Is there Hope?
Last week there seemed to be daily news tied to the dire situation in much of the hog sector. Hope isn’t a business plan but at the end of the day, all you need is Hope and Strength. Hope that it will get better and the strength to hold on until it does.
- Last week rumor of a major company planning on immediate major sow liquidation of 10’s of thousands of sows.
- Leadership coming and going in several major pork-producing companies. Some packing company layoffs announced.
- Chapter 11 bankruptcy for the HyLife Foods Packing Company USA related to Windom, Minnesota packing plant.
- In Canada, further confirmation of packing house closing, and potential voluntary sow buyout.
- Reports of major sow liquidation in Mexico.
- Losses in the industry continue to mount not only for producers but also packers. If you are a Packer and own hogs, it’s a double loss.
Not exactly a scenario of positivity, is it?
- One positive is June lean hogs gained $5.63 last week. Pork cut-outs closed 81.32¢ Friday. Better but losses continue.
- U.S. July Corn closed down 30¢ bushel on the week. Corn in parts of Brazil under $5 bushel putting pressure on U.S. corn exports. Mississippi River flooding will further slow U.S. corn exports as barge traffic slowed or stopped.
- China canceled some U.S. corn orders. Some think to buy Brazil corn. Also, might be from decreased demand from the African Swine Fever breaks in China. Dead pigs don’t need feed (corn).
- If misery loves company, we only need to look at China’s hog industry. Not only being hit by African Swine Fever issues in a major way but also suffering financial losses. A reflection of this is the financial results of publicly traded swine companies in Quarter 1. Wens lost 2.7 billion RMB ($390 million). New Hope lost 1.7 billion RMB ($246 million). Losses per head are estimated from 169 RMB ($25) to 262 RMB ($40 per head). Industry-wide losses are over $500 million a week. We expect as the liquidation of the pigs sent to market due to ASF slows, China’s hog price will roar higher.
- U.S. weekly pork export sales were 54,000 metric tonnes a week ago (exports have been 30,000 YTD a week). The highest week this year. With Europe’s hog price almost double the U.S., it only can be expected that Arbitrage will lead to increased U.S. export sales at the expense of Europe’s. 54,000 tonnes is a strong indicator that Arbitrage is beginning. Any extra pork that leaves the U.S. strengthens U.S. hog prices.
- Watching daily slaughter weights, it appears to us weights are coming down. Maybe the first indicator of lower hog numbers as packers pull hogs ahead.
- Europe’s hog price is at record highs i.e., Spain at $1.02 U.S. lb. (2.025 Euros/kg). A 280 lb. market hog $282. Makes exports hard to compete with the U.S.
Demand – Sustainability
In the last two weeks, we have written about Pork Demand and the Sustainability of our industry. The feedback we got was large. It seems many see what the problem is – Taste. Consumers will pay almost four times more for Beef than Pork as reflected in U.S. cut-outs. Last Friday Choice Beef $3.11 lb. Pork 81.32¢ lb. As we wrote last week if we got half of the Beef cut-outs i.e., $1.55 lb. we all would be doing cartwheels and congratulating ourselves on our business brilliance. Instead, we are sucking air.
We are challenging the Pork Board to use Checkoff money (i.e., $70 million a year) to push for a better-tasting product. Create demand. If all Americans ate pork one more time a month, it’s equivalent to 7 million more market hogs. Demand drives price. Taste is not a niche but an industry-wide necessity.
The sustainability of our industry won’t be decided by Pork Board bureaucrats discussing animal welfare, the environment, etc. Sustainability isn’t Packers going Chapter 11. It isn’t the industry losing up to $100 million a week. In our opinion, we can’t continue on the path we have been on. It has not been working. We need to have a Taste Revolution to drive demand and secure profitability.
Many of life’s failures are people who did not realize how close they were to success when they gave up. – Thomas Edison
This post was written by Genesus