretary of Agriculture demanding that ethanol subsidies and mandates be stopped. The insanity of burning our food is socially and morally irresponsible while the economic and environmental advantages are next to non - existent. Make a call, write a letter. Our experience tells us it can be effective when it comes from the heart of America.
- Smithfield Foods last week also announced its financial results for its last quarter. As the U.S. and world's largest hog producer its results are a barometer of our industry. Hog production losses were $167.30 million (August, September, and October). The cost of production was $53 lb; the selling price was $36.00 give or take a $30.00 per head loss. This is a snapshot of our whole industry. Smithfield has about one million sows. This tells us the Canada - U.S.A. production base lost over $1 billion in August, September, October quarter. IT IS UGLY! Smithfield which is shrinking its breeding herd sufficient to take 2.2 million hogs a year out of the U.S.A. pipeline by 2011, said that more work is needed to bring the markets supply back in line with demand. A good thing for hog market optimism is Smithfield's stock at $16.46 is double May's price with Smithfield's huge hog production base the markets increased confidence in the hog industry is positive for us all.
Pork Exports
In October, the U.S. pork exports were approximately 136,668 metric tons - the highest month of the year and only 3.3% less than the same month a year ago. October pork exports jumped 24,000 metric tons from August. In October Japan and Mexico lead the way with about 50% of export totals (Mexico's live hog price 74¢ lb US). We expect with a weak U.S. dollar and strong hog prices in the rest of the world we expect U.S. pork exports to increase as H1N1 (swine flu) threat continue to diminish.
Summary
Hog supply is declining. Weights are dropping year over year. Pork tonnage is declining year over year. Pork exports in October were the highest of the year. All hog price enhancing. We need better prices now. Financial losses have been huge. We see a scenario of breakeven prices by February. The summer months we are strongly optimistic. There is a chance of 90 cents lean.
By Harry Siemens -
Jack Hofer is the manager of the hog business on the Woodland Colony of Poplar Point, whose 900 sow farrow to finish hog operation has produced 30 plus weanlings per sow per year for 3 consecutive years. To produce 30 pigs per sow per year versus 20 can obviously make the difference of profit and loss for a hog farm, especially during difficult times like the industry has never seen before. "It has been a tough industry the last couple of years. When you wean 30 pigs per sow, you can see the light at the end of the tunnel," said Hofer in an interview from his barn. "With fewer producers, it's good to be on top. We feel really blessed and provide us with a good feeling."
Woodland Colony - L to R Terry Hofer, Michael Hofer, Jack Hofer (manager), Andy Gross and Jim Long, President of Genesus.
He said Genesus Genetics has provided the operation with good genetics, The KS 11 gilts with Duroc boars, they produce quality pigs that go to market and pay the bills. That is the bottom line.
Woodland uses internal purebred landrace to make their F1 gilts. They run about 10 percent of the herd Landrace, about 90 head. The balance of the herd is F1's which they breed to Genesus Duroc boars via artificial insemination to make market hogs.
In 2008, Woodland produced 30.03 pigs weaned per sow, 26,400 pigs marketed from their 915 sows to Maple Leaf in Brandon.
Four people, including Hofer run the barn. "You gotta go, not time to sit around, you have to hustle. It takes a lot to stay on top," he said. "It takes team work. Everybody has to have the same aims and goals. You have to have a determined team, a team that doesn't want to be second best."
Hofer, said while the last two years have been tough, their operation has still been able to turn a profit.
"If you are producing over 25 pigs per sow, according to public statistics, in the top15 to 20 percent of North American production, but if you are over 30 percent, you are at the top," he said.
The tough years encouraged them to work hard on their feed supply, trying to keep it as cheap as possible, but not to the point of where it could hurt their production. The colony hasn't had to think of downsizing their herd because the bottom line has stayed in the black. Consequently, they don't need to even look at federal government's loan or transition programs.
"We produce our own grains, use our manure on our land, take us as an enterprise, the hog barns have always made money," said Hofer. "On labour, we build our own barns, we have our own technicians, and it is less costly to produce pigs in a colony."
While not able to speak on behalf of other colonies in Canada, he assumes their breakeven point is well below the independent producer who is out there buying feed, buying his own grains, and probably has to put his manure on his neighbour's fields or something like it.
He claims the colonies' breakeven point is 20 to 25 dollars below that of the independent producer.
Marketing through Maple Leaf in Brandon works well for them.
"You have to market, no matter what you produce," he said. "If you have a lot of good hogs, that grow and grade well, that pays the bills. Shipping pigs to Maple Leaf pays the bills on our barn, that is the bottom line. We shipped south four or five years ago. It is too risky. You are playing Russian roulette every time you cross the border."
Hofer looks at the world of hog production with some sadness, but also faces the reality of what is happening to the industry.
"Obviously, you feel sorry for producers that have to leave, family farms that have been in the business for many years, generation after generation handing down the hog business, suddenly you hear the people are going bankrupt," he said. "It is sad, but it has to be this way. If it wasn't this way, then we'd be ones going broke or we would all go broke."
If Canadians want to continue to eat Canadian-produced pork, and not import from China or some such place, consumers must buy homegrown products to keep this industry alive and afloat. "If we keep importing cheap pork from other countries, we will kill our industry," he said.
