Mexico Road Trip

Last week we visited Mexico.  Our observations on the Mexican Pork Industry are:
  • The Mexican sow herd has stabilized at approximately 650,000 sows after free falling from one million three years ago.  Financial losses, hard to get bank credit, the grain price shock and the debacle of H1N1 pounded the production base.
  • Currently Mexican hog prices are hovering around 22 pesos a kilogram (80¢ US/lb liveweight).  Good producers could be making around $60.00 U.S. per head.  The old adage surest cure for low prices is low prices – rings true again.
  • Mexico’s feed prices have jumped in the last few months.  DDGS from the U.S. have been pouring in.  Of course only the best quality is being sent.  We were told despite this, there appears to be DDG related production problems.  Mycotoxins moulds, unreliable protein percentages are leading to swine production problems.  It is part of the curse of corn ethanol.  Drive prices up – the price of corn which pushes the usage of DDG’s to lower cost and then have pig production hurt.  Indeed it’s a trifecta of curses, courtesy of ill conceived U.S. government subsidizing policy.
  • The Mexican economy has been hit hard by the global recession.  The GDP is down.  Pork processors we talked to said demand for pork was soft.  The high price of pork is relative to a disposal income at 20% of the U.S.A. leads to limiting pork and meat protein consumption.  An uptick in Mexico’s overall economy would enhance pork demand.
  • Mexico recently put tariffs of 5% on U.S. bone in hams.  We were told this was in retaliation for reneging on a trucking agreement that would have allowed Mexican truck and trailers to operate in the U.S.  It appears the truck union teamsters won – U.S. pork producer lose.  There is a North American Free Trade Agreement.  It is for goods and services – just not all goods and services.
  • We visited a Genesus customer near Delores Hidalgo, Mexico.  It is a brand new state of the art swine facility, probably one of the few new barns built in Mexico in the last while.  It is great to see people committed and believing in the future of pork.
  • Dolores Hidalgo was where the Mexican Revolution started 200 years ago (September 16, 1810).  Dolores last week was still celebrating the event that ended Spain’s colonial rule 2 centuries ago.  We were able to watch a re- enactment of the fateful night when a priest named Hildago rang the church bells to call for the uprising.  As we travel we see many parts of the world, it continues to marvel us people’s historical quest for freedom.  People want opportunities for themselves and their children, to have and provide food and shelter.  It is the same everywhere.  Mexico was no different.  When an elite rules with little regard for the well being of the general population things tend to change.
Other Observations
  • Last Thursday the U.S.D.A. released Quarterly Grain and Oilseed stocks.  The big news was 300 million more bushels in storage on September 1st compared to the average trade guess. (U.S.D.A. 1.708 billion – average trade guess.  1.407 billion bushels).  The result: a limit drop in corn bushel prices of 30 cents.  On the week corn declined 56 cents a bushel.  This is great news for pork producers that have staggered by corn prices that had gone up more than $1.50 a bushel since July 1st.
  • U.S. hogs marketed last week were 2,191 million; last year the same week was 2,336 million.  2,191 million is still a lot of hogs.  We believe prices will stay strong over the coming weeks but week upon week of 2.2 million hogs will keep hogs from higher prices (last week Friday Iowa – Minnesota 76.55 lean per pound).  A year ago 51 – 52% lean hogs were $50.02 per pound.  Year over year difference is $50 plus per hog.  This is a huge difference but much needed.
  • The September cold storage report had bellies at 6,890 thousand pounds, last year 48,958.  This year 14% of a year ago.  Almost no bellies in storage are a very positive factor for hog prices and cut – outs.  Cash bellies at $1.30 per pound are very supportive to prices.
  • 500 – 550 pound sows last week U.S. averaged $62.64 per pound; a year ago they were $30.86 per pound.  That’s plus $150 per head difference year over year.  This is a reflection of true economics.  Last year depressed hog market more sows going to market.  This year strong hog market and lower sow marketing’s.
Summary Grain prices correcting lower is positive.  We have wondered for a while how grain prices can sustain their grains when we observe little grain demand as there is no increased global livestock production.  The Southern Hemisphere (Brazil, Argentina, Australia, etc…) are planting now (their spring).  They will plant lots as high prices are always acreage stimulating

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This post was written by Genesus