Pork Commentary

Jim Long President – CEO Genesus Inc. info@genesus.com

Road Trip – Week 3

September 8, 2015

  Jim & Spencer Long 2After Russia, we travelled to Spain, the fourth largest swine producing country in the world. Our Observations
  • Spanish producers are around breakeven in profitability. The best making some, the worst losing. Market hog prices are 1.22 Euros per kilogram (62.55₵/lb. US liveweight).
  • Spain has adjusted to the Russian market being closed for pork and pigs from all European Union countries. Spain’s pork exports for the first half of 2015 are up 14% to 596,063 tonnes.
  • The temperatures that we experienced in Spain were very warm with temperatures 90 degrees Fahrenheit or over 30 degrees Celsius. We understand that the July and August were warm with hogs averaging only 102.77 kilos liveweight (226 pounds). A far cry from US weights averaging near 280 pounds. The heat has pushed weights down as finishing barn space is at a premium.
  • While in Spain just north of us in France, the hog producers there were blockading roads, and protesting to the French government about low prices. There were reports of Spanish trucks carrying Spanish pork being attacked in France. Considering Europe has open borders and free trade, French farmers attacking Spanish pork would be like Iowa farmers attacking Nebraska pork! Bottom line the pork industry has significant stress in parts of Europe.
  • Spain has a competitive edge relative to France with Spanish production up 4% the first 5 months of 2015 with heavier carcass weights.
  • Spanish commercial production is consolidated with a significant number of producers over 40,000 sows. The model is company owns sows, supplies feed, and medication; the farmer supplies sow unit, labour, utilities, and manure disposal. For this, the company pays the farmer between 12 to 14 euros per pig weaned ($14 – $16).
  • The company has contract-finishing farms.
  • Iberian HamOne of the unique aspects of Spain is the production of Iberia Pork from Iberian pigs. The pigs are raised outdoors and for a period eat only acorns outside. Iberia pork qualifies if the female is bred to a Purebred Duroc. The meat has about 6% marbling and is very tasty, but it is also expensive. You can see the picture if Iberian whole legs selling for 259.95 euros or about $300 USD. A market Iberian hog sells for about 300 euros. Profitable today with about 250,000 sows like all other businesses has its ups and downs.
  • Spain unlike Northern Europe doesn’t have fancy barns. They are more like US southern integrators. Cost, cost, cost. Barns simple and as inexpensive as possible. Every fraction of a Euro matters. Advantage doesn’t have to deal with any cold weather so barns can be kept simple. The downside is the heat of summer slows down growth.
  • Spain is cost driven; one factor we see in all our visits in the EU is the lack of appreciation of growth rate. High growth rate hogs get to heavier weights or market sooner increasing the total value of carcass and/or barn utilization. We expect over the coming while, European producers will come to see the value of sows producing close to 4 tons of hogs per year.
  China China Ministry of Agriculture reported in July a liquidation of sows to the tune of 234,000. Genesus personnel in China are reporting producer profits of $80 USD per head. Market hogs selling for $300 USD – costs $220. We expect the historical liquidation of over 10 million sows is coming to an end with very solid profits, giving not only hope but needed cash flow. We expect ever-lower market hog numbers in China year over year for the next twelve months as the reality of number reductions from the sow herd. China will be buying more pork from the world there is no doubt. Summary The road trip is over and we are back home. 10 flights, 12 hotels in 17 days. A mad dash but a good one. Met lots of interesting and very smart people with a passion for our industry. We’ve got a world to feed with the population growing each and every day! We all are in a noble business producing quality protein as our livelihood. Good people in every country. I am proud to be a part of this business.

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