Pork Commentary

Jim Long President – CEO Genesus Inc.

August 6, 2013 ________________________________________

Lean Hog Prices Continue Strong

Last week the US national lean hog average was 99.36/lb.  Last year same week it was 93.93/lb.  This year $12.00 per head higher.  Strong demand and no more market hogs is leading to current prices significantly higher than the “Chicken Little” ag-economist’s predicted i.e. 87¢.  We expect lean hogs will continue to run year over year through the fall about 5¢ higher than last year as hog numbers stay about the same but with higher demand holding prices up.

 Other Observations

•  Feed prices continue to show a lower direction.  Last week we wrote that it looks like a $38.00 per head farrow to finish swing from July to October.  Huge difference.

• New crop corn in Ontario – Canada last week was under $4.00 per bushel or less than $160 per tonne.  A long way from $7.00 a bushel.
• US:  Feeder pigs are about $52.00 for a 40 lb. pig, a year ago they were under $20.00.  Lower feed prices coming are being factored in the feeder pig demand equation.  With a $25.00 per head feed cost decrease coming this fall to take a feeder pig to market, we expect feeder pigs will reach and exceed $70.00 by the end of October.
• Sow cull prices are extremely high.  On August 1^st 500-550 lb. sows averaged $83.91 a lb.  A year ago they were $42.10 a lb.  Double in price at about $200 more per head.  The latest weekly sow slaughter ending July 20 was 56,398.  A healthy number and not much different than a year ago.  Year to date US sow slaughter up half of one per cent.  Sow prices obviously must reflect stronger sausage demand year over year.  There is no other explanation.  Has cooler weather encouraged greater consumption?  More barbeques?  Whatever it is on 57,000 sows a week times $200 better prices, it’s about 12 million a week in greater margin for producer’s year over year.  Great time to get rid of old sows and replace with a genetically better gilt and have money left over.  I.e. Genesus.
• The higher hog prices and greater demand for pork is reflected in the USDA cold storage report.  At the end of May the US had 658 million lbs. of pork in storage at the end of June 564 million lbs. of pork.  A drop of almost 100 million lbs.  We expect July will see a similar decline.  (June 2012 pork inventory was 592).  Keeping pork in storage right now is like keeping $7.00 corn.  Why?  Waiting for price to fall?  For corn growers it’s already too late?  Pork in storage owners should know no matter how high the price of hogs is this fall it won’t be $1.00 lean a lb.

 Golden Age of Crop Farmers

As we travel the United States and Canada, we see the sign of wealth creation in the rural areas.  New big homes being built by Grain Farmers, new storage facilities, new tractors and combines.  A true reflection of wealth creation of farm land value increases and higher crop prices.  It’s good to see.  Farmers have been considered to some extent a lower grade livelihood for a couple of generations.  It’s good to see entrepreneurial initiative being rewarded with enhanced standard of living.  315 million acres of crops in the United States if that land increased $1000 per acre that’s 315 billion dollars of increased equity and borrowing power.  We all know the market value increase over the last few years could have been $5000 on an acre which heads to total value of over a trillion dollars.  It’s not money in pockets but it creates security, stability and the borrowing power.   The sense of greater wealth is certainly there. We believe this wealth increase is why the hog inventories did not collapse when the industry was losing $40.00 per head.  The staying power of not only the corporations that own hogs but the land based producers allowed most if not all the stand the deal. It appears corn is going towards $4.00 a bushel.  Still historically high but far from $7.00.  We believe it’s for all intents and purposes due to the biological timeline to bring hogs into production is already established.  We expect no significant increase in production year over year for the next twelve months with any potential increase in more pigs born checked by production losses due to PED.  Consequently we see hog prices tracking the same or higher year over year with feed costs $40 per head lower.  The combination a minimum $20 per head profit for the next twelve months.  Pig Farmers turn.  (The Chinese picked a good time to buy Smithfield.)

Categorised in: Pork Commentary

This post was written by Genesus