Pork Commentary

Jim Long President – CEO Genesus Inc.

May 20, 2014

Calm Before the Storm

U.S. cash hog prices have been tracking lower over the last few weeks. Off the highs of March but still at over $1.10 lean a pound excellent prices by any measurement. Why we say “Calm before the storm!” is that over the next few weeks we see a strong move to higher prices coming that is a reflected in the hog futures. Compounding these expectations from the lean hog futures we believe we will be the reality of weekly hog marketings that will be well below 1.9 million. Week upon week of lower marketings compiled with strong domestic and export demand, with less beef and no more chicken. The storm is coming. Currently the USDA is projecting US Meat and Poultry supply to be 1.1 billion pounds less than last year. That’s a lot less protein. With hogs bringing $700 per head in Japan, $600 in South Korea, $260 in Mexico, it doesn’t take a rocket scientist or ag-economist to figure out pork buyers in each of these countries will buy in the U.S. and sell in their country working extra-large wholesale spread.

PED

Our sense is PED is slowing down. PED breaks are less frequent. Producers upping their bio–security and many have stopped using blood plasma in their feeds.

Observation

A couple of years ago we were at a North American packing plant. The plant was shipping intestine to China to be cleaned and then returned to North America to be used in sausage casings. We don’t know if it’s still happening, but wonder how bio-secure and disease preventive such an activity would be. It’s alleged the PED we have in North America came from China. How the heck can you really know if the intestines shipped to China are the ones returned? We hope that we are not being alarmist but we have observed in our life there are implications from particular actions.

Corn Crop

We travelled to Illinois, Indiana, Michigan, and Wisconsin this past week. In the area we travelled there was rain but it appeared that most of the corn crop was in. When the crops are in we become weathermen. That’s what drives the yields and the prices. So far where the corn is there is plenty of moisture. No drought so far.

Vaccines

At Genesus we just did a circo-virus vaccine trial. Our results showed widespread differences in protection afforded. You should do the same, our results showed some vaccines weren’t doing much of anything. The higher priced ones weren’t necessarily the answer. As an industry we spend enough money on health related products. We all need to insure we use products that work. Test, draw the blood, and then compare the results. This is tough business we need to get value for what we buy.

Smithfield Foods

You don’t have to look any further then Smithfield Foods to see the effect of real good hog prices. The world’s largest hog producer and packer generated a record first quarter profit of $196.4 million. WH Group of China looks real smart in their purchase of Smithfield. Smithfield operating as an integrated enterprise captured the whole value of the hogs, packer and processing margins to set those record profits. Let’s hope Smithfield ships lots of pork to China cutting domestic pork supply and driving our hog prices higher. A high tide raises all boats.

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