Is There Sow Herd Expansion?

September 21, 2015

There are obviously lots of hogs coming to market. Almost 10% more than a year ago. There appears to be little PED factor. Billion-dollar question – are we expanding? We are in the swine breeding stock business and we have 16 fulltime salespeople in North America whose job it is to chase down opportunities to sell Genesus breeding stock. It is our livelihood to turn over every rock to find what is going on. Our Synopsis Canada Ontario – next to nothing new being built, the producers who have hogs are chasing limited shackle space, which makes both lenders and producers real edgy and certainly not bullish. Quebec – Some new sow units going to get built but most of the sows will replace older smaller units. Net number of sows probably not going to increase. Western Canada – Government moratorium on new sow units in Manitoba stopping any new construction. Some empty older sow units in Saskatchewan are being restarted – no new sow units. Alberta – There will be fewer sows in the future. Canada Summary Producers in business will mostly stay. There is little if any new sow barn construction. Attrition and age of facilities will begin to take its toll on sow herd capacity. There is little bullishness in Canada. People are mostly marooned in business with few exit options. You go until you can’t is most producers scenario. USA At the end of July, year to date the US sow slaughter was 1.665 million, up 72,000 from the same time a year ago. In July this year 251,000 up 23,000 from July last year. Last year from June 1st to September 1st the US breeding herd increased 65,000. With July’s sow slaughter up 23,000 this year, it indicates to us that probably this year June to September we will not see a significant increase in the US breeding herd. The struggle of producers selling cash early wean pigs in the teens certainly has taken the luster off the small pig market. This in turn has slowed the enthusiasm of producers and bankers. Despite this, in the US there are definitely new sow barn facilities being built. At Genesus, we are stocking some of them. There has also been repopulations but they themselves do not add sows. The thing is, when a new sow barn goes up now, it is not 500 sows but most likely 2,500 or 5,000. A few of these can add up numbers in a hurry. Of note with these big units is they take significant capital; a 5,000 farrow to wean is closer to 15 million dollars than 10 by the time land, building, equipment, manure storage, inventory, and operating to cash flow gets done. You really have to want to be in the pig business, especially when 20 to 30 per cent equity is needed to make these happen. Not a business for the faint hearted. There is wealth in agriculture, it was reported recently the equity of Iowa Farmers is over 250 billion dollars – that’s only one state. There are many farmers who have the means to build hog farms if they desire. It is obviously not a lack of capital. It takes capital and courage. In our opinion, there are not many with a bullish sentiment to build many sow barns in either USA or Canada. We expect the sow herd to remain fairly stable. When you put the North American sow herd in the context of the 11 million plus sow liquidation in China over the last 30 months it indeed makes a few thousand sows in North America one way or the other seem quite insignificant. We still expect China’s pork needs created by the massive liquidation will more than take any further increase in North American production.

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