Best Genetics, a Chinese swine genetic company and Genesus, one of the top swine breeding companies in the world, signed a cooperation agreement on Feb 9, 2012 at the 5th Canada-China Business Forum. This agreement stipulates the purchase of top pedigree pigs and Genesus will provide continued genetic program support. With this cooperation, China will have lean meat, safe, high quality pork at an affordable price.
Best Genetics has adopted western barn facilities and management processes, employs the best genetics from the world with the objective of becoming the best genetic company in China.
Genesus has the largest registered purebred herd in the world, with many Genesus herds producing up to 30 pigs per sow per year. Best Genetics is founded by Monita Mo. Her dream is to create a genetic swine company in China that produces the leanest meat, safe pork at a reasonable price. To be successful, Best Genetics needs 3 things: 1 – scientific facility that can provide excellent bio-security, Best Genetics adopts Airworks from the U.S. 2 – the best genetics of the world that can produce the best pork, Best Genetics have Genesus’s pigs and their continued support in the genetic improvement. 3 –a professional team, the professional team from Canada will operate the farms using international operational procedure. The ongoing Technical Support Agreement between the Genesus and Best Genetics will allow Best Genetics to efficiently produce pork to supply the largest market in the world, China.
The contract was signed under the witness of Canadian Prime Minister Stephen Harper, Minister of Agriculture Mr. Gerry Ritz, Mr. Xia Guo Hua from Songshan district Chifeng city, where Best Genetics built the first Airworks, also came to celebrate the signing ceremony.
Under the witness of Canadian Prime Minister Mr. Stephen Harper, Canada Agriculture Minister Mr. Gerry Ritz and Deputy Secretary of CPC Chifeng Songshan District Committee and District Governor Mr. Xia, Guohua, the contract was signed by Mr. Mike Van Schepdael, shareholder and Vice President of Genesus, and Ms. Monita Mo, Chairwoman of Best Genetics.
This past week we attended the Ohio Pork Congress held at the Crowne Plaza Hotel in Columbus. Our observations:
*Ohio has 170,000 sows according to the last U.S.D.A. Hog and Pigs Report or about 3.5% of the U.S. sow herd.
*Ohio does not have large hog numbers but the Ohio Pork Council is doing a very good job promoting pork. The night before the Congress there was a Taste of Elegance pork tasting reception prepared by in state chefs. It was held beside the State Legislature and several State Senators and representatives attended. The interaction between the politicians and producers definitely highlighted the advantages of pork to Ohio. It appears the politicians like pork! In our opinion the reception was a good investment for producers to help connect with the politicians.
*In Ohio there are finisher barns being built but little if any noise about new sow units.
*We had some competitive drug company reps asking if our opinion on Pfizer’s Chemical Castration vaccine had changed – of course it hasn’t. We don’t see it as a positive for our industry to market pork with consumers and see no upside to risk our employee’s reproductive capacity with an accident at vaccinating. For what it’s worth, the other drug company reps saw it as a great Pfizer folly with 10s of millions of dollars spent to develop chemical castration vaccine with little thought to its real need or desire in the swine sector. Is it dead on arrival in America?
*Ohio swine producers made a pact with the uniquely special Humane Society of the United States, whose main goal appears to us, is for everyone to eat lettuce. The pact is a legal initiative to eliminate gestation stalls in Ohio by 2025. Ohio in retrospect made a smart deal. They made a deal with long timelines on a subject (gestation stalls) we can’t win. Let’s hope until 2025 the lettuce eaters will leave Ohio alone.
*Ohio like other parts of the U.S. is getting hit hard by prrs. This past week we heard further reports from across the U.S.A. and Canada of further prrs breaks. It appears filtered barns have limitations on prrs prevention. With the astronomical cost of their installation and operation it will be increasingly difficult for people who are actually spending their own money on filters to justify their investment. We increasingly believe the massive levels of prrs breaks relative to other years is large enough to cut summer hog production. With expected lower beef and chicken production in the same time frame, hog prices could accelerate beyond current summer lean hog futures in the high 90s per pound or “hang on cowboys we are going for a ride!”
China
This past week a Genesus team lead by Mike Van Schepdael Vice President – Shareholder signed a major agreement with Best Genetics in Beijing China. At the signing we were honoured with the attendance of Canada’s Prime Minister Stephen Harper, and Canada’s Agriculture Minister Gerry Ritz. The founder of Best Genetics is Monita Mo. The first phase of the project is $21 million U.S. Genesus will supply Genetics and continued genetic improvement and technical management.
The Genesus team also visited COFCO with Minister of Agriculture Gerry Ritz. COFCO is China’s largest agri business and Genesus has supplied all of the registered purebreds that COFCO has in their swine production system. Genesus beginning last year has been supplying ongoing genetics and genetic improvement to COFCO. COFCO owns approximately 5% of Smithfield Foods shares.
To say the least it was a big week for Genesus. China has 47 million sows in their latest inventories. This is a huge market but still limited access with tough health and quarantine restrictions. The Chinese restrictions have prevented some of the leading Genetic Companies whose health has not measured up to being stopped from exporting!
To keep it all in perspective in a 47 million sow market only just over 6,000 breeding animals were brought to China in 2011 from everywhere in the world – a drop in the ocean.
Over the last while we have had some customers in North America ask if it’s bad for North America – for Genesus to export our technology. The questioners are customers, they have seen our results. Our answer - The amount of capital needed to fund Genetic Research is significant. Export sales fuel genetic progress. This genetic progress benefits North American producer’s productivity and profitability. We believe that if you don’t have continual improvement you die.
Also like computers, cars, etc… technology is going to be purchased and adapted by countries when they see value. You can’t stop the inevitable. America is No. 1 in the world in innovation, No. 1 in productivity. North America is the best long term place in the world to produce pork. Go harder – go faster.
P R E S S R E L E A S E
Best Genetics, a Chinese swine genetic company and Genesus, one of the top swine breeding companies in the world, signed a cooperation agreement on Feb 9, 2012 at the 5th Canada-China Business Forum. This agreement stipulates the purchase of top pedigree pigs and Genesus will provide continued genetic program support. With this cooperation, China will have lean meat, safe, high quality pork at an affordable price.
Best Genetics has adopted western barn facilities and management processes, employs the best genetics from the world with the objective of becoming the best genetic company in China.
Genesus has the largest registered purebred herd in the world, with many Genesus herds producing up to 30 pigs per sow per year. Best Genetics is founded by Monita Mo. Her dream is to create a genetic swine company in China that produces the leanest meat, safe pork at a reasonable price. To be successful, Best Genetics needs 3 things: 1 – scientific facility that can provide excellent bio-security, Best Genetics adopts Airworks from the U.S. 2 – the best genetics of the world that can produce the best pork, Best Genetics have Genesus’s pigs and their continued support in the genetic improvement. 3 –a professional team, the professional team from Canada will operate the farms using international operational procedure. The ongoing Technical Support Agreement between the Genesus and Best Genetics will allow Best Genetics to efficiently produce pork to supply the largest market in the world, China.
The contract was signed under the witness of Canadian Prime Minister Stephen Harper, Minister of Agriculture Mr. Gerry Ritz, Mr. Xia Guo Hua from Songshan district Chifeng city, where Best Genetics built the first Airworks, also came to celebrate the signing ceremony.
Under the witness of Canadian Prime Minister Mr. Stephen Harper, Canada Agriculture Minister Mr. Gerry Ritz and Deputy Secretary of CPC Chifeng Songshan District Committee and District Governor Mr. Xia, Guohua, the contract was signed by Mr. Mike Van Schepdael, shareholder and Vice President of Genesus, and Ms. Monita Mo, Chairwoman of Best Genetics.
]]>
This past week we spent several days with Russian swine producers. The prices in Russia are strong with 270 pound (125kilos) market hogs bringing over $300.00 per head. With break evens in well run operations at about $150.00 per head the profit potential and reality is $150 a head. To put it in context we did projections on a new 5,000 sow farrow to finish unit they are building. At current prices and profits over $17 million U.S. in profits per year – it is a different world for sure!
The coming week we will be at Agrofarm Livestock Symposium and trade show in Moscow. Russia is like the U.S. of the early 90’s as outside production moves inside the evolution and scale of farms takes hold. We met with a Russian builder last week. He has never built a sow farm since he started several years ago under 5,000 sows per barn, made us feel small, as the new Genesus Nucleus in Russia is 1300 sows and the two multipliers are 2500 sows each. Russia is like the U.S. – never afraid of scale!
Tyson
Last year we listened to Donnie Smith CEO of Tyson at the Wisconsin Swine Conference. He was the smartest person who spoke that day.
Last week Tyson’s first quarter pork operating income was released at $165 million, or 11.2% of U.S. $1.48 billion in sales. That is good profits and margins; it is also good for hog producers. We need packers to make money. It keeps them investing and gives them the capital to pound their way into our needed pork export markets. It also makes you wonder how reflective the U.S. pork cut – outs are to reality. For example, last Friday U.S. carcass cut – outs were $85.10 per pound – the National daily base lean hog carcass 53 – 54% or $88.46. If you took this at face value, packers losing big money and buying hogs for more than they sell pork? Obviously Tyson’s excellent profits don’t reflect a negative margin.
Hormel Foods
Hormel Foods, one of the U.S.s major packers and significant hog producer announced last week at its annual share holders meetings the decision to phase out gestation stalls by 2017 at its company farms.
From our perspective this is a reality that many of us will face going forward. The visual of sows in gestation stalls is hard to argue to animal welfare advocates or more importantly consumers. We are not sure it will ever be scientifically proven that sows are at a disadvantage in stalls but it doesn’t appear to matter. The consumer push is enough to have us more in that direction. In the end we will have no choice – gestation stalls will disappear whether right or wrong. Hormel is accepting that reality but being pro active on their time line.
Hormel is another Packer – Food Company doing well. For the 2011 year $7.9 billion in sales up 9%, net earnings are up 15% over 2011, and exports up 26% in sales.
We believe one of the greatest competitive strengths of the North American pork industry is the efficiency, scale, capital commitment, and aggressiveness of our packing industry. Hormel is one of such players.
Europe
Rabobank, probably the world’s largest ag lender in a recent report expects the European Union sow herd to show a 9% decline when the December reports are released. If correct, a drop of over one million sows. That is huge! In the same report Rabobank expects Euro hog prices to reach 1.75Euro per kg which is $1.04 U.S. per pound.
There is no way one million sows out of production don’t cut supply. E.U. won’t have as much pork to consume or export. This is all positive for North American hog producers.
*Rabobank expects U.S. beef production to be up in Quarter 1, but down 6% by the second half of 2012. Rabobank also expects U.S. chicken production to be down 4% – 5% in 2012. Reduced beef supplies are expected to result in record high beef prices that will provide an umbrella for pork prices.
PRRS
There still seems to be lots of stories of further PRRS breaks cutting hog production. We need to look no further than U.S. cash early wean prices at $61.39 and 40 pound feeder pigs at $81.74. There are fewer pigs available, more barn space than pigs pushing up small pig prices. Beyond breakevens when you look at feed and hog future prices.
Summary
Rabobank sees the same scenario we have observed for months: 2012 strong pork export sales, less U.S. beef, less U.S. poultry, and insignificant pig production expansion leading to strong hog prices.
If all goes, 2012 will be good!
P r e s s R e l e a s e
In 2011 Genesus set a Canadian and a Global record for numbers of high health purebred registered pigs. This revealed in statistics released last week by the Canadian Swine Breeders Association.
2011 – Purebred Registration
|
BREED |
GENESUS |
Balance of CANADA |
| YORKSHIRE |
28,630 |
30,878 |
| LANDRACE |
18,883 |
10,439 |
| DUROC |
9,779 |
6,213 |
| TOTAL |
52,292 |
47,530 |
Jim Long, President-CEO Genesus Inc comments:
“Genesus is a fanatical believer in Registered Purebred Pigs coupled with an Intensive Geneticists driven Research and Development Program, fueled by a massive commitment to population genetics Government sanctioned.
Registration Program ensures the purity of what our customers purchase which in turn maximizes heterosis and production. Too many producers have been sold so called purebreds by companies that cannot back up their claims with actual government sanctioned certified registrations. These bogus representatives have fooled far too many unsuspecting buyers.
Bottom-line: If a pig cannot be registered it is not a purebred. Buyer Beware. Too many mongrels, too many stones, not government documented truth. Your choice. Your money”
]]>Last week we attended the Iowa Pork Congress held annually in Des Moines Iowa. Our report and observations:
*The Iowa Pork Congress is the premier state event held in the winter months for the swine industry. Iowa has about 20% of U.S. swine production and the size and scope of the Iowa Pork Congress attracts people not only from Iowa but from surrounding states.
*Several thousand people attend while any significant company that does business in the swine industry had an exhibit. The Iowa Convention Centre is new and first rate. We also appreciate and thank the large numbers that attended our Genesus reception. It was a good time.
*At the PRRS, PRRS, PRRS! Subject one was PRRS, subject two was PRRS, subject three was PRRS. Maybe we only talked to people who had PRRS, knew of people with PRRS or were afraid of PRRS but never have we heard so many PRRS horror stories.
*We understand in one production group that had ten PRRS prevention filtered sow barns. 8 of the 10 barns have broken out with PRRS. This is not supposed to happen. The company’s producers of filtered barns sell them as bastions against PRRS. After you spend a cool million dollars to filter a sow barn and break 6 months later to say you would be peed off is an understatement. We imagine the Attorney’s of the mid – west will get a bump in business.
*Up to four filtered A.I. units have broken out with PRRS.
*The PRRS breaks are hot. Sow mortality, abortions, piglet mortalities, and several weeks of crappy piglets. Dead pigs and fewer litters and dead offspring normally end up in the summer month’s market hog production.
*It seems to be as many closed herds and non – closed herds that have broken out with PRRS. The myth that closed herds keep out PRRS is just that – a myth. Now maybe filtered barns keep out PRRS will be added to myths? Location of barns, internal pig movement, trucking, and people are the main culprits.
*Pig brokers we talked to attribute the strength of the U.S.D.A. cash early wean prices averaging $61.20(up to $69) and cash 40 pound feeder pigs averaging $77.92(up to $84) to the chasing of buyer to find pigs to fill holes caused by PRRS breaks. Yet another sign of the PRRS carnage.
*There is PRRS every year. We have always been reluctant in the past to put much emphasis on the effects of disease on the U.S. pig flow and prices. This winter has been mild, damp, and humid. It has not been cold. Conditions have been such that it appears to have magnified PRRS and its consequences.
We talked to a swine record keeping group that their records show a greater effect from summer heat than normal. Fewer litters mean fewer pigs.
*Talking to builders and equipment people they are optimistic they will build new sow units this year. When you drill in further few if any are under construction. Some deals looking for investors to own units, some waiting for regular financing. The bottom line: if they get financed, and if they get built, the timeline is 2013 market hogs at the earliest.
*Finishers are getting built in the mid west. Finishers can add tonnage but they don’t farrow pigs.
*As a reflection of why there is no rush to add sows, is one production peer group. This collection of producers recently analyzed their records over the last decades. The average of the group was $1.00 per head profit over the last ten years. No matter how you figure it, it doesn’t make you want to have more.
*The stripping of oil from DDGS in Corn Ethanol production has producers wondering if DDGS are becoming anything more than fillers in feed rations. Corn Ethanol is a classic case of government interference and subsidies distorting markets. That is good for farm land values though, at least for now.
Summary
$1.10 lean hogs to be hit this summer were mentioned to us, the scenario was continued strong pork exports, record high cattle prices will support hog prices, no expansion in hog production with PRRS and seasonal heat production issues lowering the hog numbers for the summer leading to market prices pushing up. $1.10 might be a reach but we wouldn’t be surprised.
ANNOUNCEMENT
Genesus is pleased to announce Glenn Kuhn is joining Genesus starting January 4, 2012.
Employment History
December 2001 – December 2011
PIC – Aurora Nucleus Site 1 and Site 2 Manager
Kipling Saskatchewan
Duties: responsible for day to day operations of the breeding, and farrowing departments of a 2800 Sow Nucleus. He also acted as a liaison between Senior Management, the Technical and Development Manager and Department Heads in implementing and supporting the PIC Genetic Improvement Program. He also oversee all aspects of production as well as staff recruitment, training and rotation.
Glenn was responsible for overseeing the day to day operations of a 7,000 head Genetic Nucleus nursery as the production of a 4,000 head boar testing facility which included management of 84 FIRE (Feed Intake Recording Equipment) feeders manufactured by Osborne Industries. Duties included gilt testing and selection for Genetic Nucleus replacement as domestic and export selection and sales.
Glenn, his wife Teena, and their five children have moved to Portage La Prairie, MB.
Glenn is a graduate of the University of Saskatchewan. Glenn also worked several months in Denmark in Swine Production with the International Agriculture Exchange Association.
Glenn will report to Lambert Houwen and be based out of the Oakville office. Glenn will be involved in Nucleus, Daughter Nucleus, and technical support.
It is a real positive for Genesus that a ten years manager of PIC’s primary nucleus for the world has joined Genesus. We welcome Glenn!
]]>
Our Observations
*Banff is a picturesque town set in the Rocky Mountains. It was cold at -30 degrees Celsius with record low temperatures reported throughout the region. Genesus hosted two customers from Singapore. The lowest temperature there has been 26 degrees Celsius (77 degrees Fahrenheit). They noticed a difference!
*The funny thing was when one of our Genesus people came back from running in the -30 temperature. The looks on our Singapore guest’s faces were priceless when they realized what he had been doing. Lunacy was mentioned.
*Genesus once again hosted a reception for Banff Swine Seminars attendees at the St. James Irish Pub. It was a great time with over 300 people joining us. There was lots of industry talk and we appreciated the many thank yous we received from customers and friends in the industry (even our competitors who came to be where the action was).
*The speakers at the seminars covered a range of topics – some very macro in nature, others were scientific and specific. There was something for everyone.
*Some market consensus thoughts from speaker’s and people attending.
*We have benefitted greatly from Pork Exports in North America this past year. There is confidence that exports to China, South Korea, and Japan will stay strong through the first half of 2012. The question is the second half of the year. Will China be able to increase production, South Korea recovering from Foot and Mouth, and Japan from tsunami related production issues.
*Industry perspective is profits in swine production have been limited. Its o.k. being a swine producer but it’s not great. There appears to be little sentiment for expansion. There are no simple exit strategies as there is no clamoring of people wanting to be pig farmers and buy pig farms. We are kind of marooned in the swine business, we can’t get off the island without drowning but on our island we’ve got food and its comfortable – just nowhere to go. We are all making the best of it.
*From what we sense, producers believe 2012 will be a profitable year we will make a few dollars but won’t get rich. Prices will be good but feed is expensive. We get no sense of ecstatic enthusiasm for the future of swine production. As we said earlier no expansion plans. Swine production is not increasing beyond productivity gains.
*A number of swine producers attending were also grain farmers. They are caught in the dilemma of wanting high grain prices but again want to make money in pork production. We got the sense that the surge in land prices is somewhat unsettling to them. We heard the words ‘land bubble’ more than once. All farmers are mostly survivors. Farming is and has been Darwinian “creative destruction” is a principle of capitalism. In agriculture we have lived this realism; the huge consolidation in agriculture in all sectors is testimony to the continuing decades long pressure for scale and productivity. It appears to us whether it’s real or perceived there will be more grain produced in 2012 than any time in history. The world is bulled up. More land, better seed, and better technology are all geared to push production. The surest cure for high prices is high prices.
Summary
One speaker, Jeff Simmons, President of Elanco explained that world food needs will double by 2050. 70% of increased food must come from efficiency – improving technology. The main drivers of the food buyer are (a) taste (b) cost and (c) nutrition. As President – CEO of a major swine genetics company this helps focus our marching orders. We will need more pork per sow. A four ton sow is a true measure of sow productivity. We have to enhance our massive effort and investment in scientific research and development with continued rapid utilization of Genomic technology. Taste is the number one food buyer driver. We need to develop ever tender and tasty pork to increase consumer demand. We believe there should be no commodity pork but a focus on taste and quality in all pork produced. In some aspects we are immature in consumer marketing. Coca Cola, McDonalds, etc… have been real successful with consumer food products that have been consistent and tasty to the vast number of consumers. They have a wide variation in color, marbling, tenderness, and juiciness we have in the pork industry is a weakness in our opinion. Increased demand would lead to profits. If consumers got tastier pork and had one more meal of pork a month it would lead to a significant increase in pork consumption and support prices. Even if packers don’t pay for tasty pork it is wise for long term value of our industry to produce a product that consumers want to eat over and over again.
Corn, soybean, wheat prices all dropped last Thursday, Friday after the U.S.D.A. released several grain inventory, production and usage reports, corn declined 60 cents a bushel, soybeans 46 cents a bushel, and wheat 46 cents a bushel. All prices are lower due to world ending stock inventories higher than the so called market experts expected.
As we wrote last week we are in interdependent global markets. The U.S. grain farmer pricing is not only based on what U.S. production is alone. Wheat is a prime example the former Soviet Union FSU – 12 (including Ukraine, Russia, and Kazakhstan) are projected to produce 114 million tons of wheat in 2011/12 U.S. wheat production 54.41. The FSU – 12 will be about 35 million tons more than two years ago. World wheat inventories are the highest they have been in ten years. Wheat is $6.00 a bushel on the March CME about the same as corn. Wheat is equivalent to corn in livestock rations.
We expect the large world wheat stocks will work as a check on preventing corn price spikes over the coming months.
Over the last year we wrote about observations in our travels.
*We reported in our August trip to Russia – Ukraine the huge piles of wheat we saw because all grain storage was full. Russia producers are quite positive about their yields.
*In our August trip from China the efforts underway to increase corn production. The U.S.D.A. is projecting an increase of 28 million tons this year compared to two years ago or 1 billion more bushels. That is a 20% increase.
*When we were in India this summer we reported that India for the first time in many years it was legal to export wheat. The second largest population in the world now was surplus in wheat.
*World grain producers have all benefited by U.S. corn ethanol policies. Ethanol through subsidies has pushed U.S. corn prices and subsequently world grain prices to record levels.
Like all commodities high prices stimulate increased production. More land planted, better equipment, better seed, fertilizer, herbicides, etc…
The U.S.D.A. last week projected world corn production to increase in this crop year 41 million tons (868 – 827) or 10% wheat up 40 million tons or (691 – 651) or about 15%.
Global grain consumption levels we don’t expect to increase at 10 – 15% levels in the next year. If this all plays out there are a good chance current grain prices have little upside – way more downside. The surest cure to high prices is high prices.
Other Observations
*Some farmland recently traded near Sioux City Iowa at over $20,000 per acre. The U.S. has 410 million acres of farmland. To maximize the value of high priced land, farming must be more intensive to get returns, that in itself will lead to greater yields and more production.
*The U.S. corn ethanol industry as of the first of January lost their $6 billion (approx) annual government subsidy. The moonshine industry is putting on a brave face saying that it doesn’t matter. As if! $6 billion that’s about a $1.00 per bushel of corn advantage that they had. As livestock producers we would notice a $1.00 a bushel, that $10.00 per hog difference in cost of production. The corn ethanol industry better hope for high oil prices because without it no one will import their surplus production.
*This past week we had swine producers from South Korea and China visit us. The South Koreans reported market hogs are bringing $550 per head. Profits are obviously really, really strong. The Foot and Mouth in South Korea devastated the industry with 35% of production disappearing.
China prices are also strong $300.00 per head, profit better than $100 per head. Both countries due to lack of pork supply will need imports for months to come all factors to support our hog prices.
Summary
More grain in inventory, more projected grain production, high prices always lead to lower prices in every commodity. It’s not if but when. U.S.D.A. is projecting globally 10% more corn and 15% more wheat this crop year. No way consumption levels will increase that fast. We expect little upside pricing to grain prices with the U.S.D.A. scenario. Mostly downside.
Coming Up
The week of January 16 we will be attending the Banff Pork Seminar and the following week of January 23rd we will be at the Iowa Pork Congress. If you are at either please come visit at the Genesus Exhibit and you are invited to attend as our guest at the Genesus Reception – Banff at the Irish Pub Tuesday January 17 at 9 pm; and/or the Genesus Reception.
]]>
A decade ago U.S. pork exports were next to non – existent. Now U.S. pork exports account for about one out of every four hogs produced. As pork producers, our livelihood is truly dependent on our ability to access global markets. We need pork exports to remain strong to pull our pork prices higher. To do this the price of hogs in the importing countries is key. There is little chance that any country will import pork if their domestic prices are lower than the importing price. How are we positioned in China in 2012?
China
*China’s domestic hog price is currently 17.35 rmb/kg which is $1.16 U.S. live weight per pound – that is more than double the current U.S. hog prices. Price double tells us China is very short of pork versus demand.
*China/Hong Kong pork imports are up 24% in 2011. China/Hong Kong will import over 2.2 mmt of pork in 2011 from all countries. This is the equivalent of 9.8 million hogs, about 9% of U.S. production or 1.4% of Chinese production. We expect that with China hog prices over double U.S. prices that China’s lack of supply will lead to continual strong exports from U.S.A., Canada, etc… in 2012.
*China produced 571.21 million tons of grain in 2011 or about 20 billion bushels; China’s grain production has increased every year in the last five, gaining 2.5 billion bushels per year compared to five years ago.
*China has 8000 domestic seed companies. Foreign companies such as Monsanto, Pioneer, have a small market share. These large number of Chinese seed companies have little capacity for research and development. There will be a big bump in China grain production with the use of better seed. We see the same situation in swine genetics. China has a large number of swine breeders but few with technologically advanced performance, selection, research and development. It is why leading Chinese swine producers are purchasing swine genetics from Genesus and other leading advanced global swine genetic companies.
China will continue to try and will probably in time be successful in increasing grain and swine production. But it won’t happen overnight. China’s 1.3 billion People eating 1 pound more pork per capita is 6 million more hogs needed. To keep it in perspective all imports of pork to China in 2011 were equivalent to 9.8 million hogs or about 1.7 pounds per capita. The bottom line is every North American pork producer’s livelihood is a lot better with a strong Chinese economy and their need for pork.
Other Countries
*South Korea was devastated with Foot and Mouth (FMD) disease in 2011. There were about one million sows in the country but when the dust settled after FMD, there were 350,000 sows fewer plus their offspring were gone. Prices exploded reaching well over $500 per head. At Genesus we have been involved with supplying 1,000s of breeding animals to South Korea since the first of June 2011 and the air lift continues. The South Korean industry is still trying to recover. We expect little measureable increase in domestic South Korean hog supply before the fall of 2012. Until then, South Korea will remain a strong import market.
*Japan has domestic hog prices of about $400 per hog. It is currently the highest value quality market for U.S. – Canada pork. We expect little change. There are no dynamics in Japan that will increase domestic swine production. Japan’s pork import demand will be steady in 2012.
*Mexico is one of the largest markets for U.S. pork. The financial crisis of 2008 and high grain prices were key triggers to take Mexico’s swine production capacity down from one million sows to about 650,000. There has been no recovery in swine production. High feed prices continue, there is next to no agriculture credit in Mexico for expansion. There are about 100 million people in Mexico. In 2012 we see Mexico’s pork imports to stay strong and steady.
*The Bottom line: We see no major reason for U.S. – Canada pork exports not to remain excellent in 2012 pulling hog prices higher.
Coming Up
The week of January 16 we will be attending the Banff Pork Seminar and the following week of January 23rd we will be at the Iowa Pork Congress. If you are at either please come visit at the Genesus Exhibit and you are invited to attend as our guest at the Genesus Reception – Banff at the Irish Pub Tuesday January 17 at 9 pm; and/or the Genesus Reception – Iowa at the Holiday Inn Mercy (across from the Convention Center) Wednesday, January 18 at 5 pm.
Summary
We are in a Global Market and we are interdependent. Maybe a few years ago when U.S. pork wasn’t exported it didn’t matter. Now currency exchange, global pork price points, the global economic situation, supply capacity, etc… are huge drivers in our livelihood. Global Village is an overused cliché but it captures where we are at in the swine industry today.
The North American Swine Industry is mostly situated where grain and soybeans are grown. The high price of these crop commodities has increased farm land values in North America in there grain and oilseed growing areas. It’s been estimated that in 2011 U.S. prime farmland has increased in value 25 – 30%. E.g. Iowa $6,500 an acre.
The U.S.D.A. estimated that 236 million acres of the following crops were harvested in 2011. This included 92.3 million acres of corn, 75.2 million acres of soybeans, all wheat 56.4 million acres, and cotton 13.7 million acres. Let’s assume an average appreciation in the last year of $1000 per acre for the 236 million acres. This is our estimate, but we believe it is reasonable. Some land increased over $1000 per acre in market value and some less. If we use the $1000 per acre figure, it would calculate to a $236 billion dollar appreciation in U.S. farm land value in one year! It is not cash but it is creating wealth, equity, and borrowing power.
As we said earlier, the USA and the Canadian Swine Industry is situated primarily where there grain and oil seeds are grown (Canada has about 60 million acres of crops if we use $500 per acre gain, this year $30 billion wealth appreciation in farmland).
We believe the wealth creation in farmland value is a factor buffering the low margins that the swine industry has been experiencing. It’s one of the reasons that despite hog to corn ratios below 15 to 1 for several months that we have not seen breeding herd liquidation. On the flip side the land value increase is not as prevalent for the poultry and cattle industries. Poultry is mostly raised by integrators who own little farmland. Chickens are also mostly in less prime crop areas. The huge losses of up to $100 million per week in the chicken industry have not been softened by farmland appreciation. Huge cattle feedlots have a similar scenario, being primarily outside the prime growing area.
Bottom line:
Increased U.S. land value in cropland of over $200 billion in the last year is helping underpin the U.S. swine industry. Going forward we expect this wealth creation to stimulate some sow expansion. Land values increasing will at some point top out and probably retreat. We were farming in the early 80s when farmland prices exploded higher they then retracted. Many farmers were hurt. The most dangerous words in the English language continue to be ‘This time it will be different!’
Markets
We have had our holiday season; holidays never seem to be good for hog prices as packers with fewer days to work have less pressure to bid. At the end of last week 53 – 54% National Daily Base Lean Hogs were 82.57 cents per pound. At current feed prices no one can make money at that price.
Going forward we expect Cash Hog prices to get stronger as hog marketing’s decline seasonally. Summer month futures are in the mid 90’s and we expect they will recover to a $1.00 plus lean per pound. We believe this because of several factors: A real good chance of less beef and poultry tonnage in the coming months, as total U.S. per capita meat supply decline. Continued strong if not record pork exports. While at the same time not a significant change in hog supply relative to the various demand factors. We believe 2012 hog prices will be strong – the wild card is what will feed prices do?
“As soon as there is life there is danger.”
Ralph Waldo Emerson
ANNOUNCEMENT
Genesus is pleased to announce Glen Kuhn is joining Genesus starting January 4, 2012.
Employment History
December 2001 – December 2011
PIC – Aurora Nucleus Site 1 and Site 2 Manager
Kipling Saskatchewan
Duties: responsible for day to day operations of the breeding, and farrowing departments of a 2800 Sow Nucleus. He also acted as a liaison between Senior Management, the Technical and Development Manager and Department Heads in implementing and supporting the PIC Genetic Improvement Program. He also oversee all aspects of production as well as staff recruitment, training and rotation.
Glen was responsible for overseeing the day to day operations of a 7,000 head Genetic Nucleus nursery as the production of a 4,000 head boar testing facility which included management of 84 FIRE (Feed Intake Recording Equipment) feeders manufactured by Osborne Industries. Duties included gilt testing and selection for Genetic Nucleus replacement as domestic and export selection and sales.
Glen, his wife Teena, and their five children have moved to Portage La Prairie, MB.
Glen is a graduate of the University of Saskatchewan. Glen also worked several months in Denmark in Swine Production with the International Agriculture Exchange Association.
Glen will report to Lambert Houwen and be based out of the Oakville office. Glen will be involved in Nucleus, Daughter Nucleus, and technical support.
It is a real positive for Genesus that a ten year manager of PIC’s primary nucleus for the world has joined Genesus. We welcome Glen!
]]>
October net exports of pork, beef, broiler, and turkey were the highest month ever at 1.225 billion pounds and also represented the largest per cent of total U.S. monthly production at 15.5%.
The October results for pork exports were also excellent, posting the second highest month ever at 438 million pounds year over year. Exports to China/Hong Kong (+277%), Japan(38%), South Korea (+65%), and Canada (+27%). Year over year October was up 42.3% from 339 million pounds to 438.
As hog producers we better thank our lucky stars that exports are so strong. With U.S. pork production running at levels similar to a year ago if it wasn’t for the extra 100 million pounds of pork leaving per month we would never be seeing hog prices $40 plus per head higher than a year ago.
The fact U.S. pork exports and other protein sources are so strong is a reflection of huge global demand. Relative wealth increase in importing countries and lower supply in the importing countries are the main drivers.
In our opinion high feed prices and financial losses which have cut projected U.S. per capita meat availability from 200 pounds per capita in 2008 to 180 pounds in 2012 is being reflected in what we believe have been meat production cuts in many other countries. The lack of supply in some countries is clearly reflected in their domestic hog prices with many currently double. US pork prices exports will stay strong for the foreseeable future as pork (and other meats) is pulled to these markets.
Other Observations
*The U.S. chicken hatchery supply stock on November 1st was 50.170 million hens, which is the smallest breeder flock since December 1996. Cutting the breeder flock is like cutting sows. The production base is down; months upon months of chicken industry financial losses have forced the chicken industry to truly cut supply capacity. Less chicken is always supportive to hog prices.
*U.S. farmland prices are posting record gains year over year, good farmland in Illinois has increased 23%, Indiana 29%, and Iowa 31%. A huge equity gain for farmland owners and a reflection of the bullishness in present and future crop production. The bullishness for land is in our opinion opposite to producers of hogs. We sense little bullishness or optimism for the future of swine production. Too many years of no or small profit margins have dampened appetite for existing swine producers to invest in increased swine production.
*Pioneer Hi – Bred is targeting a 40% corn yield increase globally over the next 10 years, and Monsanto projects corn and soybean yields to double by 2030. We will need these gains to sustain our livestock production especially if the U.S. government continues to force Corn Ethanol to be used in transportation. When you combine the projected yield increases, more land globally coming into production and improving farming practices we believe global grain production will expand tremendously. For example China’s corn yields are about 50% of the U.S. getting China corn production yields to U.S. levels would be 180 million metric tonnes more than are being produced now.(7 billion bushels +). We all farmed long enough to know farmers can’t stand a good thing; profits will always lead to over production. In the early 80s farm prices were high; the world was going to run out of food! By the mid 80s farm prices dropped in half. Lots of farmers lost their farms. We lived through it. The most dangerous words in business: ‘This time it will be different.’ Unfortunately history seems to always repeat itself.
Summary
Even though our hog prices have been high, profits have been small due to high feed prices. Hog to corn ratios currently are around 13:1 have never historically stimulated hog expansion – it won’t now either. In the coming months we see strong hog prices as domestic and export demand stay strong. A reflection of demand is 40 pound feeder pigs being sold currently over $70 per head. Supply and Demand is alive and well.
]]>This past week we went to Southern California on business, it was our first time there. Weather was good and certainly it’s an area that celebrates the automobile. Cars wall to wall! We live close to Detroit and could not help but think how the car pioneers in Detroit ended up so linked to the development and evolution of Southern California. Seems strange in some ways how the Southern California of green, hybrid, solar, windmills, etc… depends so much on the automobile but appears allergic to mass transit.
Nothing of this has anything to do with the swine business. Other than 30 plus million people in California who raise next to no hogs and need their pork from the heartland of America.
Observations
*Seems to be lots of stories coming to us about PRRS outbreaks in the Mid West. We usually discount disease stories as market movers but maybe levels of breaks might be greater than normal. PRRS occurring now, the timeline of production wacks hog supply in the summer of 2012. Already the lowest season of hog supply; less hogs always make higher prices.
*We understand some of the sow barns that broke with PRRS had filters. Filters work but old fashioned bio – security is still necessary to keep PRRS out.
*Genesus is currently running approximately 40,000 sow system PRRS, myco, and app negative.
*As the President – CEO the health of a genetic system is paramount. We currently blood test for PRRS weekly or every time we select breeding stock. PRRS is a curse in the industry, how it can ravage producers financially is significant. We need to safeguard the chance of spreading PRRS.
*Genesus and some other leading genetic companies are working with KSU, ISU and USDA in a consortium to study if there is a genetic component to PRRS. Naïve pigs to PRRS were inoculated with live PRRS strains and the results are being tracked and studied. Possibly there will be some findings come out of this research that will help us genetically select pigs more PRRS resistant. We hope so!
*December is always challenging for hog prices to get traction. Too many days of holidays that Packers are closed to push packer demand. On the flip side weekly hog marketing’s usually start to decline seasonally. Last week the U.S. marketed 2.330 million hogs, 3.9% more than a year ago. Obviously not fewer hogs just yet.
*Pork demand stays strong despite the 2.3 million hogs a week as lean hogs averaged $83.50 per pound on Friday. That’s about $40 per head higher than a year ago. A huge improvement and an absolute reflection of domestic and global pork demand.
*A few weeks ago we wrote about the Global Wealth Report from Credit – Suisse Bank. The report indicated that the world’s total sum of wealth is the highest in history despite the recession in North America and Europe. The wealth creation in other countries is enhancing demand for meat protein. This is pulling pork, creating demand, and leading to stronger hog prices. Confirmation of this is October pork exports posted their second largest monthly total ever, trailing only March’s all-time high. Demand, Demand, Demand.
]]>