Pork Commentary

Jim Long President – CEO Genesus Inc.


November 10, 2014

On the Way to EuroTier

We are on the way to Euro Tier, the largest livestock poultry exhibit held every two years in Hanover Germany. This is the third time we have been there, this is the first time Genesus will have an exhibit Hall 9, Booth C21. At the exhibit, we expect a large presence of swine producers from Europe and Asia but only a handful from North America. Next week we will write our observations on EuroTier and our sense of global pork markets. Corn The US corn crop is slowly getting harvested. It appears farmers aren’t selling much corn which has put a floor in the corn price. The DTN National Corn averaged $3.29 a bushel not far above the five year low. In May this year the DTN National Corn Price was $4.82 a bushel. No doubt the cost of producing US hogs have decreased a minimum of $30 per head. We expect the huge corn crop will keep further downward pressure in cash corn. Hogs It appears to us the fall cash hog low has been met. We do not see significant declines in the coming weeks but an overall up movement – we see from the 85-87¢ lean range we see now. Packers are making money with pork cut–outs are in the 95¢ range and it will keep them aggressive to fill shackles. This past week the US marketed 2.232 million hogs the largest weekly amount in 2014. It was still 50,000 less than the same week a year ago. Market weights are averaging about 216 lbs. a year ago they were 211 lbs. The 5lb. year over year difference is the narrowest difference we have seen for months. We expect the gap to continue to narrow year over year in the next few months. Small Pigs US cash early weans at 67.99 and cash 40 lb. feeder pigs at $81.33 remain strong. A reflection of very solid demand relative to supply. PED 65 new cases of PED reported the first week of November in the US. About the same as a year ago. Hard to say what is going to happen, last written PED did not explode until January when 200 plus cases were reported weekly. PED is a huge wildcard in supply scenarios for 2015. We expect low PED year over year in the coming months with total mortality of about 50% lower or about 3 – 4 million pigs. Smithfield Foods The WH Group of China’s purchase of Smithfield Foods looks smarter all the time after Smithfield’s a wholly owned subsidiary of WH delivered a third consecutive record quarter. There used to be a saying ‘as goes General Motors, as goes the US automobile industry’. Smithfield is the Pork industries version of as goes! Smithfield the largest hog producer, packer, and processor had a net income of $155 million in the third quarter. The Hog Production segment of Smithfield has an operating profit of $139 million this past quarter ending September 28 compared to $48.5 million a year ago. In the last nine months Smithfield hog production segments operating profit was $278.1 million compared to a year ago $18.7 million. Considering no overhead was considered in the $18.7 it’s very conceivable hog production was losing money in those nine months. Smithfield reports operating margins of $42 head last quarter. PED was a factor with heads sold decreasing 14% but they had 4% heavier carcass weights. Smithfield reported live market prices of $85 per hundredweight in the quarter up 17% from a year ago. In the coming months as China hog prices explode higher from the results of price liquidation of 5 million sows. We expect Smithfield with many of their US plants already approved for China export, and their Chinese supply chain in place through their Chinese ownership will benefit from large possible exports. When this happens it will be helpful for all US producers. Any pork that is exported supports hog prices. 2015 will be the year we find out how much pork China needs.

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This post was written by Genesus