What a Year Makes

September 14, 2015

  We find travelling interesting and necessary. The last 18 days on the road were both. On the flip side, it is always good to get home. We believe most everyone appreciates the joy of getting home. Being home, we are back to the reality of the North American swine market. Our Observations Lots of hogs going to market, where did the PED go? PED added probably $50×130 million hogs last year or $6.5 billion extra to the equity levels of North America’s hog producers (USA, Canada, and Mexico) Oh what a year makes!
  • It was truly a disease that rained profit on our industry. A year ago this week lean hogs were 99₵ lean a pound, this past week 76₵ lean a pound. The difference of $50 per head. No way PED ever came close to costing the North American industry $50×2.7 million head or $140 million per week. Oh for the good old days of PED? Of course, we say this as a joke!
  • The fortunate part for all of us is feed prices are reasonable so the lower hog price has still kept most profitable so far.
  • The other factor of lower margins is the expected massive expansion of sows has been checked and slowed. Other factors slowing expansion, concern for shackle space at packers, and total cost of facility costs relative to expected returns.
  • One other factor we thought of while in Russia, we met people contemplating over 100,000 sows in new facilities. We do not believe such an expansion by one company could be done today in either Canada or USA; the environmental fight would stop any such effort. Indeed as our industry matures this reality will be a factor in any massive retooling by any major pork corporation. We are now in a USA – Canada industry that will only grow incrementally because of the environmental battles.
  • Read in Feedstuffs that pork is the fastest growing protein in food service.
  • The 2015 pork food service category totals 9.8 billion pounds – a volume increase of 532 billion pounds over 2013.
  • The four main categories driving growth for the food service pork category were bacon, processed ham, breakfast sausage, and ribs.
  • Good to be an industry that is growing in food service; the downside is we are playing catch up to chicken and beef. Even more reason we need to think about producing pork with flavour and taste. Pork without enough marbling tastes like cardboard. We all know it. We need to produce what we want to eat ourselves. Increased pork demand will enhance hog prices.
Europe On Monday, the European Commission presented a €500m aid package for the dairy and pig sectors. This news came just ahead of the extraordinary AGRI Council meeting and after the mass demonstration organised by Copa-Cogeca in Brussels. Agri Commissioner Hogan was unfortunately ill and sent Commission Vice-President Katainen to represent him. Regarding pork, the Commission will open a new Private Storage scheme for pig meat and provide an increased promotion budget in 2016, with reserved budget for dairy and pig meat. Addressing supply chain issues, The Commission will set up a market observatory tool for pig meat, similar to the Milk Market Observatory launched last year, which monitors milk market trends. This was particularly welcomed at the Council. The Commission will also set up a High Level Group to focus on a number of specific issues including credit for farmers as well as financial and risk hedging instruments such as futures markets for agricultural products. The Commission will organise a range of meetings to discuss experiences and share best practices on unfair trading practices. Copa-Cogeca called for the large and degrading stocks of pork fat, which would have been exported to Russia, to be used as biofuel.   Last week we wrote about civil disobedience in France due to low hog prices. It seems to work. The coffers of the European Union will be backstopping the low hog margins. Of note, the price of market hogs in Europe are 1.217 Euro’s a kg or 61.50₵ US per pound live weight. The US price is 50₵ per pound live weight. The Europe price is $25 per head higher and getting government support. A true reflection of North America’s overall cost advantage.

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This post was written by Genesus