Pork Commentary – April 7 2014 – Hog Market continues to Defy Gravity

Pork Commentary

Jim Long President – CEO Genesus Inc.

April 7, 2014

Hog Market continues to Defy Gravity

We have to say the level of current cash hog prices baffles us. Last week U.S. Hog Marketings – 2,030,000 – 53–54% lean hogs. $129.31/lb.; average weight 217.15 lbs. Last year same week U.S. Hog Marketings – 2,097,000 – 53–54% lean hogs.  $77.23/lb.; average weight 209.7 lbs. Why are we baffled year over year by hog marketings last week were down 3.2% while weights were up 3.5%, essentially we will end up with the same amount of pork produced year over year. Now the baffling part with essentially the same amount of pork produced year over year last week.  The lean hog price (53–54%) is 52₵/lb. higher this year or about $110 per head higher.  A price difference that is gravity defying.  Demand and price has exploded whether it’s from emotional euphoric expectation of future collapsed supply and/or real pork demand from consumers domestically and globally.  Whatever the reason the price is real hogs are trading at the $129, the $129 is not CME lean hog futures price but real right now.  Take the cash.  Pay down the bills.  It’s Christmas in April, and there is a Santa Claus, he is delivering presents to hog producers right now. 2014 The Year of the Pig Farmer.

 Quality Meat Packers (QMP) and Toronto Abattoir (TA) seek Creditor Protection

Quality Meat Packers and Toronto Abattoir an 83 year old company based in Toronto, Ontario requested court creditor protection last week. Quality has a potential of 30,000 hogs per week and also processing capacity.  With 750 employees Jim Gracie Vice President of Marketing, Business and Corporate development at Quality said the 30 days granted for creditor protection will give the company time to look at restructuring alternatives.  He “didn’t know” if that would include layoffs. It is our understanding at writing some producers have not been paid for hogs they had delivered. The Quality issue creates a dilemma for Ontario producers.  The industry had surplus packer capacity with Quality, ­Fearmans and Conestoga especially with large number of market hogs going to Quebec.  Now with Quality’s financial issues a surplus packer capacity could be altered.  We all know more buyers lead to better prices, potentially fewer buyers is never price enhancing. It’s interesting that in times of profitability for producers, a packer – Quality asks for creditor protection while genetic company Choice Genetics wallows in Chapter 11 bankruptcy with $21.8 million of debt and assets of $486,000.  In both cases producers have not been paid for purchased pigs.

Summary

We believe hog market is at cash levels that are defying gravity.  We believe unless hog marketings drop significantly prices will drop to $110 level lean.  We need to get to 5% lower year over year in weekly hog marketings in our opinion to sustain current cash hog prices.
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This post was written by Genesus