Pork Commentary, Feb. 12, 2018
Jim Long, President- CEO, Genesus Inc.
Mexico Trip Report
Last week we spent in the state of Jalisco, Mexico. Capital of Jalisco is Guadalajara. Jalisco is the number one state in Mexico for hog production, with over 20% of the country’s output.
Mexico’s hog price is very good at significantly higher price than US prices.
Last year Mexico’s pork production increased 5.3%, making it the number one country in the world for percentage pork production increase.
The increase in production has been driven by many consecutive months of profitability
Herd expansion in ongoing with many new sow barns under construction. We wouldn’t be surprised if expansion in Mexico in 2018 is same or greater then the US. Continual profitability has made the industry very bullish.
Mexico is the USA’s number one export market for pork exports volume; obviously a very important market and increased Mexican production could cut US exports.
Currently PED is tearing up Mexico’s production. Hard to believe, but we were told that possibly 90-95% of production base is being hit by PED. Lots of dead pigs; probably a factor supporting strong hog prices. We all know that 2014 was the most profitable year ever in the United States; 2014 – the year of PED and lower hog numbers. Strange testament that PED, was and still is maybe, the roadway to greater profitability. Cut supply and pork with its non-elastic demand curve and hog prices increase dramatically
Jalisco, a couple of weeks ago was declared free of classical swine fever. Jalisco now can export pork to USA. Not sure that much will be exported, as hog price is significantly higher in Mexico than US. One product exported could be bellies as Mexico are not aggressive consumers of bellies and bellies have a high value in USA.
Mexico per capita consumption of pork has increased gradually in the last five years. The big driver of demand in the country of 130 million people is population increase of about 1.5 million people per year, which adds to total pork consumption and demand.
The many areas for swine production in Jalisco are centred around the City of Tepatitlan. We were told, and in our opinion from our world travels it is true, that Tepatitlan region produces more livestock – poultry protein within 150 km (100 miles) than any such region in the world. When you travel around the area there are barns everywhere.
Tepatitlan is an interesting place, not very good arable land. Feed ingredients need to be imported to the area. It is blessed with low humidity and moderate temperatures both good for livestock and poultry production. The main dynamic we observed was the aggressiveness of several local families that have build food producing empires. Pushing each other in competition for size and profitability. A shining example of collective entrepreneurial spirit
We attended the AMVECAJ swine congress, with trade show and speakers. There were 1600 people registered from many parts of Mexico. It was a well-run event.
We were one of the speakers and spoke about our observations on Global Markets, and some of the effects this could have on Mexico. For over last decade our weekly commentary has been featured in Spanish on the swine website, www.porcicultura.com . Consequently, we have become well known. Could be good? Could be bad?
Anyway about 1,000 people showed up to listen to our presentation on Global Markets. We appreciate and thank those who attended.
For months we have been commenting that Packer Margins will erode as new plants come on. Last week US pork cuts $74.44, US 53-54% lean hogs 74.32. A spread of next to nothing. The days of Packer Margins over $30 to $55 per head are over.
The new Genetic company, Danish Genetics was one of five companies selling Danish breeding stock at Moscow Agrofarm Trade Show last week. The funniest is that Choice Genetics were promoting Danish originated genetics at their exhibit. You don’t usually see a major genetic company selling competitors products. Doesn’t show much confidence in their own?
One of the reason we understood, that the new Danish Genetic company was born so that the shareholders could sell from their own farms in Denmark
The Danish Genetics Company has barely started and already their sales partner is involved in signing new, larger multiplier in France. Interesting how this fits with the plan?
We are told over and over Mexico is a lean Pietrain market. Went to our first restaurant in Tepatitlan, the heartland of pig production, it featured Angus Beef and Duroc Pork. We continue to hear producers say that no one will pay or care about taste and flavour. If you like eating cardboard enjoy your Pietrain derived pork. In the heartland of Mexican pig production, the best restaurant features Duroc, not Pietrain. Indeed, we have never seen anywhere in the world Pietrain Pork promoted. Wonder why?
This post was written by Genesus