Pork Commentary

Jim Long President – CEO Genesus Inc.

March 3, 2014

June Lean Hog Futures Blast Record High $112!

Lean hog prices are blasting higher. National Lean Hogs over $1.00 per pound. May through October lean hog futures reached record highs with May, June, July, August all over $1.10! A few months ago we started calling 2014 The Year of the Pig Farmer. It really is. This is a once in a generation profit scenario. When we called for summer to hit $1.10 a few months ago, summer lean hog futures were 90₵. We have seen no herd expansion, PED tearing production up and felt that cattle prices would be historically high with cattle inventories the lowest in 60 years. Perfect storm to push meat protein prices higher. It has in a wondrous way.

PED

This past week we spent time with Russian producers. About six years ago PED swept through the main swine production areas of Russia. A few weeks of dead pigs (same as here), the farms that did aggressive feedback didn’t see any further problems, and the ones that didn’t aggressively feedback had subsequent breaks. In the last six years since PED has not been an issue of significance in Russia – African Swine Fever has. Poland of the EU has had African Swine Fever identified. Russia has banned all pork and live pigs coming from the European Union. Imported pork can come to Russia from North America and Brazil. All swine breeding stock importations from Europe have been banned by Russia. Canada with its high health can still export breeding stock to Russia. Genesus has four chartered 747s scheduled for Russia over the next ten weeks.

China

Statistics from China indicate that China swine inventory has dropped nine million head from August (475 million to 466 million). Disease breaks and losses per head have cut the inventory. We expect lower inventory will lead to a need for pork imports. Does Shuanghui’s purchase of Smithfield look brilliant or what? 20 million market hogs per year purchased by Smithfield make $50 million per head profit vertically integrated? A billion dollars profit? Throw in demand for pork in China – profit is even greater! Smart buy when it happened, even smarter now.

Equity Hole

Profits for industry in 2014 should fill the huge equity hole created by producers over the last few years. We need it. We believe there will be 4 billion dollars in North America in 2014 to backfill the equity hole which will leave lots left over.

Choice Genetics USA LLC

The saga of the bankruptcy continues. Feb 26 – a required bankruptcy reporting regarding schedules of assets and liabilities, statement of financial affairs, monthly operating report and other periodic report was filed in the bankruptcy case of Choice Genetics USA LLC and affiliates. Feb 27 – Official Committee of Unsecured Creditors – Notice of Appointment – Bankruptcy case of Choice Genetics LLC USA and its affiliates. Feb 27 – an order regarding the motion for authority to obtain debtor – in – possession financing was filed in the bankruptcy case of Choice Genetics USA, LLC and its affiliates. A real trail of tears with unsecured creditors owed over $14 million. Total liabilities of $21.8 million and assets of $486,000 recognized in the bankruptcy filing. It will take some real effort to get this reorganized. Now with the lawyers and accountants taking their daily financial upkeep it will get harder. Day to day operations will be under tremendous stress, good employees will have other options, multipliers will want to get paid up front, how does a bankrupt company invest in genetics? How good is a health and/or any warranty on breeding stock from a bankrupt company? Genetic buyers will be very conscious of all these factors, many will say “We have other options.” Tough business not for the faint hearted.

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