Pork Commentary
Jim Long, President-CEO Genesus Inc.
Oct. 31, 2016
Mexico Meeting
Last week, we attended the Mexican Pork Association – OPORPA Annual Meeting, held in Riviera Nayarit. Our report and observations:
- Approximately 800 swine industry people participated, mainly from the northwest and central regions of Mexico.
- Many producers brought their families, as it was held at the beachfront Hard Rock Hotel. We have certainly been in worse places. 32 degrees Celsius and sunny, each and every day. First class facilities and hospitable staff.
- The organization of the event by OPORPA was excellent. A varied cross section of speakers, with sessions and event areas that were well attended. We were one of the speakers.
- Always good to go to Mexico, as we get to see many industry people we have met throughout the years.
- Many commented on last week’s commentary about the press release regarding Porc-Ex, and how the largest global DanAvl (Danbred) dealer is now working with Genesus. They congratulated us and saw this as an excellent step for both Porc-Ex and Genesus. It was really nice to get such comments.
- Currently, Mexico pork producers are in a much more enviable position financially than U.S. and Canadian producers. While U.S.-Canadian producers are losing in the neighborhood of $30 per head, Mexican producers are making $20 per head.
- The live weight price of Mexican market hogs are 28 pesos/kg or 0.68 USD/lb, while U.S. market hogs are 0.24 USD/lb liveweight, a spread of $85 per head. Normally, Mexican hog prices are approximately $20-30 USD per head higher than in the U.S.
- The current spread per head in U.S. dollars is $85. This is the largest spread ever! Of course, we wondered how this was happening. Why wouldn’t Mexico, which is already the U.S.’s largest volume purchaser of pork, not have massive imports and its hog prices collapse?
- Then we realized Mexico doesn’t import market hogs, and that it imports pork. Despite the huge difference in market hog prices, we have to look at U.S. pork cut-outs. Last week, U.S. market hogs were 50 cents/lb while U.S. pork cut-outs were 73 cents/lb. Mexico buys pork, not hogs. The 73 cents/lb pork cut out for wholesale pork is at a price in Mexico that is at their normal import spread. U.S. pork is not cheaper than normal!
- The difference is that while U.S. packers have a huge gross margin of $50 per head, Mexico packers are at normal margins. Mexican producers and packers are both making money.
- When we spoke in our session at the Congress, we pointed at the huge price spread between U.S. and Mexico market hogs. We highlighted that Canada, as a net exported of pork, is driven by U.S. markets and our farmers are currently losing money. Mexico, as an importer of pork, is currently benefitting from high U.S. pork cut out prices. To us, it’s phenomenal that Mexico farmers are receiving $75 USD per head more than their U.S.-Canadian counterparts when the free trade of pork exists between the countries.
- There is some sow herd expansion ongoing in Mexico. Larger companies such as Carrolls (Smithfield), Kowi, Ramirez, and Norson (plus others) are adding more sows. Like the rest of the world, smaller producers go out of business and the big get bigger.
- Up to now, Mexico has not had much pressure on animal welfare. Individual gestation pens are still being installed.
- In hog equipment, Big Dutchman and Hog Slat seem to be the leaders in large projects, as they are in much of the world.
- In swine genetics, PIC is dominant, with the largest percentage of the market. We believe Mexico has the largest country market share for PIC in the world. In no other country is PIC so dominant. Genesus is growing in Mexico. As are the KIA-like companies such as Hypor and Topigs-Norsvin. Always selling cheap, like KIA selling at low prices because they can’t get any more. An old adage comes to mind: “you get what you pay for.”
- Mexico has been able to grow pork exports. One reason is that their pork prices (not hog prices) is relatively competitive with U.S. packers. The second reason is that with relatively smaller packer plants, relatively low cost, and the available labour, Mexico can meet specific cuts and presentation required by premium buyers in Japan. This has been very beneficial for market share protection and growth.
- One packer commented that they know U.S. hams need to be imported to Mexico, because Mexico consumes more hams than they can produce. The Mexican packer suggested U.S. packers should do a better job of holding price, and that U.S. hams are sold cheaper to Mexico than they need to be. We have no idea if this is correct, we just thought it was an interesting perspective.
Summary
Mexico is building some new sow farms. We don’t see much net expansion as other smaller ones go out of business. Domestic pork consumption could grow in Mexico. Mexico, like other countries, needs to move to better tasting pork (darker, proper marbling, and high PH). An observation, not a criticism. At the final banquet of the congress, we were all served pork loin. Unfortunately, it was white like chicken, had no marbling, and was overcooked. It was a product that was not delicious or flavorful. It would not stimulate you to eat pork again soon. As an industry, whether it be Mexico or any other country, we need to deliver pork that is tasty and flavorful. We need to get rid of marbleless Pietrans and Pietran crosses. They are a scourge on us growing pork demand. Demand drives prices, and more people eating pork more often should be our mission.
What kind of pork do you like to eat? Are you producing it?
Next week, we will be at Eurotier in Hannover, Germany. Eurotier is the world’s leading trade fair for animal production.
Please visit us at the Genesus booth, Hall 15 Stand E30.
Porc-Ex Breeding and Genesus Inc. Press Announcement
Porc-Ex Breeding and Genesus Inc. are pleased to announce that Porc-Ex Breeding will begin marketing Genesus Swine Genetics. Porc-Ex Breeding (based in Denmark) has been the major marketer of DanAvl (Danbred) swine breeding stock in several European and Asian countries. Genesus Inc. of Canada has the world’s largest herd of registered high health prolific Yorkshire, Landrace, and Duroc Breeds.“In order to continue the good cooperation that we have built up with our customers worldwide over the past 15 years, Porc-Ex Breeding has signed an exclusive distributor agreement with the Canadian breeding company GENESUS, on specific markets,” said Holger B. Sorensen, CEO of Porc-Ex Breeding. “Genesus is the international breeding company which has the most modern and innovative philosophy regarding breeding objectives and sustainability in the pig production. For this reason, this genetic is well qualified to complement those of our DanAvl (Danbred) customers who want, or are forced, to change genetics.”
“As a distributor for Genesus, Porc-Ex Breeding can offer all kinds of genetic products in the form of live animals, semen and embryos. Porc-Ex Breeding has – and will establish close cooperation with leading AI stations, in order to serve our on-farm replacement customers, multiplication- and production herds with the highest quality semen from the GENESUS breeding pyramid.”
“In the nearest future, there will be established breeding and multiplication herds in Europe, so that Porc-Ex Breeding can serve our customers with genetic materials, produced locally in the areas near our business partners. At Porc-Ex Breeding, we look forward to continued productive cooperation with our customers, in order to optimize genetics and production results.”
Jim Long, President-CEO of Genesus Inc., states that “The agreement with Porc-Ex Breeding creates the opportunity for more producers to get the benefit of greater profitability that Genesus Genetics brings to the pork industry. We are very proud that a market powerhouse, Porc-Ex, has chosen Genesus to enhance their customers’ success.”
Categorised in: Pork Commentary
This post was written by Genesus