Pork Commentary

Jim Long President – CEO Genesus Inc.

 July 15, 2013

 THE CANARY IN THE COAL MINE

Today we drove though Michigan, Indiana Illinois and Wisconsin to the NPIC) conference (National Pork Industry Conference in Wisconsin Dells.  Crops look good at 75 miles per hour and are a huge contrast to last year same time, same road when the crops were suffering the ravages of the drought. The year over and over difference is huge. Last year at the conference the agenda and sentiments was overtaken by the feed costs conversation (rightfully so) and you could sense and hear apprehension and maybe fear as producers worried that corn could reach $10.00 a bushel. That didn’t happen but the losses for hog producers until six weeks ago were probably in the $20 per head range for the previous 11 months. It will be interesting to feel the attitude at the conference this year. As we expect most realize there fortune is based on where feed prices land. The difference of $30 per head in cost of production due to feed price movement is a real possibility over the next twelve months.

FEEDER PIGS

We believe small pigs including feeder pigs are the “Canary in the Coal Mine” of what the industry thinks of the future (Canary’s sense gas long before humans) maybe even more than lean hog futures. A year ago the US feeder pig average was $18.00 and it stayed below $20.00 for almost three months. Losses per head for feeder pig producers were probably at least $40 per head. Currently US feeder pigs are averaging $50.43 per 40 lb. pig. This despite cash corn near $7.00 per bushel. We have been in the swine business a long time (there are days it feels too long). In that time period we have watched the DTN Livestock Margin which every trading day calculates what you pay using the assumptions for a feeder pig. Over time the DTN index has tracked very close to the cash feeder pig price. Last week the DTN Livestock Margin was $13.41 per pig as the maximum price to pay using $6.88/bushel corn, soy bean $5.76 ton, Nov lean futures $81.35, etc. The difference between USDA cash of 40 lb. feeders and DTN Maximum price was over $35 per head! All indications are there is strong demand for small pigs. There are finishing barns empty which is not normal for this time of the year. For example one of our Genesus customers told us this week they were asked by a major feed company to sell 2500 small pigs a week for the next year. Starting now. Obviously the buyer had a place to go with the pig now. Feeder pig brokers tell us similar. Strong demand especially considering this is November placement. Also small pig buyers we believe have started to dial in cheaper feed prices. They aren’t calculating using $7.00 corn but $5.00 corn and cheaper soybean. This changes cost production up to $25.00 per head. Empty Barns, cheaper feed, but what $50 feeder pigs really tells us is demand is outstripping supply. There is not one buyer who is paying $50 per pig because he wants too. No one pays more than they need too if they can buy cheaper (especially in the face of significantly lower breakeven prices.) “The Canary in the Coal Mine” of hog production is these $50 feeder pigs. We had sow herd liquidation last year starting in July. The world had sow heard liquidation last year starting in July as Global feed prices accelerated. This has not only limited supply in the USA but is exhausting Global demand for Pork.

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This post was written by Genesus