June 15, 2009
Pork Commentary
By Jim Long President - CEO Genesus Inc.
Hard to be Optimistic
This is a tough time for our industry, and we are having a hard time finding reasons for optimism. Week upon week of production losses of $20 to $30 per head is getting us phone calls and emails asking us to say when it will get better. We have no answer. The collapse of pork demand triggered by H1N1 is pounding us into submission.
Some Observations
*National Pork Producers Council, National Pork Board and Canadian Pork Council have mostly been ineffective in getting in the media's face on continuing to call this swine flu rather than the official name of H1N1. The negative branding of swine has been devastating. Why they haven't threatened media groups with legal action is beyond us. $50 million a year in check off to build a brand and defend our honor is not getting us much push. This is a time when a single national voice should be heard and not be mostly silent. They should be going to the President, Prime Minister, Cabinet, and Legislators. They should lead, not look like a deer in the headlights. This is the time our collective producers funded bodies need to perform. The industry is losing billions - real action is needed.
*We have heard reports that sows are backing up as liquidation intensifies and also of piggy sows going to market. The run is on. Everyday production capacity decreases. It's sad when we realize that everyday families have their dreams squashed of having a sustainable hog producer. The corn ethanol boon doogle and H1N1, two situations out of every producer's control and issues manufactured by government policy and or inaction continue to devastate the entrepreneurs of our business.
*One family that fought the fight and appeared to have lost the battle is Stomp Family Farms of Saskatchewan. At one time they had over 20,000 sows, they are now in reported liquidation. One more family's dream crushed by our industry circumstances. How many more must it hurt when they look across the countryside in Saskatchewan at Big Sky Farms, the largest government owned hog farm in the world. Big Sky gets to back stopped totally by the government treasury, while it still benefits from special designed government subsidies unique to Saskatchewan. Now the Government of Saskatchewan through Big Sky will own over half the sows in the Province. One of the best parts of the Big Sky story is that its chairman is a renowned ag- economist Larry Martin. Always quick to tell farmers how they should operate during his tenure at the University of Guelph. It is interesting to see what happens when the lecturen - teacher -philosopher gets the bottom line responsibility. We wouldn't doubt if actual operations income (before subsidies) of Big Sky will be some of the worst in our industry. Note to the Government of Saskatchewan: Close down Big Sky. Governments should not own hog farms and compete with family farms. It's immoral and against all free enterprise principles that you were elected on.
*The U.S.D.A. just lowered the estimated 2010 pork production from 22.62 billion pounds to 22.05 billion pounds. They are predicting an average price in 2010 of 48 - 51 cents per pound live weight. About breakeven - We expect 2010 continual pork production capacity is dealing faster than the U.S.D.A. can calculate. 2009 U.S.D.A. is projecting 22.75 billion pounds.
*China also is being hit with lower hog prices. A year ago now China's hog price was about $1.20 U.S. live weight per pound (19 yuan). Currently, it is 63 cents live weight per pound (9.75 yuan). Corn currently is 1.66 yuan per kilogram or about $6.75 U.S. per bushel. Chinese producers are currently losing $14 - $29 U.S. per head. They do have lots of pigs though. China National Development and Reform Commission estimates 50 million sows and 454 million head in inventory. Current supply and price scenarios in China do not appear to provide much in short term opportunities for North American pork exports.
*Hog weights are about 5 pounds heavier than they were a year ago. Some of this is backed up hogs, but we also believe that cool weather has been excellent for growth. It's a combination of both - not only backed up hogs.
*Reports say the average crop farmer in Iowa has 9% debt. If he has hogs this allows great staying power. Many crop farmers have the equity to last in hogs a long time. They could be the last man standing when the market recovers.
Summary
We are all marooned on the island surrounded by shark infested waters. There is no easy exit strategy. You are alive in the business or you are gone. Few if any buyers are available. You run until you are broke. You shut down and have a next worthless facility. Billions were invested in industry buildings that have little value today. Depreciation is an accountant's game real value is in the marketplace. The real estate marketplace for swine buildings is dismal. Bankers don't want to know their worth today. Bankers are as scared as anyone. Their jobs are on the line in a dismal labor market. They hope we have cash flow and don't force them to make hard decisions. We saw that at the World Pork Expo and some of them were weak kneed. It's a tough time. We will recover. We have a resilient industry and product. Pork is the number one meat in the world for consumption. H1N1 will pass. It's a mild flu. The survivors will be tougher and wiser then in almost any industry. Our intentions are to be here. Like you, there is no quit in our gene pool.
