Pork Commentary

Jim Long President – CEO Genesus Inc.

July 2, 2013

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2 Big US Reports – Hog Inventory – Crop Report

June 1 USDA Hogs & Pigs Report

Last Friday the USDA released the June 1 Hogs and Pigs Report:

June 1 (1,000 Head)	2012	2013	2013 % 2012
Kept for Breeding	5,862	5,882	100
Market	60,797	60,765	100
Pig crop (March – May)	30,077	30,111	100

Looks like to us little change year over year. The industry has not expanded or contracted. It’s been steady as it gets. We expect to see little difference in scenarios over the next few months. There is little ability or appetite for significant sow herd expansion. The producers who have been buying feed need positive margins for several months before they are healthy. The swine industry is waiting for cheaper feed to get to real profitability. The USDA crop report released last week could be the panacea needed to get to some justified profitability.

USDA Crop Report

Last Friday the USDA released:

Corn	97.38 Million Acres
Soybeans	77.73 Million Acres
Wheat	56.57 Million Acres

Observations

Corn Acreage planted is the highest since 1936. (Almost 80 years)
The Corn Acreage planted is despite an extremely wet spring: the old adage “Rain makes Grain” – Farmers can’t stand empty finishing barns or empty fields.
The Soybean Acreage of 77.73 Million Acres is a record high.
Wheat Acreage is 1% higher than last year.
Seems more corn, more soybeans, and more wheat. There is definitely more feed coming.
The Futures market also sees more corn coming. Currently Cash corn is around $7.00 per bushel. December Corn futures closed Friday at $5.11 a bushel (after a drop of 27¢ after the crop Report). Cash Soybean Meal currently running near $500 per ton, last Friday October closed at $376 per ton. For the hog producer the Futures indicate a potential decrease of $25.00 per head in farrow to finish cost of production within three to four months. A huge change especially when you consider that the USDA hogs and pigs report shows no expansion. The chances of year over year steady to stronger hog prices with significantly lower feed costs is certainly a better scenario that the industry has seen in quite a while. The June Hogs and Pigs Report indicated no herd expansion. No more hogs year over year possible until next spring. It takes 10 months to get bred and get a hog to market.

Hog Market

Just a reminder – the Chicken Little Economists were predicting Lean hogs in the 80s per lb. for this time frame less than three months ago. Lean hogs are over $1.00/lb. A cool $30 per head difference. Pity the producers that followed their wisdom and locked in at a loss. One packer told us last week a marketing agency (not the Packer) had pushed their suppliers to lock-in in the 80s. Bad move. Lock in a loss. Almost $30 per head difference. Hopefully the producers grow their own corn and have lots of appreciating land. We always wonder why producers take advice on marketing from people working a cubicle, who own nothing and never will. We believe Warren Buffett has said something to the effect “Can’t understand why people who can own a limousine take advice from people on Wall Street who ride to work on the subway?”

USDA Cut-outs

Last week the USDA cut-out, bellies and butts set record highs. Friday it was $111.28 up $17.77 from four weeks ago (plus $36 head). Cut-out values at record highs is a sign of real demand relative to supply. A year ago in the third week of July we spoke at the National Pork Industry Conference in Wisconsin Dells. The drought had started. We predicted that the drought and its effect nationally and globally would lead to record hog and pork prices. This year we will be speaking again at the NPIC at the Dells about our observations on the Global Swine Industry and how it will affect us going forward. We hope to see you there.

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