National Pork Industry Conference ReportLast week we attended the National Pork Industry Conference (NPIC) which is held in Wisconsin Dells, Wisconsin. Our Observations: * Record attendance with over 800 registered guests * NPIC is held at Kalahari Resort – fantastic family facility with massive waterpark and other amusement – entertainment facilities. Many people brought there wife and children * NPIC is lead by Glenn Shields, Steve Weis and team. The conference was well organized and in our and many peoples opinion had the best speakers ever. The shift to having more decision makers and true influencers speak connected well with owner – management attendees * We were fortunate to have opportunity to speak Monday afternoon and wish to thank all that attended. The Genesus kick off reception on Sunday night was packed and it appeared lots of people had a good time (some up to 5 hours). * We will write some highlights from NPIC in this week’s commentary but also in next weeks. * One of the speakers was Smithfield Foods Dhamu Thanodaran Executive Vice President, Chief Strategy Officer and Chief Commodity Hedging Officer. Some of his points Smithfield are the world’s largest packer and Hog Production.
China* Pork shortage in 2016 * YTD China Imports up 82% * EU has 61% market share – US 20% down from 40% * China profits currently $120-150 per head * He expects modest expansion 2016-2017 * Chinese government is getting very strict about expansion in environmentally sensitive areas * Long term, China will import higher percentage of there consumption, from 1% to 3% * “Global pork production is expanding based on potential” * To reliant on retail sales * Need renewed focus on Foodservice “One or two pork items in every restaurant in New York or Chicago and other major cities” – only 23% market share in Foodservice * Industry needs to be consumer focused then production oriented * More beef and chicken – Beef production to expand 2-5% – Beef is the King of Meats – Chicken to expand steadily * woody breast problem * A concrete plan to deal with disease outbreaks and trade disruptive – regionalization of pork production – buy in from trading partners, Japan, Korea and Mexico * Commodity pork volatility, daily limit moves are common occurrence, algorithm trading * Price discovery – so little few hogs trading cash market * 27 to 30% of US pork exports are to Mexico * Mexico plans to add 200 to 250,000 sows, next three years * Will limit US pork future export opportunity
USOpportunities to be a leader in the global pork industry with cost advantage in production, plant operations and distribution/storage. Challenges * Five new plants and added pork production * Smithfield Foods has no plans to close plants in Sioux Falls * Industry to reliant on exports, over 20%, may reach 30% * Pork Exports need to increase by 1.8 billion lbs. by 2020 or 38% increase * Every year exports need to grow by 500 million lbs, but challenging and worrisome * Stagnant domestic consumption * China demand , everyone is backing on but worrisome!
EU* Brexit turmoil: will EU survive long term as “one union”! * EU double the size of US 12.5 million sows, 250 million hogs * EU has surplus Pork of 10-15%. With Russia closed to EU pork, EU directing pork to Asia at any cost * Superior pork production systems to overcome grain cost disadvantage * US should seek a free trade deal with United Kingdom * United Kingdom short 1 million metric tones of US, US could capture major share of no tariffs * US should focus on eliminating EU tariff and US pork imports (editors note: EU pork comes to US duty free, US pork has a minimum at 30% tariff going to EU)
Mexico* Approximately 850 thousand sows * Pork deficit now, 45% consumption is imported and 86% from the US Will we have hogs, meat and future markets in 5 to 10 years We have known Dhamu for several years and he is a deep thinker with the added advantage of daily exposure in China, US, Mexico and EU where Smithfield has major operations. In our opinion what he says we should take heed.
Grain MarketAt NPIC Joe Kerns a futures broker spoke on the Grain Market. He asked the attendees who were at the time several hundred, if when they drove to Wisconsin they saw any poor fields of corn. No one acknowledged: key observation – farmers travelling from all corners of the US. They know what crops look like. The USDA projection of record corn production seems to be about right.
This post was written by Genesus