By Jim Long, President and CEO Genesus Genetics

The results are in.  U.S Pork Exports in the first quarter of 2012 were 8% higher in volume (598,058 metric tons) and 20% higher in value than last year.  A record high for the first quarter.

U.S Pork Exports equate to 27.8% of total U.S. production.  Mexico, Japan, China, Hong Kong, Russia, South and Central America, South Korea and Canada were the major markets with Mexico leading in volume and Japan in value.

Thank goodness for these exports with U.S. hog prices languishing in the 70’s learn it doesn’t take much imagination to realize how miserable prices would be without the prospect of increased pork exports.  Makes us remember the packer executive who said and we paraphrase “Pork exports are like a drug, our industry has become addicted and dependent”.

In our opinion exports will stay strong through the summer as domestic swine prices in all the major importing countries have significantly higher prices then U.S. and Canada have currently.  For example China, though it’s market prices has declined some, they still are $80 –$100 per head higher then U.S. hog prices. (We will report more on China in next week’s commentary.  Currently we are in Beijing China and will be visiting several large Chinese swine production systems).

Our premise on exports is that the best indicator of where pork demand will be is looking at the prices in the importing countries.  We have little faith in the production statistics in many countries.  We have been to all these countries and just by the nature of the organization; we have little confidence that government statistics are accurate.  Hog prices are a true reflection of supply and demand.  When China’s hog prices are near $1.00/lb live weight it tells us supply is low and demand is good, especially when you consider demand is driven by disposable incomes 20% of the U.S. per capita.

CORN

The USDA last week reported that they expect the U.S. will harvest a record corn crop of 14.790 billion bushels up 2,432 billion bushels from last year.  An aggressive projection and much has to happen correct in the growing season to have it come to fruit.

The USDA is projecting around 166 bushels of corn per acre, a record level.  It’s amazing how the yield capacity of the corn crop has increased; 25 years ago the 10 year average yield per acre was 100 bushels.  That’s what you call a productivity increase.  Last summer we heard an executive from Monsanto speak and he talked about the global capacity of corn production, in that many countries are not using the technology (equipment, hybrid, corn, fertilizer, etc.) available.   His premise was as countries adopt tried and true technology, the jump in global corn production would be significant. The high corn prices we have now are this development.

The larger projected corn crop has affected prices.  December corn closed Friday at $5.05 a bushel, the lowest price in December 2012 yet.  We expect $5.00 is a magic number and could be hard to go under as livestock producers will use as a trigger point to buy corn.

OTHER STUFF

We are reading Genus Financial statements (owners of PIC), they are a public company on the London stock exchange, and they had a good year.  We found it interesting that the 39 page report we could not see the name PIC, Porcine was the name used.  We find it interesting that PIC was not referred to.  Wonder if soon we will see rebranding to Genus.  We would support a name change, if anybody was asking!

In regards to the hog market, we sense a real lack of optimism.  Hog prices in the 70’s are lower than we had almost expected at this time.  The industry is not making money, usually we see a seasonal upturn at this time but we haven’t seen it yet.  Hog weights are running a whopping 5lbs heavier than a year ago (271.7 – 276.7), much of it to do with great weather and better grains than a year ago but still 5lbs does not indicate a real current inventory.  We expect this hog market price shock (despite record exports); will put many sow expansion plans on hold.  We could still see a seasonal price rally, but it better get started soon.

Another Genesus Nucleus in China

Sichuan Giastar Group, a large feed manufacturer, breeding stock producer,
and integrator, was recently in Manitoba to purchase a nucleus herd from
Genesus. Genesus will offer ongoing technical support to Giastar, as they
work towards their goal of one million pigs produced. The Genesus nucleus
will replace a PIC unit and drive 7000 sows of GGP and GP production.

Pictured are Left to right – Lambert Houwen, GM Genesus, Xiang Gui You – Chief Veterinarian, Chendu Giastar Swine Husbandry Co. Ltd. Huang Li Hua – General Manager, Muyuan Stock Breeding Science and Technology Ltd. Tang Jie (Frank) – Vice General Manager, Chendu Giastar and Mike Van Schepdael VP Genesus.

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Last week Statistics Canada released April 1^st Canada Swine Inventory Report. The breeding inventory is real steady, in 2011 1.311 million in 2012 1.312 million.  That is a 100 head difference year over year – real steady.

            The Canada market inventory was up year over year by about 200,000 head (2011 10.519 million – 2012 10.729 million).

Canada’s industry is in a holding pattern as profits have been limited by high feed prices, and a par Canadian dollar to U.S.  Producers who grow their own feed are cash flowing quite well.  High cost feed purchasing production systems are losing money.  With the current high feed prices and current future lean hog futures we expect some decrease in the breeding herd in the coming months primarily from feed purchasing companies.

Canada’s live hog exports to the U.S. in the first 3 months are steady.

Live Hog Exports to U.S.

Year to date April 4, 2012 Hogs (head)

The U.S. in the past imported more than double the current rate.  U.S. Country of Origin Labeling and lower Canadian pig supply from a Canadian breeding herd 300,000 smaller than a few years ago had dramatically cut Canadian pig supply.

Canada’s weekly hog kill is year of date to April 14 -1.1% lower (2012: 5.952 million   2011: 5.990 million).

Summary

            Canada’s breeding herd, U.S. live exports, and slaughter numbers have little change year over year.  A small increase in market hog inventory from productivity gains.  Canada’s production is not changing much anytime soon due to high feed prices, currency exchange rate, but probably just as importantly very little long term optimism.

U.S. – Canadian Hog Inventory

            The U.S. – Canadian report for April indicates the direction of the two interdependent countries inventory and supply.

 Observations

            *U.S.A. – Canada breeding herd has not significantly changed over the last year, and last two years.  The total breeding herd is about 600,000 smaller than 2007 the decline from 2007 of financial losses and productivity increases.

*The 2012 combined market hog inventory is 2% higher than 2011 but still almost 3 million head smaller than in 2008.  The increase in 2012 is truly a reflection of increased productivity from a steady breeding herd.

*The combined pig crop for the quarter was up year over year 3% (about 900,000).  This is a big jump year over year and will mean more hogs in the last quarter of 2012.

Domino’s Pizza stand up to Humane Society of United States

            The shareholders of Domino’s Pizza strongly rejected a motion at their 2012 annual meeting that would require its suppliers to stop housing gestation sows in stalls.  Only 4% of the shareholders supported the motion.  A massive rebuke to the Humane Society of the United States; Domino’s spokesman Tim McIntyre says “We rely on animal experts to determine the best way to raise an animal that is being used for food.”

            The resounding defeat of the motion is a virtual slap in the face of the Humane Society of the United States.  Their massive fundraising efforts will continue as they push a thinly veiled attempt to create a vegan society.  Every swine producer should not only thank Domino’s but eat their pizza.  It is great to see an American company standing up to the righteous bullying tyranny of the Humane Society of the United States.  There is hope.  Several millenniums of human history of eating meat won’t be stopped by a Washington lobby group.

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Expansion is coming!

Last week the U.S.D.A. released its projected expectations for the world’s production of beef, pork, and poultry, exports and U.S. market share.

1,000 Metric Tons

Observations:

*Global pork production has increased 10,000 (1,000 metric tons) or 10% since 2007.  Global pork production in 2012 is about 42% of total livestock and poultry output.  This is a slightly higher percentage of total market shares while increasing production.  This is a real sign of a strong industry and growing demand.

*Beef has lost not only global market share but also a decline in output; since 2007 to 2012 a decline of 1.4 (1,000 metric tons).  Beef global market share was 25.7% in 2007 and 2012 22.9%, losing production and market share is not a very positive scenario for the global beef industry.

*Since 2007 the world’s total livestock and poultry production has increased almost 20,000(1,000 metric tons) or over 8%.  This is not exactly a sign of a giant swing to vegetarianism – more poultry and more pork than ever eaten, as the world population and disposable income increase so does pork and poultry consumption.  We have huge opportunities.  It’s great to be in the pork industry that has a proven opportunity to grow which you can’t say the same for beef!

Global Exports (1000 metric tons)

World exports have increased 20% since 2007; this is a real sign of global interdependence for food.  Approximately 10% of total production is expected to be exported n 2012.

The U.S.D.A. is projecting U.S. pork exports in 2012 will be 2404(1000 metric tons) the highest level ever (2007: 1425).  This is up 65% plus from 2007.  The U.S. projects in 2012 that the U.S. market share (%) of pork exports among major pork trading countries to be 34% (up from 27% in 2007).  The U.S. is the global major pork exporter – it’s a big dog!!

The U.S. advantages include a national swine health that meets or exceeds standards of importing nations, price competitive volumes of pork that allows for major supply availability, a packer industry well capitalized, efficient large plants with an aggressive competitive ownership group.  You don’t want to do battle with the shareholders and management of Smithfield Foods, Tyson, Swift, Hormel, Seaboard, Mitsubishi, etc…  Couple this with a battle hardened group of technically advanced swine producers.  It’s a formidable competitive group and the major reason the U.S. dominates global pork exports.

The flip side of U.S. global pork export dominance is the U.S. industries vulnerability to global trade issues, health risk (remember swine flu) we can never forget Larry Pope CEO of Smithfield Foods (world’s largest hog and pork producer) saying ‘five – six years ago (we paraphrase) U.S. pork exports are an opiate for the U.S. swine industry.’  True then, and even more now without exports a train wreck.

Major Pork Importers

                The U.S.D.A. projects major pork importers to be Russia 900,000 tons, China 650,000 tons, South Korea 550,000 tons, and Japan 1.3 million tons.

Markets

                Global pork demand is increasing the U.S. has a major market share in global pork trade.  All sounds good, unfortunately the cash hog market and lean hog futures are not reflecting a profitable now or near future.  $6.00 a bushel for corn and hog prices in mid to high 80s means next to no profit for producers buying their feed.  While those producing and feeding their own hogs are cash flowing just fine.

                Maybe we are like the boy who sees the manure pile and believes there must be a pony there but we can’t help it.  We still firmly believe that as the seasonal supply of hogs decline over the next few weeks coupled with continued strong pork exports and less domestic chicken and beef.  Cash hog prices are going to have a major surge.

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The Enviropig, developed over a decade ago at the University of Guelph, has had its ongoing funding stopped by the Ontario Pork (Producers group). The Enviropig was genetically altered by an added gene of a rodent which in turn lowered the Enviropig’s phosphorus production.  The end of funding for this ill conceived project has been a long time coming.  Ontario farmers had funded this loser with too much money for too long.  We can remember telling the well meaning professor, who developed this project over a decade ago, “Your pig is dead on arrival.  Not one packer, retailer or restaurant is going to use or sell pork with a rat gene in it!”  Enough said.  Sometimes you wonder if anyone thinks the end game before they squander time and resources.

The U.S Food and Drug Administration (FDA) are encouraging producers not to use antibiotics in livestock production, this as a defensive measure by FDA.   Pressure from pseudo-scientists/congress people, are pushing for antibiotic restrictions beyond voluntary control.  Such restrictions in Europe have significantly increased the cost of meat production and food costs.

U.S Lean Hog Price Futures took a whack at the end of last week with June closing at 90.525 lean a lb.  Current lean hog futures would, in our opinion, reflect little profit in the coming months with current feed prices.  Lots of trading of dollars with little show for it.

We expect now that Easter is over and we move in to the seasonal hog supply decline to see a rally in cash hog prices.  The mildest weather in history has lead to higher carcass weights which has increased pork tonnage.  As hot weather comes, we expect a rapid decrease in carcass weights.  In our opinion hogs are not backed up.  All hogs that need to be marketed are finding homes.

Corn is being planted early.  Soil temperatures in the 60F plus range in Iowa, Minnesota, Illinois etc.,   are high for this time of year.  The earlier corn gets planted the better chance of higher yields and more total acres.  We need a big crop for supply and possible chance of lower prices.

Sun Capital, as U.S. investment firm, announced last week it was selling their Burlington Ontario hog slaughter plant and business called Fearmans to Sofia Foods of Canada.  The Fearmans plant has a capacity of 42,000 head a week, (it’s not running at capacity).  Sofia Foods markets pork, turkey and chicken.  It has about 1200 employees prior to this acquisition.  We assume it’s good news for Canadian producers.  No one buys something without seeing value.  Sofia is knowledgeable in the meat and pork business.  They are Canadian.. Sun partners, a huge investment firm, have a history of flipping businesses for a profit. (Good for them.), they came, they left.  Life goes on.

As Cargill goes, as goes Agriculture?  Cargill in the first nine months of their fiscal year, had earnings from continuing operations of $1.1 billion.  Not as good as the previous year but still pretty swell.  These profits are a reflection of not only U.S and Canada but Cargill’s global reach and involvement.  Everywhere we travel in the world, Cargill is there.  Can still visualize travelling out in the middle of nowhere in Russia, heading into town miles from a major center coming up on a huge elevator, painted on the side “Cargill”.  We thought we were the first westerners there, not by a long shot.  Cargill is a great example of American know how, aggressiveness and push to success.

Reports this last week say China is going to cut back pork inputs, maybe.  Hog prices in China are around $1.07 US liveweight a lb, U.S liveweight prices are $0.61 US. a lb.  That is about a $0.46 a lb difference or about $124 per head.   We do business with China.  They understand the economics of business.  We would bet the farm a $124 per head difference for Chinese entrepreneurs, packers, meat distributors keen on importing with such a huge margin to work with.  Also the Chinese proof of hogs is a direct reflection of the real supply versus demand.  Chinese prices of $1.07 lb hogs = strong demand = hog shortage.  We expect exports will be strong to China for the next few months supporting U.S hog prices.

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Last week we wrote, after the USDA March Hogs and Pig Report, that” we are still of the opinion $1.00 lean hogs will be reached this summer.”  It’s interesting how one’s view can be so much different than others.  John Harrington, DTN AgDayta livestock analyst, called the March Report “Bearish.”  Look for futures to respond in terms of bear spreading when trade resumes on Monday, with traders pressuring summer contracts…..

As usual opinions vary but when the dust settled at the end of last week, June lean hog futures had jumped $3.50 a lb since the report was released ($7.50 per head).  All other months had similar increases.  Bottom Line:  The report was not bearish.  The market saw supply at a manageable level with the main driven being demand vis a vis  Pork Domestic and  Export Demand (latest date has exports at historically high levels) chicken supply (down), beef supply (down).  Less total meat coupled with increased demand will always be more bullish then bearish.

Breeding Herd – Hog to Corn Ratio

The USDA March 1 Hogs and Pigs Report indicated 17,000 more breeding animals in the three months from December.  A sign of true expansion, this in the face of corn prices at $6.50 a bushel.  Hog to corn ratios in March was 10 to 1, with the exception of the disastrous months between January 2008 and January 2009, where the average ratio was below 10, this is the lowest calculation since the debacle of 1998.

What we are seeing is two solitudes.  One solitude; is those who grow corn and feed their pig’s $6.50 corn,$0.90 lean hogs, and increasing land value works for cash flow and the balance sheet despite the 10 to 1 corn ration.  The second solitude; those who buy corn, raise hogs and own little land, (More than half of U.S. production).  A 10 to 1 hog to corn ratio doesn’t work for this group.  Cash flow and balance sheets are not going in the right direction with a 10 to 1.

Historically a hog to corn ratio below 15 to 1, would usually lead to breeding herd liquidation.  The numbers are different now especially when growers of corn have huge margin over cost of production.  Not sure what this truly all means.  We expect in some way, over the next few months, higher hog prices will improve the hog to corn ratio and will support the margins of hog producers who buy corn.

CORN

Next couple of weeks will be interesting.  It appears that early spring and subsequent higher ground temperatures have most every corn farmer ready to unleash their corn planters.  If we have rapid plantings this could pressure corn lower.  The earlier corn is planted, the higher likelihood of more acres and higher yields.  We all are survivors in the commodity business.  We all know prices go up and down.  Corn prices will fall, it’s inevitable.  When? As it’s said, “is the billion dollar question”.

CHICKENS

U.S. egg sets and chick placements are running 5% lower than a year ago.  Around 10 million less chickens a week.  Less chickens supports hog prices.

CATTLE

U.S. cattle marketing year to date are 4.8% lower than last year (-430,000).  This lower trend is expected to continue for the balance of 2012.   Less beef is bullish for hogs.

SEASONALITY

In the coming weeks, the seasonal drop in hog numbers will be upon us.  Packers will continue to chase hogs to keep their lines full, maintain market share and shelf space while filling good margin export orders.  Volatility will continue, not only the swine market but grains will probably swing like a teeter totter.  Close your eyes keep driving and pray for rain.

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“Genesus is committed to producing genetically enhanced registered purebreds; we believe real purebreds are the surest way to maximize hybrid vigour which results in Genesus Customers Leading the industry in production results.”  Jim Long President-CEO Genesus.

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The U.S.D.A. March 01 quarterly Hogs and Pigs Report did not come out with any big surprises.

March 01 Inventory (1000) head

Market Hogs and Pigs by Weight Groups (1000) head

              Kept for breeding is up 32,000 sows which is not a significant increase.  Our opinion over the last couple of months is that the breeding herd was expanding.  In the last quarter (Dec 1 – Mar 1) the herd has increased 17,000, not a significant increase but a trend if continued would begin to become a major factor.  Our sense is that current corn prices of $6.50 and the drop in lean hog futures by $20 per head will have taken the edge off most enthusiasm for further net expansion.  90 cent lean hogs and $6.50 corn = little if any profit.

            Market hog numbers year over year are up 1.150 million.  If we use a 25 week birth to market scenario, 1.150 million head would be about 43,000 more head a week over the next 6 months.  Couple this with the trend line of heavier carcass weights.  There will be obviously more pork to sell.  Keep in mind the U.S. people population grows over 1% per year a continual domestic demand enhancer.

The December – February U.S. pig crop was up 3% on less than a ½ of 1% increase in the breeding herd.  There were 28,681 million in this year’s pig crop up about 800,000 from a year ago.  The productivity trend line that we have had over the last couple of years has been extraordinary.  Much of the gain we have been observing has been from the litter size enhancement the swine genetic industry has been achieving.  At Genesus we continue to see litter size jump of around .25 per litter per year.  A boost of over half a pig per sow per year, year upon year of such trend line pushes productivity gains as we see in the U.S.D.A. report.

With a 3% jump in the pig crop we could expect a larger increase in market hog numbers.  We wonder if the lower market hog numbers are a reflection of the mortality from the major PRRS breaks this winter.

We expect the report will do little to change the market versus expectations.  Going forward the extra market hogs in the inventory are not that significant compared to domestic demand, export demand, chicken supply, and beef supply.  In the coming weeks as the seasonal supply of hogs decline look for hog prices to go higher.  We are still of the opinion $1.00 lean hogs will be reached this summer.

Grains – Oilseeds

            Last Friday the U.S.D.A. released prospective planting acreage for 2012 crop year.  Corn was estimated at 95.9 million acres up from last year.  91.92 million Or 4 million acres more, Soybeans 73.90 million acres down one million acres from last year.  All wheat 55.91 million acres up from last year’s 54.41; put together more corn, wheat less soybeans.  That is a total acreage increase of 4 million acres.  The crop is not in the ground but as usual high prices always will lead to increased production. Corn acreage at 95.9 million acres is the highest U.S. corn acreage since 1937.

            The big driver on current prices was lower quarterly stocks.  Corn was down 8% or 400 million bushels, soybeans are slightly up in inventory, and wheat is down 200 million bushels.  The drop in corn inventory coupled with historically high corn plantings are leading to May corn at $6.50 a bushel while December 2012 corn is $5.40 a bushel – a $1.10 a bushel spread.  Maybe historically one of the greatest prices spreads in one calendar year ever?  The next few months the thing for sure is ongoing wild price swings?

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Last Friday June lean hog futures closed at 92.225/lb., the lowest daily close of June lean hog futures in the last 9 months.  Not Good.  Since the first of March lean hog futures have dropped 7 cents / lb. or $14.00 plus per market hog in potential value.  Unfortunately most other future months have dropped similar amounts.  The hard fact is lower lean hog futures are not creating a bullish sentiment or colored profit potential.

The 53-54% lean U.S. national price was $85.87 at the end of last week.  With USDA pork cut-outs at 79.67 the difference is price points would lead us to believe packers are not doing very well.  Indeed with this negative margin it’s hard to believe there can be any other conclusions.

U.S. carcass weights have been running two pounds heavier than a year ago.  (recently 210 lbs versus 208)  The mildest winter in our lifetime has in all likelihood enhanced hog growth rate pushing weights heavier.

53 – 54 % Lean hog prices were $85.33 a lb. a year ago basically the same as this past weeks price of $85.87.  A year ago in the next few weeks lean hog prices exploded higher as weekly hog numbers declined seasonally.

Hog numbers will decline seasonally again this year.  As they do we expect lean hog prices will push higher as they did last year.  $1.00 lean we expect, we might be fantasizing but that’s what we believe.

Why?

• Pork Exports are strong, near record levels we expect his to continue
• We don’t expect a significant increase in hog numbers year over year through the summer
• We believe hog numbers have been impacted by levels of PRRS breaks that have eliminated in our estimation 30,000 market hogs per week in the June-August time period.
• Chicken production is running 5% less than a year ago.  Less chicken is price supportive for lean hogs.  We expect Chicken production to stay lower though the summer (chicken – 2012 $94.31 lb., 2011 $84.19 lb.)
• June live cattle prices are $1.22 / lb.  Cattle prices are very strong.  The U.S. cattle industry has marketed 5% fewer year to date than last year.  This trend shall continue.

Our scenario is less beef, less chicken with both having stronger prices than a year ago will be price supportive for hog prices.  Pork exports will continue at record levels with hog supply similar to a year ago.  Put it all together $1.00 lean a lb. is our target.  Time will tell.

Visitors

            * This past week Genesus had visitors from Ukraine.  Prices are very strong therewith hogs bringing over $250 per head.  Grain is plentiful in Ukraine with 30% of the worlds black earth.  They believe that if they can develop their swine infrastructure their cost of production will be lower than European Union countries and Ukraine will once again be the bread basket of Europe.  The spirit and initiative is there.  Lots to do to get to the goal.

Genesus also had visitors from Thailand last week.  Thailand has about one million sows.  The producers we have met are quite knowledgeable and the industry is sophisticated.  Like producers in much of the world Thai’s producers are looking at increasing their genetic capacity and technology.  Thailand has prices currently in the 70’s U.S live weight a lb. At that price producers are making some money but not getting rich.  Corn is slightly cheaper in Thailand then USA but soybean meal is more expensive.

            The world is getting smaller.  We hear of niche markets but every country we go producers are looking for the same.  Big litters, fast growth, feed conversion, health, easy to manage, good carcasses etc. etc.

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By Jim Long, President and CEO Genesus Genetics

A week ago, summer lean hog futures went over $1.00 per pound; last week was a different story with June closing at 95.325.  A surging U.S. dollar and concerns that China might not keep buying pork at 2011 levels were the major negatives.

How these factors stake out is anyone’s guess.  The U.S. dollar will go one way or another.  Lots of smart people have lost fortunes betting wrong on currency.  China pork imports will in our opinion stay close to where they have been in 2011.  The demand for pork in China is strong. Only a small percentage of consumption in the world’s largest pork market is needed for it to still lead to significant imports.

Price of U.S. gasoline retail sales have always declined when gasoline gets over $4.00 a gallon.  It is almost there.  That can hurt all meat sales – beef and pork.

Expansion

            We sense the U.S. and Canada swine herd is growing – not much but it is.  Some sow barns are coming back into production while weekly sow slaughter is in the high 50 thousand levels compared to low 60s of a few months ago.  Profits have been had by many over the last two years, and it is restoring some confidence and capital.  Compared to other countries the U.S. – Canada per head projected profits of $5 – $10 per head in 2012 is miniscule but maybe what we lack in absolute profits people must think they make it up with volume?  Or maybe more likely most are marooned in the swine industry, there are still very little opportunities to exit gracefully, existing sow units are still selling at a deep discount to new facilities, probably in the 25 – 35% of new range.  At these low prices some of the existing units are being bought and started up.  Consolidation continues.

Corn Crop

            The U.S.D.A. last week raised its estimate of Brazil’s corn crop by 1 million metric tonnes.  Brazil and Argentina are now estimated at 84 mmt in 2012.  Obviously more corn in South America is not bullish for corn.  Now the market we expect will turn to the United States, if the U.S.D.A. is correct on acres projected and trend line yields the 2012 crop will be the largest in history.  This coupled with large global wheat inventories and expected large crop in 2012 could lead to downward pressure on grain prices in the coming months all leading to lower feed prices.  It is our opinion high prices such that grains have had will always lead to lower prices.  Commodities always move up and down.  Growing crops is relatively easy business.  Capital intensive but basic plan with relatively simple technology to adopt.  Greater use of hybrid seed, herbicides, and better equipment is driving global yields at a pace from our observations travelling the world faster than is comprehended by many observers.  The bottom line: it is easier to grow corn – wheat than it is to raise swine!

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By Jim Long, President and CEO Genesus Genetics

Cash Lean Hog Market Continues to Go Sideways

The cash lean hog market continues to go sideways with the U.S. National lean hog price hovering around 85 cents. We’ve got about 60 days before the higher markets expected in the spring come to fruition with May – August lean hog futures averaging close to $1.10 lean per pound. The $30.00 per head boost in prices will go a long way to give strong profits for the four month period.

Cash feeder pigs continue to reflect potential profits this summer with an average last week of $86.27 for 40 pounds. Today’s 40 pounders are currently a July marketed hog. We expect feeder pigs to stay strong for the next several weeks.

Sow Herd Expansion

We believe that the U.S. breeding herd has started to expand. Sow marketing’s are down with weekly numbers now below 60,000. We also sense an increase in sow numbers in many sow units. A cautious optimism is leading to this increase. Let’s hope pork exports stay strong. A leading packer executive several years ago called pork exports ‘The opiate of the American Pork Industry.’

Corn Markets

The U.S.D.A. a week ago predicted $5.00 per bushel for corn and 94 million acres planted for the 2012/2013 crop year. The futures market doesn’t seem to be buying into this outlook with futures well over $6.00 per bushel for most months going forward. Let’s hope the U.S.D.A. is correct, not the futures traders.

PRRS

The PRRS saga tearing across North America continues. Filtered sow barns are failing, filtered A.I studs, and bio secure sites going down, etc… It is really sad all of the devastation. We expect the number of hogs that will come to market this summer will be less and a price mover. The almost non – existent winter that we have had this year in all likelihood has made the PRRS spread easier. Wet, mild, and humid compared to a killing cold – a cursed disease!

U.S.D.A. Outlook Forum

Donnie Smith President and CEO of Tyson was a guest speaker at the U.S.D.A. outlook luncheon. Some of his comments were reported by Chris Clayton – DTN Ag Policy Editor. Tyson is the world’s largest meat producer. Packers such as Tyson are moving less volume of pork and beef right now, but dollar sales are up overall because of price inflation, Smith said. “All I am trying to say by the price inflation comment is the interest is there. If people had the money they would spend it on meat. The only reason they aren’t buying meat is they can’t afford it.”

“People want meat in their diet and I don’t blame them. I do too, but it’s getting pretty expensive. We’re concerned there are thresholds, and it depends on disposable income, where demand kind of tops it.”

He added “Per capita consumption, I think, will drop for the next two years. The current trend we have, I don’t see changing that for the next two years.”

The U.S.D.A. expects 198 pounds red meat – poultry per capita in 2012. This is down 6 pounds from 2011.

While per capita consumption is expected to decline in the U.S., Smith said the outlook for protein exports remain strong. Smith cited a weak dollar and comments from the U.S. Federal Reserve that interest rates are expected to remain unchanged through 2014.

“We should have a favorable environment for exports and that’s good for the economy.” Smith said.

The outlook that Smith gave makes sense. The world will be buying U.S. meat and poultry in 2012. Companies like Tyson, Smithfield, JBS, Swift, Hormel, Seaboard, Maple Leaf, etc… are the point men for our pork exports. They need to know the domestic and world markets and they do. It’s a great strength!

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