Pork Commentary Feb 06, 2011 Russia Hog Prices Real Strong

Russia Hog Prices Real Strong

This past week we spent several days with Russian swine producers.  The prices in Russia are strong with 270 pound (125kilos) market hogs bringing over $300.00 per head.  With break evens in well run operations at about $150.00 per head the profit potential and reality is $150 a head.  To put it in context we did projections on a new 5,000 sow farrow to finish unit they are building.  At current prices and profits over $17 million U.S. in profits per year – it is a different world for sure! The coming week we will be at Agrofarm Livestock Symposium and trade show in Moscow.  Russia is like the U.S. of the early 90’s as outside production moves inside the evolution and scale of farms takes hold.  We met with a Russian builder last week.  He has never built a sow farm since he started several years ago under 5,000 sows per barn, made us feel small, as the new Genesus Nucleus in Russia is 1300 sows and the two multipliers are 2500 sows each.  Russia is like the U.S. – never afraid of scale!

Tyson

            Last year we listened to Donnie Smith CEO of Tyson at the Wisconsin Swine Conference.  He was the smartest person who spoke that day. Last week Tyson’s first quarter pork operating income was released at $165 million, or 11.2% of U.S. $1.48 billion in sales.  That is good profits and margins; it is also good for hog producers.  We need packers to make money.  It keeps them investing and gives them the capital to pound their way into our needed pork export markets.  It also makes you wonder how reflective the U.S. pork cut – outs are to reality.  For example, last Friday U.S. carcass cut – outs were $85.10 per pound – the National daily base lean hog carcass 53 – 54% or $88.46.  If you took this at face value, packers losing big money and buying hogs for more than they sell pork?  Obviously Tyson’s excellent profits don’t reflect a negative margin.

Hormel Foods

            Hormel Foods, one of the U.S.s major packers and significant hog producer announced last week at its annual share holders meetings the decision to phase out gestation stalls by 2017 at its company farms. From our perspective this is a reality that many of us will face going forward.  The visual of sows in gestation stalls is hard to argue to animal welfare advocates or more importantly consumers.  We are not sure it will ever be scientifically proven that sows are at a disadvantage in stalls but it doesn’t appear to matter.  The consumer push is enough to have us more in that direction.  In the end we will have no choice – gestation stalls will disappear whether right or wrong.  Hormel is accepting that reality but being pro active on their time line. Hormel is another Packer – Food Company doing well.  For the 2011 year $7.9 billion in sales up 9%, net earnings are up 15% over 2011, and exports up 26% in sales. We believe one of the greatest competitive strengths of the North American pork industry is the efficiency, scale, capital commitment, and aggressiveness of our packing industry.  Hormel is one of such players.

Europe

            Rabobank, probably the world’s largest ag lender in a recent report expects the European Union sow herd to show a 9% decline when the December reports are released. If correct, a drop of over one million sows.  That is huge!  In the same report Rabobank expects Euro hog prices to reach 1.75Euro per kg which is $1.04 U.S. per pound. There is no way one million sows out of production don’t cut supply.  E.U. won’t have as much pork to consume or export.  This is all positive for North American hog producers. *Rabobank expects U.S. beef production to be up in Quarter 1, but down 6% by the second half of 2012.  Rabobank also expects U.S. chicken production to be down 4% – 5% in 2012.  Reduced beef supplies are expected to result in record high beef prices that will provide an umbrella for pork prices.

PRRS

            There still seems to be lots of stories of further PRRS breaks cutting hog production.  We need to look no further than U.S. cash early wean prices at $61.39 and 40 pound feeder pigs at $81.74.  There are fewer pigs available, more barn space than pigs pushing up small pig prices.  Beyond breakevens when you look at feed and hog future prices.

Summary

            Rabobank sees the same scenario we have observed for months:  2012 strong pork export sales, less U.S. beef, less U.S. poultry, and insignificant pig production expansion leading to strong hog prices. If all goes, 2012 will be good!

P r e s s   R e l e a s e

In 2011 Genesus set a Canadian and a Global record for numbers of high health purebred registered pigs. This revealed in statistics released last week by the Canadian Swine Breeders Association.

2011 – Purebred Registration

 Jim Long, President-CEO Genesus Inc comments:  “Genesus is a fanatical believer in Registered Purebred Pigs coupled with an Intensive Geneticists driven Research and Development Program, fueled by a massive commitment to population genetics Government sanctioned. Registration Program ensures the purity of what our customers purchase which in turn maximizes heterosis and production. Too many producers have been sold so called purebreds by companies that cannot back up their claims with actual government sanctioned certified registrations. These bogus representatives have fooled far too many unsuspecting buyers.

Bottom-line: If a pig cannot be registered it is not a purebred. Buyer Beware. Too many mongrels, too many stones, not government documented truth. Your choice. Your money”

Categorised in: Pork Commentary

This post was written by Genesus