Pork Commentary – Aug 24, 2015 – European Road Trip

Pork Commentary

Jim Long President – CEO Genesus Inc. info@genesus.com

European Road Trip – Week 1

August 24, 2015

This past week we were in England, Netherlands, Germany, and Lithuania. Our Observations: England
  • English pig producers are at about breakeven on a profit and loss basis.
  • About 400,000 sows in production
  • Almost half of production is out doors pig rearing. You see the huts, and sows in fields. It’s a flashback to Henry County Illinois thirty years ago.
  • There is premium on pork from outdoor rearing but it seems higher cost of production takes away most of not of the premium advantage.
  • Significant amount of pork is being imported from other EU countries which have a lower cost of production of about $25 – $30 US per head.
  • England has antibiotic free, stall free, free range pork, etc. Since rules by the Government have been put in the forced competitiveness has led to the English sow herd to be halved from its peak.
  • We visited a major packing plant. Over the last few months pork exports to China have increased significantly. A real pork cut – out enhancement as many pieces China wants has little demand in the English market.
  • With outdoor rearing, a combination of natural breeding and A-I is used. We haven’t heard of that for a long time.
  • England like other parts of the world is looking for the best genetics that can give numbers, grow fast, stay lean, but deliver tasty flavored pork.
Netherlands – Germany.
  • The Western European feeder pig market is almost exclusively cash. Currently producers are losing $20 – $25 per head. We understand there has been failure of many such producers in Netherlands, Germany, and Denmark. Many of the farms are being sold by the banks and are going back into production consequently production is staying steady.
  • Harvest was ongoing last week and crop yields are good. The farms of Netherlands and Germany look prosperous, nice facilities and settings. Pride of ownership is reflected, as well as multiple years of good financial returns.
  • A number of Dutch farmers have taken over large existing pig farms that were part of communist East Germany. Larger farms, more acreage, and better bio – security this reality has ramped up German pig production as the intensity of the Dutch in these former collective farms has magnified productivity.
  • The intensity and stockmanship of Dutch and German farmers is something to see. The financial pressure to pay the bills pushes productivity higher and higher. We believe the genetics of pig rearing producers of Netherlands, and Germany can be seen in the descendants of immigrants in USA and Canada. Hutterites, and Mennonites are from Germany. The Dutch in Ontario, the Dutch of America, Northwest Iowa, Pella Iowa areas, Holland, Michigan, the Germans of Western Ohio. Think of the German names in your area that produce pigs. If you took the Dutch – German descendants out of USA – Canada pig production it would be at least halved. They like pigs and are good at it.
Lithuania Lithuania is a country with about 50,000 sows. It’s not a large country with a population of 3 million people. The challenge for Lithuanians is the presence of African Swine Fever – with some farms closed and all pigs destroyed. The subsequent border closing form shipping pigs out of country has led to low prices of $1.05 euro a kilo, below the cost of production. Though the border is closed pork can still come in from other EU countries further depressing the market. We visited one farm that although free from African Swine Fever (ASF) was living with the reality that ASF was not very far from where they are. The pressure to stay negative was leading to extreme bio – security measures. Whether ASF is being moved by wild boars or domestic backyard pigs or both, the ASF situation is real. We were told ASF is moving westward at about 300 km per year. If that keeps up the whole of Europe production will be at some risk. In Lithuania the harvest was underway of almost exclusively small grains. It is a good farming area and self-sufficient in feed for livestock. Rabobank – China In our travels last week we were sent the following article re: Rabobank in China. The Subject line was “Looks like Rabobank has climbed on your bandwagon” (see below from meatingplace.com) China’s hog losses are other markets’ pork gains: Rabobank A new Rabobank report estimates that the culling of nearly 100 million head of hogs in the Chinese herd and another 10 million breeding sows over the last 18 months is the equivalent of the entire North American hog industry disappearing altogether. The agricultural bank and research firm examined the implications of China’s moves on the global hog and pork industries and believes that the effects will linger throughout 2015 and 2016. Chinese pork production is expected to drop 6.5 percent in 2015, to 53 million metric tons, Rabobank reports, with U.S., Canadian and European pork processors ultimately benefitting from the increase in demand. “For 2015, Rabobank expects China’s pork production to [see] the third-largest decline in production in the last 40 years. This will be supported by a 600,000-metric-ton increase in imports … in the second half of 2015,” according to Rabobank Animal Protein Analyst William Sawyer. “This surge in pork trade could not come at a better time, as the global pork sector is in the midst of a supply glut after many regions have recovered from the porcine epidemic diarrhea virus outbreak of 2014, and a number of trade bans have depressed pork prices and producer margins.” Our Observations If you have been a regular reader of our commentary we have been projecting all year China’s weekly marketings would drop 2 million head per week. 100 million less hogs re: Rabobank ÷ 52 weeks = 2 million head per week. Rabobank is projecting 600,000 metric ton increase in imports the last half of 2015. Our farmer arithmetic 22 hogs at 100 kg carcass per tonne. 22 hogs x 600,000 tonnes = 13.2 million market hog carcass equivalent. Half a year = 26 weeks. 13.2 million Hogs ÷ 26 weeks = 500,000 hogs per week. If our farmer arithmetic is correct that is the market mover for Europe and America. 300,000 head out of EU per week, 200,000 head per week from America – that is big, big, big! Not only will it cut domestic supply pushing prices higher but be the psychological boost the market needs.   This is bullish – Big Time!
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