90 Cent Lean Hogs?

Why do we see 90 cent hogs coming?

   *The latest Canada - U.S.A. swine inventory indicates there were fewer pigs in the lightest weight category.  These pigs will begin to come to market at the end of April.  We expect U.S.A. slaughter to drop year over year 150 - 200,000 per week.  In May, 2008, the price averaged 79.59 lean.  Show us anywhere in history where production decline this large did not lead to prices significantly higher year over year.  We challenge anyone to find it - we can't!

   *Last February we averaged 58.72 lean, March 54.04, and April, 62.41.  Prices did not explode until May (79.59).  At this time last year we were aggressive in expected spring price appreciation.  A good friend called and told us to be careful.  We were wrong.  We were way out of line of what others were predicting.  We appreciated the concern but we believe what we believe.  Prices exploded!

   *What about pork exports?  The global economy is in crisis - exports will suffer.  We look at the countries hog prices that import pork.  Domestic hog prices are a reflection of demand and domestic consumer buying power.

Current Hog Prices

   These are the major U.S.A. importing pork countries and these prices are converted to U.S.A. dollars and still the prices remain high despite an average appreciation of 20% by the U.S.A. dollar in the last year. Pretty good prices aren't they?  Not exactly price collapse.  They reflect each country's domestic supply and demand.  None of these countries citizen's have the buying power of U.S.A. consumers of which 92% of Americans have jobs.  We believe our packers have the ability, the capital, the wherewithal to keep pushing pork into these countries with our hugely competitive price points and cost of production advantage.

   *"We are told the Chinese producers are expanding.  They probably are.  They have expanded on average, 20 million hogs in production a year for the last decade.  They also have 1.3 billion people.  China still has major swine disease problems.  Half of their pigs are in backyards.  We do not believe anyone has a real clue how many hogs there are in China.  How do you count 200 million pigs in backyards?  Prices tell us supply.  Sure, China's prices have declined but 84 cents U.S.A. per pound live weight tells us there is no over supply and demand there.  They do market about 2 million hogs a day.  It's a huge market - but even if they only imported 1% of their production it is 5 million hogs a year of pork supply.

   *We also hear about the huge burden of pork in storage.  Last Friday the U.S.D.A. cold storage report came out.  Pork in storage was 595 million pounds, up 20 million pounds from last year.  The U.S.D.A. estimates the U.S.A. will produce approximately 92 billion pounds of poultry and meat in 2009.  20 million pounds extra pork in storage is about 2/100's of 1% meat in storage. It's a Red Herring issue by the Bears.

What about recession hurting pork demand?

   It is agreed by most that the last 2 major recessions were in 1973-1975 and 1981-1982.  In the Financial Post a week ago there was a chart measuring the severity of our current recession to the previous two cited.

U.S.A. Recession Comparisons

***Misery index - pain of economic crisis.  Adds the unemployment rate and the inflation rate 2008-2009.

  It would appear to us that the current recession by these measurements is no worse than 1973-1975 or 1981-1982.  In all likelihood the perception of the deepness of the current recession is magnified by the internet and 24 hour news channels.  In 1973-1975, there were 3 U.S.A. T.V. networks with a 30 minute newscast daily and no internet.  In 1981-1982, there was no internet and it was just the beginning of cable news.  In this recession we are inundated with wall to wall bad news 24/7.  Hard to stay positive.

   What's this got to do with the hog market?  In the last two major recessions the hog price reached historical highs.

U.S.A. Live Hog Market Average

   In the last two major recessions hog prices reached new highs.  Obviously, demand was excellent compared to pork supply.  There was a recession but people continued to want pork and pay for it in the face of declines in GDP, Industrial Production, Employment, and increases in inflation, interest rates and misery index.  History repeats itself.  We expect new historical price highs this summer.  All the people who say demand will decrease -- we ask why?  Show us the history to back up your premise.  Maybe consumers won't go to restaurants, maybe they won't buy a new car, but don't bet against a meat eating society maintaining consumption.  The facts are the facts.  90 cent lean hogs are coming.  Warn the retailers!!

   *1975 when lean hog prices reached a new historical price plateau is also the last time U.S.A. poultry, beef, and pork had year over year declines all at the same time.  It is going to happen in 2008, 33 years later.  Not exactly Haley's comet but not far off in the time between events.

   *U.S.A. cattle on February Feed Report released last Friday.

Thousand Head

   We have a Continental Market.  The Canada - U.S.A. cattle inventory January 1.

Thousand Head

    Over 2 million fewer cattle - the lowest inventory since the 1960s.  Less is not more.

   *On a side note - We understand U.S.A. dairy producers are in a world of hurt.  Milk is 11 cents, cost of production is 16 cents.  We understand the average milk cow is losing about $4.00 per day.  The U.S.A. dairy cow herd is just above 9 million head.  9 million x $4.00 x 30 days in a month = about $1 billion a month in losses.  The U.S.A. hog industry would have to lose $100 per head to lose a billion in a month!  Hogs have been bad.  Dairy is in a freefall.  Thank goodness there is not much meat on a dairy cow.

   *What about European pork production?  About the same time we hit lower hog production this spring the one million plus sows that have been removed in Europe will decrease their supply.  Less for export.  Higher hog prices.  Price supportive.

   *Poultry is down year to date about 70 million lbs a week.  It will stay down because the breeder flocks have been cut back approximately 5%.  Until the breeder flocks expand it is difficult to have more poultry.

Summary

   *Less poultry, less beef, less pork all at the same time.  Not since 1975.  In 1975, the year hogs price set new historical highs.  1975, in the midst of a major recession.  We have given many of our reasons, we obviously could be wrong but we are convinced 90 cent lean hogs are on the way despite June lean hog futures below 75 cents.  We have our reasons it is not wishful thinking.

5 GENESUS Customer Herds Surpass 30 pigs

We would like to congratulate the 5 Genesus Customer Herds that surpassed 30 pigs weaned* in calendar year 2008. They are:

Camrose (USA)..............31.30 (2^nd consecutive year over30)

Riverview (USA)............30.20

Woodland (Canada)......30.03 (3^rd consecutive year over 30)

Grand (Canada).............30.01

Evergreen (Canada)......30.00

*pigs weaned mated female year - Jan 1-Dec 31, 2008

These are dominating results. It takes tremendous management intensity 7 days a week to reach these outstanding results. These are not 4.5 day a week managed operations. The results are a testament to the advanced genetics provided by Genesus. Smart mangers also make the right decisions. The genetic capacity of Genesus is raising the bar in production potential. If you are not using Genesus you are not reaching your maximum profit potential.

Genesus is the true alternative for your Genetic needs. Congratulations to these outstanding producers.

Please click here for more detailed info and Performance Monitor of the 5 herds