Pork Commentary, Dec 11 2017
Jim Long, President-CEO, Genesus Inc.
Hog Market Shows Profits for Next Twelve Months
Using current projected feed cost and current lean hog futures it appears the average profit potential for next twelve months should average about $20 US per head for farrow to finish operations. That’s a very positive number, considering the industry noise, that expansion is happening.
A real indicator of supply and demand it the cash price for early wean and feeder pigs. Last week, US cash early wean pigs averaged $57 at 40 lb while feeder pigs $68. Only three months ago feeder pigs were $35. The small pig market tells us there is strong demand; also, there are barns available to house all these pigs. No one pays more then they have too. Bidding is driving prices, we expect feeder pigs to exceed $80 US in the near term. In our opinion these higher prices for small pigs foreshadows over stronger market hog prices more than lean hog futures reflect.
Rick Stein, Vice-President of Fresh Foods, Food Marketing Institute, recently published the below article which addresses consumers demand.
“As I outlined in my last blog, the USDA is reviewing, and has opened for public comment, a plan to revise the voluntary pork standards currently in place. But does the typical consumer know the difference in quality and, more importantly, are they willing to pay for perceived differences? According to research conducted by the National Pork Board, the answer is “yes.”
In 2016, the Pork Board commissioned Market Economics, LLC, and noted economists Jayson Lusk, Glynn Tonsor, Ted Schroeder and Dermot Hayes, for a benchmark study to measure a consumer’s willingness to pay for quality. In brief, the survey of 5,011 respondents confirmed that you do not have to be a “meathead” to recognize quality. Consumers surveyed said that redder loin chops with visible fat content (i.e., marbling) translate to “higher quality” in their minds.
Additionally, the research showed, no matter if a consumer preferred pale pink or deep red, each consumer was willing to pay more for the product that met their preference of quality – anywhere from $0.69 to $1.18 more per pound, according to the study. This is significant because with or without a defined “quality standard” – however that is measured – consumers will pay more for a product they perceive to be of higher quality.
It boils down to a simple fact: As retailers, there is the potential to sell higher-grade pork and receive a premium price associated with that value by the consumer.
- According to USDA data analysis performed by Express Markets, Inc., protein demand has never been higher, but for the past 20 years, U.S. pork consumption has been relatively flat at about 50 pounds per person per year. Today, overall protein sales are increasing and fresh pork has seen only a modest increase.
- According to Nielsen, the average American consumer buys fresh pork just seven times per year, which is fairly low.
- National Pork Board research also shows that the primary barrier to fresh pork purchases is an inconsistent eating experience. Consumers already gravitate toward value-added pork products like ham, bacon and sausage, largely because they prefer familiar names, flavor and simple-to-cook pork products. Getting the fresh pork loin, for example, into that space will only help to increase the total value of all pork sold at retail.
A pork grading system provides an objective method for delivering a consistent consumer eating experience which, in turn, will drive repeat sales. As these guidelines are considered, I’m fairly certain that pork tenderloin will be on the wish list for every meat category manager each holiday season.”
The new proposed Grading system from the USDA is a game changer. You only need to look at the price difference in Beef Cut Outs.
Prices for Beef Cut-Outs as of Friday, Dec 09, 2017
$205.55/ 100 lb
$185.55/ 100 lb
The new proposed U.S.D.A grade categories for Pork are:
- Prime = +4 for color and +4 for marbling
- Choice = +2 for Color and +2 for marbling
- Select = -2 for Color and -2 for marbling
We don’t need a computer to see that 900lb Choice steer is bringing $180 more per head than Select; huge money difference.
It also tells us that the market place (consumer, food service, exports) are valuing the better marbling of Choice over Select. The buyers vote with their money.
Taste and flavor drives demand. Bellies have lots of marbling. They have flavour while typical industry Pork loins doesn’t. Last Friday US Pork Cut-outs Bellies were $ 2.19 lb, loins 81.95¢lb – its pretty obvious where demand is.
Its obvious the flip that’s coming in our industry with the new proposed grades. In the past, lean hogs were rewarded in the packer grade system. Lean, lean and leaner was the mantra. Many so called elite terminal boars devoid of marbling and color will become dinosaurs. The payment schemes are going to turn upside down. All for the better for our industry. An average American, eats fresh pork 7 times a year; the estimate of adding one more pork meal, is an industry gain of $400 million.
We believe it is a mistake to tell the solution to the new grade system is using any Duroc.
We are in the genetic industry, and while Genesus can prove without any hesitation that our Duroc has the marbling and colour the new grade system will demand; we also know, there are other Durocs with other companies, that have been bred to have extremely low back-fat, and with this have significantly decreased marbling.
Therefore, check the real facts before you go to any Duroc. New Grades will be based on Grades, not breed
This post was written by Genesus