Pork Demand Increases?

* Iowa - S. Minnesota lean hog price last Friday averaged 54.21 and it probably means most producers are losing about $30.00 per head.  Our industry will be dropping 60 million plus dollars a week.  The equity hole gets deeper and more producers are running out of gas.  We have had about 18 months of losing money and in all likelihood the Canada - U.S.A. swine production sector is down over 3 billion dollars in equity.  We need a stimulus package.

   * There has been much speculation that pork demand will decrease due to the economic recession.  We have argued hard that there is no historical precedent for this premise.  We believe Pork Demand will hold.  Evidence to support this came this past week from the University of Missouri.  Calculations indicate pork demand increased 2% from November - January compared to a year ago.  Reports indicate that consumers in January spent $11.03 for pork per capita up 8% from a year ago.  Greater demand despite the recession bodes well as we approach the May - June time period of greatly reduced hog supplies that are coming.  People vote with their money and that is a true indicator of demand.  More money was spent by the consumer in January than a year ago.  We are getting the consumer votes despite the recession (as we expected).

   * Luckily, we found one other bullish person.  William Lapp of Advanced Economic Solutions speaking at the U.S.A. Department of Agriculture annual Agriculture Outlook Forum in Iowa last Thursday.

  "Beef, pork, chicken, and dairy output is dropping due to the depressed commodity prices."

   "Contrary to popular belief livestock production is not a philanthropic endeavor."

  On livestock prices rebounding sharply: "I think it's an event we're not fully prepared for(and don't) understand the magnitude of the increase we might see."

January U.S.A. Retail Composite Meat Prices per Pound

   All meat prices and poultry prices are higher year over year despite the recession.  Pork at retail is higher despite no decrease in pork availability.  This is a reflection of demand.  U.S.D.A. Pork Cut - Outs are about 57 cents per pound while the average retail price of pork is averaging $2.99.  This is a huge margin spread.  We believe that these augers well for the rapid price increase we expect in hogs later in the spring.  Retailers have large margin levels to buffer pork supply drop.

   * The U.S.D.A. expects corn for domestic feed usage to be down from 5.938 billion bushels in 2008 to 5,300 billion bushels in 2009.  This would be a decrease of 10% year over year.  This is a direct reflection on the decrease of U.S.A. poultry and livestock inventories, or to put it more bluntly, we are going to have less meat and poultry.  The largest decrease since the major recession of 1975.

   * U.S.D.A. expects corn exports down significantly in 2009.(-28% or 700 million bushels).  Corn is imported by countries to feed their poultry and livestock.  There are no other reasons.  The lower corn exports are the results of the massive livestock and poultry liquidation due to high feed prices.  High prices in any commodity will always decrease demand and eventually lowers prices.  It always has and always will.

   * The March 1^st U.S.A. hogs and pigs inventory is being counted now.  The ongoing stories about empty barns everywhere is somewhat startling.  Some commentators attribute this to faster growth rates.  Maybe, but when whole barn complexes of 40,000 spaces are empty.

We don't think that's a gain of 3 days growth in finishing.  There are just a lot less pigs.  Less from Canada, but less in the U.S.A. also.  There are empty barns because there were 2 million less head in the last Canadian - U.S.A. inventory in the light weight category.  We expect it has magnified since then.

   * On the growth rate front we do believe there could have been a gain in growth rates year over year.  More space in barns (due to less pigs), stronger feed rations as ingredient prices have decreased, etc...  This could be the reason slaughter numbers and weights have not declined as quickly as we might have expected.  Have we pulled hogs ahead?  What about your barns?  We have in ours.  Let us know your thoughts -please!

   * This past week we spent time with a person who is going to represent Genesus Genetics in China.  He has wide experience in the China swine industry.  Some points to share:

The price of a pork carcass in China is 17 Yuan per kg or about $1.10 U.S. carcass a pound.  The Chinese population is increasing 30 million a year.   The Chinese government is making available $2 billion in grant money to invest in modern hog facilities.  The largest single slaughter plant in China harvests 3000 head per day.  The largest hog packing company all their plants are about 5 million head per year-- or less than 1% of the 550 million China markets a year.  60 - 70% of all hog production is backyard (under 50 hogs marketed per year).  Finally, probably nobody has any idea of swine inventory or production.  How do you count?  

Summary

U.S.A. Pork Domestic Demand increased in the last quarter.  Prices at producer level are terrible but retailers have healthy margins.  All indications are the hog supply will decrease significantly.  We continue to be optimistic that the huge decline in total poultry and meat over the coming months will push lean hog prices to 90 cents lean.