Pork Commentary, Nov 20, 2017
Jim Long, CEO-President, Genesus Inc.
November – Producers never do well
This time of year, is never a good time for producers. Year after year this is the time of maximum seasonal hog numbers. This always results in lower hog prices. It is also usually the time packers, historically have the highest gross margins.
This year cash hog prices are significantly better then last fall. A year ago, 53%-54% cash hogs were $47.42; this year $64.12. The 17¢ per lb difference is over $35 per head better. A huge difference for producers, hovering today around a breakeven; when last year, same time they had big losses.
Packers are still making good money, as they historically do this time of year. U.S. Pork Cut-out were $80.96 this last Friday – lean hogs 64 ¢ which equals about $30.00 plus in gross margins for packers. Real good returns but significantly less then last fall, where those 47¢ lean hogs were leading to Packer Gross margins of almost $60 per head.
The new packing plants started this year have created grater competition for hogs. Competition has lead to stronger hog prices for producers and lower margins for packers.
The stronger hog market this year compared to last, and the options it has created can be seen in U.S. cash feeder pigs. 40lb pigs were $32 a year ago; this past week they averaged $56 U.S. cash, while early wean pigs averaged $47.
Last week, we reported on the chaos in DanAvl (Danbred) organisation. Last week Genesus also announced the purchase of Pork Ex France, formally an DanAvl (Danbred) major distributor. It was interesting that we had several emails from readers in Europe who were unaware of the DanAvl chaos. News in Danish is not usually translated. We had no refute from DanAvl on the accuracy of our reporting.
In chaos there is opportunity. Last week PIC, the world largest swine genetic company announced, they have come to terms for a strategic relationship with Mollevang – Denmark, formally the largest DanAvl Danish nucleus with Landrace, Large White and Duroc’s. We expect PIC will aggressively approach DanAvl (Danbred) products and distributions to take advantage of the internal DanAvl chaos and the lack of leadership and foresight that has lead to a very weakened organization.
PIC has been on good run, with strong profits of over $50 million a year. They are a formidable organization. Their prosperity stands in strong contrast to another competitor, Topigs-Norsvin. Topigs-Norsvin claims to be the second largest swine genetic company in the world; who knows? Might be, but no one really knows. Topigs-Norsvin, a union of a Dutch co-op and Norwegian co-op; the concept must have looked good on paper, but the grim reality is the year upon year of losses. Their last three years total loss of 8,929 Euros or about $ 10, 5336 million. Not much if you say it fast!
What we find startling, in the same time PIC approached $150 million in profit. Topigs-Norsvin had a net loss of over $10 million U.S.
Our observations. Topigs-Norsvin sells genetics cheaper; must be they know their value, but then this leads to negative financial returns. We expect the Norwegians (Norsvin) will tire of losing money. They don’t need Topigs to be successful.
One other solution, hire some people from PIC to run the show, seems they know how to run a successful company.
This post was written by Genesus