Jim Long President – CEO Genesus Inc. email@example.com
European Road Trip – Week 2
August 31, 2015
RussiaAfter Lithuania a week ago, we flew to Russia. Our Observations:
- Currently due to economic sanctions, European Union and North American countries cannot ship pork or live market hogs to Russia. Brazil is able to.
- The economic sanctions, by limiting pork imports has supported prices for pigs in Russia. Profits per hog are between $75 – $100 US dollars per head. It’s a good time for the pig producers!
- In our travels in Russia, the sentiment would be that economic sanctions on importing of market hogs and pork would last a minimum of one year to up to 4 years. Certainly, anyone would be foolish counting on pork or market hogs going to Russia anytime soon.
- The profits in the Russian hog industry is stimulating expansion plans. The goal of the Russian government is to be self-sufficient in pork production.
- In our travels, this past week we met with several Russian groups, which in total if all expansion plans come to fruition would lead to up to 500,000 sows of new construction. Many of the new sow barns have received financing.
- Most new construction will not start until 2016. To build the space for 500,000 sows we expect it would take four years. Russian weather is not conducive to building in the winter.
- Russian interest rate is 16% and most loans 8 years in amortization. The Russian expansion would not be happening in scale if the Russian federal and state governments did not subsidise interest rates by 11 – 12%.
- In most parts of Russia, you need one hectare per sow farrow to finish for environmental reasons. The typical model today is 2500 sows farrow to finish so they need 2500 hectares of land or just over 5000 acres per site.
- We were in the Black Earth area of Belgorod and Voronezh. Dirt like Illinois. Land was selling for $500 USD to 100 USD per hectare. Excellent cropland that responds to manure. One group we met with has over 60,000 sows and enough land to grow their own feed. Not sure if anyone else in the world produces so many hogs and grows all their own feed.
- Multi-site production has fallen out of favour in Russia. The cost of servicing, bio-security, security, and African Swine Fever implications has led to the 2500 farrow to finish model on site, versus previous 5,000 sow multi-site.
- The Russian currency, the ruble last week was trading at 70 to the US dollar. Not more than two years ago, it was about 35 to the dollar. No doubt a large devaluation. This is making importation for swine equipment and breeding stock (re: Genesus) more expensive. Fortunately, for Russian swine producers profit margins are cushioning the effect of the currency value adjustment.
- On our trip, we signed a Genesus Nucleus agreement with Agro – Belogria a 65,000-sow company with its own packing plant. The farm is under construction with Genesus Genetics scheduled to be delivered this fall.
- In Russia, we saw lots of construction on roads and apartment buildings etc. Driving around it would be hard to believe Russia is slowing down from either the lower price of oil or economic sanctions. As Hitler and Napoleon discovered, Russia and the Russian people are tough, resilient, and resourceful. There is no quit in these Genetics.
- Battlefield of Genetics in Russia over the next two – three years will be mostly Genesus, and PIC Canada is open for Genetics from Canada. Only PIC and Genesus have the competitive high health products and volume to supply planeloads of genetics. There is little quality supply of any genetics within Russia. The Europeans such as Danbred, Topigs, and the French are shut out. To our PIC friends we look forward to the jousting – Game On!
- The choice between PIC and Genesus is simple. Russian prospects (indeed from anywhere) should visit Canada. Tour Genesus. Tour PIC. Compare and decide, competition makes us all better. Decide who will give you better production, health, registered purebred genetics, service, and profitability. Buying genetics is a big decision – investigate.
SummaryLeaving Russia on our way to Spain. We will report on Spain next week (4th largest hog producing country). Once again, I am travelling with my son Spenser. In 10 days, he starts his first year of University in England. This is the 6th summer we have travelled together. He has been to 21 countries over that span. In that time, he has grown from 5 feet 3 inches to 6 feet 2 inches. The trips have been good for me and I believe for him. He has seen many parts of the urban and rural world. He has been in each and every business meeting. He has observed really smart business people and how they communicate and negotiate. He has seen tremendous wealth and abject poverty. A world of extremes. We have met many wonderful smart people. As any Father, I hope he is getting prepared for the future. The future is all our children.
Categorised in: Pork Commentary
This post was written by Genesus