Pork Commentary, Jan 22, 2018
Jim Long, President-CEO, Genesus Inc
Minnesota Pork Congress Report
Last week we attended the Minnesota Pork Congress, which was held in Minneapolis, Minnesota.
Minnesota is the number three US hog producing state after Iowa and North Carolina. Our report and observations.
There was a Taste of Elegance reception that featured Chefs and Pork. A wonderful organized event; the pork features were excellent, and it was a very well attended event. It was great to see the many ways Pork can be prepared by professionals and the taste and flavor they delivered.
Pork congress attendees we spoke to, are cautiously optimistic for this year. All producers have been in this business for awhile (survivors), they have seen fortunes change on a dime, which makes them cautious. Current average profitability projections are about $20 per head for 2018
Sow herd expansion
Talking to builders and equipment manufacturers, they expect a good year. Lots of quoting going on (is that time of the year), lots of quotes don’t happen for various reasons.
We expect the US will grow the sow herd with 60,000 in 2018 (about 1% increase)
We understand a new sow barn farrow to finish, 5000 sows will cost $2,400-2,500 US per sow space. Finishers 2400 head – $300-350 US per head space. Costs keep going up. Two years ago, a sow barn wean to finish was closer $2000 US per sow space.
Lots of talk about new packer capacity that has gone in. Some of the new plants and existing plants being challenged to have enough workers to run at capacity. Tighter US border controls on entry is affecting the swine employment sector, including producers.
Packer margins have narrowed:
- Two months ago, 53-54% lean hogs were 62¢ US pork cut outs 82¢ = $20 dollar spread
- Last week, 53-54% lean hogs were 72¢ US pork cut outs 81¢ = $9 dollar spread
US cut-outs are basically the same, but packer margins are half. Packers have had the best gross margins ever, over the last three years. It appears to us, with the new plants now on stream, and hog numbers declining seasonally, gross margins will return to historically numbers of 92-94% US pork cut-outs. Producers will end up getting a greater share at the Cut-out compared to last three years, is our expectation.
Most packers don’t really want the new proposed US grade program of Prime, Choice and Select. They mostly say they are, and can do this without USDA oversights. We sense that the key will be the Pork buyers if the grade system gets implemented. If the main buyers (Walmart, Sam’s Club, Hy-Vee, Kroger, Sysco, etc.) demand the grades, it will happen.
At that point, no Packer will say no, and let their competitor fill the void. Especially in a time of more then enough packer capacity.
We understand the new Prestage slaughter plant in Iowa (10,000 and day) is on schedule to open in November
Talking to feeder pig brokers
Demand is excellent;
- early weans around $70,
- $40 lb feeder pigs – $80.
No one pays more than they have to. These prices tell us there is lots of barn space for pigs to fill. To us it averages well for very strong lean hog prices this summer. We expect some lean hogs will reach $1.00/lb
It was interesting that several people brought up to us at Minnesota Congress our comment about Choice Genetic head hunter, approaching us re their CEO job. They thought it’s funny, and agreed with our comment, that it would be like becoming “Captain of Titanic”
It is interesting what people remember from what they read.
At Congress we noticed the large number of companies selling feed additives. Must be a market and the market must have margins.
This coming week, we will be at Iowa Pork Congress. Visit us at the Genesus booth #1244, or attend the Genesus Reception, Wednesday night, starting 4:40pm.
This post was written by Genesus