Canadian Pork Producers:

[Mustang Sally Farm]

Tuesday, March 22, 2011
Pork Commentary: Market Goes on Wild Ride
CANADA - This week's North American Pork Commentary from Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
Last week all commodities were on a wild ride – way down – then way up as the world looked at the implications of the earthquake in Japan. On the week Friday to Friday CME June hogs ended up but just barely.

Our Observations
We understood that US packers were seeing no slow down in the pork exports for Japan. Japan is the largest dollar value buyer of US pork.
USDA pork cut outs at the end of last week were over lean hog price. 92 cents a pound a strong 10 cent spread. We believe with the USDA pork cut outs seeing no weakness as another indicator that Japan’s pork demand has not waned.
Our understanding is that Japan’s Swine Industry is spread relatively evenly through their country. Where they are hardest hit reportedly has about 10 per cent of Japan’s hog industry. We believe Japan’s swine industry will have lower production in the short term while logistics caused by the crisis will lower pork consumption about a similar amount.
Summary
Our cowboy calculation tells us lower production will be cancelled by lower consumption. Net effect for North America – prices neutral in the end.

The tragedy in Japan lead to thoughtfulness on the part of the National Pork Board, National Pork Producers and the US Meat Export Federation to make a donation of $100,000 to ship pork products to feed earthquake victims in Japan.

“Our hearts go out to the Japanese people who have suffered from this terrible natural disaster,” said Conley Nelson, a pork producer representing the National Pork Board.

Our own experience in travels to 20 plus countries is that the World’s Pork Producers have much the same values and decency. The donation to Japanese earthquake victims is a further affirmation of our belief.

In our opinion the Foot and Mouth disease break in South Korea will be a much larger factor in North American markets over the next several months. 300,000 plus sows and three million pigs have been eliminated in South Korea. That is 5 million hogs per year and we can’t see how this production can get replaced within South Korea in less than two years. North America with 50 per cent of Global Pork Exports will be the primary supplier of this pork. This coming week we will be visiting South Korean Swine Producers and give some more observations next week. The South Korean Swine Genetic Industry has been devastated; Genesus is the largest supplier of high health registered purebred swine genetics to South Korea. It appears multiple flights of Genesus Genetics are Korea bound in the coming months.

Other Observations
The US retail price of pork averaged $3.28 per pound in February up 13 per cent from last year. Higher despite 1 per cent more pork available. A strong indicator of demand. In February packers and retailers made good money, while producers mostly sucked air. We expect that US weekly hog marketing’s could drop 150,000 a week from 2,150 million ranges to 2 million in the next 6 weeks. When that happens we have supercharged hog price increases of $40 per head. It will be the producer’s turn to have some extra cash!

Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Tuesday, March 29, 2011
Pork Commentary: Hogs & Pigs Report - More of the Same
CANADA - In this week's Pork Commentary, Jim Long comments on the 1 March Hogs and Pigs report released by the US Department of Agriculture on 25 March.


Jim Long is President &
CEO of Genesus Genetics.
Last Friday the USDA released the 1 March Hogs and Pigs Report. There are no big surprises. It shows an industry treading water. We expect prices will track over the coming months very close to where lean hog futures closed. For example last Friday with June at 103.70.

US Breeding Herd
The US breeding herd was estimated at 5.788 million on 1 March up 28,000 from a year ago (5.760) and up 10, 000 (5.778) from 1 December. This is a year over year difference of about ½ of 1 per cent; basically no change. At this time we see no indications of significant expansion plans. Historically high hog prices are being balanced off by historically high feed prices and real tight financial credit. The mood of the industry in our estimation is restrained optimism. There appears to be little enthusiasm for breeding herd expansion.

Market
The USDA estimated 58,176 million market hogs in inventory 1 March up just under 400,000 head from a year ago. The 400,000 head increase can be explained by our market hog weights up around 4 – 5 pounds year over year. Heavier hogs lead to longer days to market and larger inventories. 400,000 head is just over one day of US hog marketing’s.

Farrowing Intentions
The US breeding herd according to the USDA on March 1st was ½ of 1 per cent higher than a year ago. If this is correct you would expect farrowing intentions to be essentially the same as a year ago.

USDA Farrowing (thousands)
YEAR 2009 2010 2011
MARCH – MAY 3018 2929 2854
JUNE - AUGUST 2959 2944 2867

Farrowing intentions according to the USDA will be about 150,000 litters less over the next six months than a year ago. This with a breeding inventory essentially the same? It doesn’t make sense in some ways how will there be less farrowings with the same number of sows? Either there are less sows or farrowing intentions are under estimated?! We have no strong opinion other than we don’t believe there will be more pork produced in the next six months compared to a year ago.

Pig Crop
The US pig crop the last three months was 27.986 million up about 400,000 compared to the same three months a year ago (27.596) but down 600,000 from two years ago (28.552).

Litter Size
The productivity from pigs per litter just keeps getting better and better with Dec – Feb this year 9.80 up from 9.61 last year and up 9.48 from two year ago. We expect the gain is mostly from improving genetics. The last two years gain of .32 per litter is actually tracking below our company’s .45 per litter genetic trend line over the last two years.

Summary
Breeding inventory, and market inventory are holding steady, we expect lean hog prices will continue strong for the rest of the year.

Other Observations
We visited Korean customers this past week, the Foot and Mouth disease has eliminated approximately 350,000 sows and 3.5 million market hogs. Last week’s South Korean market hog price touched $7.00 US live weight a kilogram or about $3.28 US per pound. A price we have never seen so high, anywhere. Prices are always a reflection of supply and demand. Prices of $7.00 per kilogram are a true reflection of this scenario. Expect extraordinary amounts of pork to be exported to South Korea from North America in the coming months. It will be extremely price supporting.


Packers we talked to last week and other reports indicate Japanese Pork Exports continue unabated despite the crisis underway. It’s a major reason June lean hog futures have recovered from 95 cents to $1.03 in the last ten days.
Conclusion
Pig Report shows little inventory change. A steady breeding herd tells us Market Hogs have a good chance to stay over 90 cents for the next year.

[Mustang Sally Farm]

Thursday, April 07, 2011
Pork Commentary: The Only Sure is Volatility
CANADA - This week's North American Pork Commentary from Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
As we look at the coming months the only sure thing we see in the swine, and grain markets is volatility. Price ranges are moving at unprecedented levels.

A year ago 53 – 54 per cent lean hogs were averaging $70.45 per pound. Last Friday they were $90.03 or about $40 per head higher year over year. Some hogs are now trading at almost $1.00 lean per pound with premiums.


500 – 550 pound sows last week were moving at $63.36 live weight a pound, a year ago it was $56.79 which is about a $35.00 per head increase. We expect sow prices to jump another $30 - $40 per head in the next few weeks as summer barbeque season approaches and market hog prices increase.


The latest US weekly sow marketing’s were 59,000 head. At that level we believe there is no breeding herd expansion.


USDA pork carcass cut – outs averaged $92.12 per pound at the end of last week. With market hogs at around 90 cents per pound, packer margins have narrowed considerably. US market hogs last week were 2,128 million down 40,000 from a year ago. As we move seasonally closer to 2 million head a week we expect not only higher hog prices but tighter packer margins as they fight over hogs for their chains and maintaining market share domestically and for exports.


The hog market over the coming months should get support from very strong cattle prices. For example October live cattle came on the board at 93 cents about a year ago while last Friday October closed at a new record high $126. On a 1200 pound steer that is about $400 per head! There is no doubt record high cattle prices are going to pull hog prices up as consumers purchase pork as a meat alternative.


The USDA released its analysis last week that the US corn crop would be 4 million acres more than last year (88.19 – 92.18). The USDA also estimates a total increase of 9 million acres in the five major crops (236 – 245).


The downside for hog producers in the USDA estimates was the 6.52 billion bushels of corn in inventory which is well below expectations. Immediately the lower stock number pulled corn prices higher moving old crop corn up around 70 cents per bushel for May to close at $7.36 – a new high for this crop year.


It will be more than interesting to observe what happens globally on crop plantings this spring. Higher grain prices will definitely increase prospective plantings. This US has already found a potential 9 million more acres to plant. Russia and the Ukraine combined are expecting 130 – 135 million metric tonnes of wheat this crop year an increase from last year’s drought shortened 100 million tones. There is no doubt in our mind Canada also will find potentially a few million more acres to seed. We expect higher prices in grains will lead to maximum use of fertilizers, herbicides, improved seed, etc... Nothing like high prices to cure high prices.


The Politicians in Washington are debating whether to maintain the $6 billion subsidy for ethanol. Now we read that the corn ethanol supporters see it as national security issue. Corn ethanol protects America. It used to be about the environment but that’s been proven mostly a joke so it’s now a new story. Mostly we think it’s about the money. When food prices rocket higher with record beef, pork, etc… and there is more instability in many countries due to record high food prices it will be interesting to see how the National Security issues plays out. We would argue one of America’s greatest historical assets is the ability to produce food in excess at a low cost. Never depending on any other country to feed it. America’s economy and standard of living has been enhanced by the smallest percentage of disposable income (10 per cent) going for food in the world allowing the other 90 per cent of disposable income to drive America consumerism.
Summary
Lean hogs are on track to hit the $1.00 we predicted last August. High feed prices will continue to dampen breeding herd expansion, while domestic pork and export demand will stay strong aided by record high cattle prices.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

Wednesday, April 13, 2011
Pork Commentary: Corn Price Moves Even Higher
CANADA - This week's North American Pork Commentary from Jim Long.
 

This past week saw corn futures move higher with May corn a bushel closing at $7.68 up a $1.00 a bushel in the last 10 days. Using the benchmark that it takes approximately 10 bushels of corn to raise a hog in a farrow-to-finish system, this would equal a $10 per head increase in cost of production. Where does the corn price go from here, we have no idea.

Our observations would be these corn prices will encourage every nook and cranny of land in the Northern Hemisphere to be planted this year to some kind of grain. This will result in millions of more acres planted. At the same time, the higher grain price will at some point lead to less usage. Now we are reading of a commodity upturn that could last 30 years. That this time, it will be different. There have been commodity price swings forever, we expect no different in the future. There appears to be lots of speculated money in the grain market, when they get spooked. The market can run down as fast as it went up as the speculators head for the hills.

Hog market
The US hog market moved up last week with 53 to 54 per cent lean hogs averaging 92.31 at the end of the week up from a week ago's – 90.03 or a little over $4.00 per head improvement. May lean futures closed Friday at 100.97 meaning the futures market is expecting an increase of about $20 per head in the next four weeks. Let's hope so, with grain prices where they are break-evens are pushing toward 90 cent lean per pound.

Last week, the US marketed 2.069 million hogs, year to date 29.802 million, down 465,000 from year to date last year. Lean 53 to 54 per cent hogs were 75.35 a year ago. A true reflection of the strong pork demand we are having is the $30 per head more being received this year currently with supply down less than 1.5 per cent year to date.


USDA pork carcass cut–out values were $94.60 at the end of last week. At $94.60 cut–out and lean cash hogs at 92.71 packer margins have narrowed considerably in the last few weeks from the $10 spread they had. In our opinion, to reach $1.00 lean for hogs, USDA cut–outs have to increase nearly $10. To do that, we believe weekly US marketings have to be closer to two million a week. Hopefully, we will move there in the next few weeks.


Maybe the high cost of grain is finally pulling hog slaughter weights down. The latest Iowa–South Minnesota weights were 273.7 pounds up 3.5 pounds from a year ago. Though higher the spread at 3.5 pounds is the narrowest it has been for months year-over-year. It is a dilemma for producers as individually they can benefit financially from heavier hogs with more pounds of pork produced. On the flip side, lighter hogs throughout the industry would probably increase hog prices and profits higher than the benefits received from heavier hogs as less pork tonnage would raise hog prices. We expect the seasonal decline in weights will happen as it does every year.


The US dollar index relative to other countries has decreased from above 88 to about 75 in the last year a decline of almost 20 per cent. This is allowing for many foreign countries to purchase pork, beef, grain, oil, etc. at what for them are discounted prices. In turn, this is helping US pork exports demand. For example, the average foreign buyer who purchased pork at 80 cents US last year can pay almost US$1.00 this year and it costs them the same in their own currency. On corn, it helps the average foreigner's purchasing power nearly $1.00 per bushel.


Canadian swine producers are feeling the affect of a weaker US dollar. April two years ago, the Canadian dollar averaged 81.5 cents to the US dollar. Last Friday, the Canadian dollar closed at $104.49 up about 28 per cent in the two years. The Canadian swine market prices are mostly the US hog price less trucking so it has been in the past mostly discounted. With the Canadian dollar gaining strength, Canada's cost of production in US dollar terms has increased. This in itself will do more to damage the Canadian industry then US country of origin labelling (COOL), H1N1 (swine flu), US countervail etc. With the high cost of feed, stronger Canadian dollar and mostly negative market basis vis-àvis US hog prices we do not expect any expansion of Canada's breeding herd anytime soon.
Summary
Lean hog prices appear on track to get to a dollar lean in the coming weeks. Unfortunately, high grain prices will restrict profitability. Over the coming months, the lower US dollar will help maintain US pork exports while it in turn restricts Canada's pork industry. With current Cash cattle prices 30 cents per pound higher than the last three-year average for cattle (90 cents vs. $1.20), this will encourage domestic and international consumers of meat to look at pork as value option driving pork demand and strengthens hog prices.

World meat consumption is 46 per cent pork and in the coming months the demand for pork will increase as the global economy slowly improves. Price supportive.

[Mustang Sally Farm]

Tuesday, April 19, 2011
Pork Commentary: US Pork Exports - Very Strong
US - In this week's Pork Commentary, Jim Long writes about US pork exports.


Jim Long is President &
CEO of Genesus Genetics.
US pork exports in February accounted for 27 per cent of US pork production versus 25.2 per cent in February 2010. Total pork exports jumped 15 per cent in value. A tremendous accomplishment, more pork sold at a higher price.

Regular readers of this commentary know we have been predicting for 3 months major US pork export increases will be had with South Korea due to the huge liquidation (35 per cent) of its swine inventory because of foot and mouth disease. South Korea has purchased $81.3 million of US pork in the first two months of 2011, double 2010. Last week Genesus had visitors from South Korea. The market hog price in South Korea they said is $500 per head; cost of production is $250 per head, net profit gain of $250 per head too. Imagine making $250 per head for a market hog – it is mind boggling!

With market hogs at $500 per head in South Korea expect US pork exports to stay strong, which is very price supportive.

Japan, the leading value market for US pork was up 17 per cent in value at $280 million the first two months this year compared to last.

With USA – Canada still having the lowest market hog prices in the world we expect pork exports will stay strong in the coming months as demand pulls pork to different countries. The 27 per cent of US pork production being exported will support the hog price move to $1.00 lean per pound expected in the coming weeks.

Markets
Hogs 53 – 54 per cent lean averaged $94.74 at the end of last week moving ever closer to $1.00.


USDA pork cut–outs were $96.57 lean per pound, the spread between hog prices and cut–outs has narrowed considerably from what was over $20. Weekly hog market numbers have dropped to just over 2 million a week (2.028 million) down around 300,000 head per week from last fall.


The market hog price has not only increased $50 per head in the last three months as market hog numbers have declined but so have packer margins as competition between packers to keep their plants full has cut their margins. We expect packers will continue to chase hogs over the next few months and will be working for lower margins.


USDA cash early wean pigs last week averaged $41.49 (32 – 49) while cash 40 pound feeder pigs averaged $74.94 (65 – 86). Decent historical prices but with higher feed prices not a lot of money left over.


Last week Iowa – S. Minnesota live hogs averaged 273.1 pounds compared to 270.12 pounds a year ago. Year over year weights continue to narrow as high feed prices take their toll.
Corn
May corn settled Friday at $7.42 a bushel after reaching $7.83 on Monday. The insanity of corn prices is going to have far reaching ramifications domestically and globally for pork and all meat production.

Some Observations
Oil a barrel has gone from July last year $75 to $110 a barrel. May corn have gone from $4.00 a bushel last July to $7.42. We expect if you want to know corn’s price direction figure out where oils going.


We read some industry facts in feedstuff in an article by Thomas Elam of Farm Econ LLC.


On an energy basis 211 million barrels of ethanol (gasoline equivalent) were produced in the US in 2010. The USA consumes approx 20.680 million barrels of oil per day or approx 73 billion barrels of oil per year. Corn ethanol at 211 million barrels produces about 1.5 per cent of consumption – not much is it?


Dr Elam estimates the US corn ethanol program increased grain prices globally $60 per ton in 2010. The direct cost to the global food system, increased cost of oilseeds, and other primary food commodities he estimated was $200 billion.


The US oil industry received 7 cents/gallon in subsidies in 2010. Ethanol production received 45 cents/gallon (67 cents/gallon on a gasoline energy basis. (Big subsidies – boondoggle).


The world consumes 85 million barrels of oil per day. US corn ethanol replaces 2.5 days of yearly global oil consumption.


Dr Elam “in summary, ethanol is an expensive gasoline substitute that is produced mainly due to subsidies and usage mandates. Take away tax credits, tariff production and usage mandates, and the US ethanol industry would collapse. With that collapse would come much lower grain and soybean prices.”


A Wall Street Journal editorial a couple of weeks ago on corn ethanol stated “driving up the cost of food and fuel with no benefit for the environment or American energy security.”
In the coming months the corn ethanol battle will continue to be engaged. For the sake of our livelihoods we hope common sense can and will prevail.

Summary
US pork exports continue strong, the US lean hog price has hit 94 cents and we are on track to get to $1.00. High feed prices are cutting profit margins but also initiating any sow herd expansion. In the next few weeks record hog prices will be received.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

Tuesday, April 26, 2011
Pork Commentary: Lean Hog Prices Push Closer to $1.00
CANADA - This week's North American Pork Commentary from Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
Cash lean hogs continued to push higher last week with 53 – 54 per cent lean hogs averaging 95.76 lb US at the end of the week up from 82.70 US a year ago or about $27.00 per head. It is certainly better, but when you consider Omaha corn a bushel was $3.45 a year ago and now it’s around $7.50 a bushel it is not so special. The $4.00 per bushel year over year increase is about $32.00 per head jump (eight bushels per head) in cost of production. That is a $27.00 increase in hogs per head versus a $32.00 per head increase in feed costs. That means we are spinning our wheels especially if you are buying feed. Producers that grow their own crops have on the other hand very good cash flow. The traditional model of grow your feed, feed your hogs, and put manure on your fields probably has never been better.

Last week the very top price lean hogs brought $105.79 lean per pound according to the USDA Prices are certainly appreciating.


The latest weekly US sow marketing’s indicate 55,657 an indication of breeding herd stability in our mind. We have never had breeding herd expansion when the hog to corn ratio has been below 15, currently it is 12, a year ago it was 22. The US breeding herd did not expand last year with a 22 hog to corn ratio, we don’t expect expansion at 12.


In the Swine Genetic business it is in Genesus’ best interest to sell breeding stock. Consequently, we are always looking to see who will be stocking empty sow units or new sow units. From our vantage point we observe numerous sow units sitting empty in different parts of Canada – USA. They have been sitting empty for months. Many of them deteriorating from inactivity. It is hard to get capital as bankers and investors are cautious. Many empty units are entangled with debt and credit issues; compounding this is many empty sow units have more debt than anyone will pay in the current market conditions. As far as new sow units being built there are probably less being built than in the last twenty years. What this means in our equation is that nothing is happening to significantly increase pig production in USA – Canada. Lean hog prices will stay strong through the summer of 2012.


There is much wringing of hands due to the delay of corn planting because of wet weather. We aren’t crop experts but we expect the record 43 per cent corn crop planted in a week (1992) could be surpassed with the equipment and intensity there is today. $7.00 plus corn has crop farmers ready to roll like never before. Thankfully the Government is not in charge of organizing the corn planting.
Global Swine Markets
High feed prices will restrict expansion of Global Swine production over the coming months. As we reported last week in the Genesus Global Market Report on a US dollar equivalency live weight per pound. The US was 67 cents, Mexico 73 cents, Brazil 68 cents, Russia $1.31, China $1.02, Spain 82 cents. Canada at 61 cents per pound has the lowest hog prices in the world.

The point is, Global Swine prices are historically high. This reflects on supply and demand. Nothing we see in our Global travels tells us there is any significant expansion underway. High feed prices are keeping everything in check.

Corn Ethanol
Last week we received the following email from a hog producer – corn grower in Iowa where they have more hogs and grow more corn than any other state. It is a perspective that we don’t really agree with but we believe it was well thought out and written. Our society is based on diversity of thought – we respect such.

Have enjoyed your commentary on the hog markets for the past 10 years or so. Have met you at the Swine Shows and am a weekly reader of your column. We are a fifth generation North Iowa forever raising pigs family farm. We used your Genetics when we farrowed right up until we stopped but we still iso wean over 20,000 head of hogs.

I wanted to share a survey taken by the Iowa Pork Producers last fall that I thought was interesting. Around 500 producers took time to fill this out. Here are some results I wanted you to see from grassroots hog production in the state of Iowa if that means anything anymore.

500 producers returned the survey
66 per cent of them attend the Pork congress
73 per cent are owner operators
94 per cent PQA/TQA
BIOFUELS

How should the federal ethanol standard be handled in the future

26.6 per cent keep it the same

47.2 per cent increase the blending amount

11.8 per cent reduce it

14.4 per cent no opinion


Support of blenders and import credit - Tax

53.2 per cent keep it the same

7.7 per cent increase both

24.3 per cent reduce both

14.8 per cent no opinion

74.6 per cent own no shares in biofuel plants and 50 per cent of the corn they raise is fed to hogs
As you can see your comments about the evils of ethanol is preaching to a different crowd of pork producers here in Iowa. A rising tide floats all ships and ethanol has done that for farmers. You need to weigh the tax credits of bio-fuels against huge tax credits for big oil. How about military spending to guard the oil as well as lives lost and damage to environment? Haven’t read much on ethanol spills tanking a Gulf of Mexico or earthquakes putting radiation in the air lately. New jobs plus new refining and tax revenues find it hard to be against ethanol in the country. Farmland is up in value and taxes are up to educate our children in schools. Machinery dealers are sold out. The tide is up!

And the argument for rising food costs is bogus considering the small amount of every dollar we receive at the farm gate. Also remember that DDGS go back in our rations. We are finding that family livestock farmers feeding their own corn generally like ethanol for what it’s done. We get our check from the market and not an LDP. Generally those that don’t like ethanol are the ones who thought they were going to be the biggest in the pork industry without planning that we are now in a Global market.

As a pork producer of 40 years there are better rabbits to chase than ethanol that will make more impact for hog producers in the days ahead.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

Tuesday, May 03, 2011
Pork Commentary: Tough Week for Hog Producers
CANADA - This week's North American Pork Commentary from Jim Long.
Jim Long on ThePigSite

Jim Long is President &
CEO of Genesus Genetics.
This past week saw May corn close at $7.54 a bushel, meanwhile in the last 10 days, lean hogs dropped from $1.02 lean per pound to a 95.225 cents close Friday (29 April), wiping a potential $15.00 per head off margins. That is a nasty move down. Average US 53 to 54 per cent lean hogs were $95.15 while USDA carcass cut-outs were $93.31 per pound. Packers are working for nothing or less. It will be really hard to push lean hogs higher without carcass cut outs moving up. Packers will work for nothing – they are almost like us farmers – but we doubt they will bid for any length of time for live hogs at a price higher than carcass cut-outs.

A while ago, US packers were making over $30 per head. Now they could be losing money it is the old supply and demand. When packers were making $30 per head, there was around 2.3 million hogs per week. Now, it is two million per week. With fewer hogs to chase, packers are bidding up.

One factor which could be helping packer margins is on export sales, which we understand are not in the USDA cut-out calculation. With about 25 per cent of US pork being exported, we expect export margins are better than domestic and this is helping fuel packer demand and allowing them to better their financial picture.

Corn planting is slow with wet weather delaying planting pushing corn prices higher $4.00 a bushel higher than a year ago. With a hog-to-corn ratio at 12.5 to 1, there is little profit potential for producers who buy feed. For producers who grow their feed, it has never been much better.

Last week, Cargill announced it had purchased Smithfield Foods Dalhart Texas empty swine operation for $32 million. The site, we understand, has a capacity for 35,000 plus sows. We find this interesting as it is the first major move for an increased breeding herd in the US in the last three years. Cargill as one of the world's largest privately owned companies is showing in our mind a very positive faith in the future of the US pork industry. Cargill is everywhere in the world and has shown they are adept at investing anywhere. The decision for Cargill to invest in Dalhart and America makes us believe as a very smart company they see a future in the US swine industry, and as one of major global grain traders a strong future for competitive meat protein production despite high grain prices.

Canada swine inventory
Statistics Canada has released its 1 April swine inventory report.

Canada inventory on 1 April (thousands of head)
Year Breeding herd Boars >6 months All other hogs
2005 1,628 36.3 13,442
2010 1,313 19.9 10,336
2011 1,308 16.9 10,501

As the table illustrates, the Canadian Breeding Herd and market hog numbers are basically the same as a year ago. We are treading water after the obvious huge drop in production capacity approaching 20 per cent in the last five years. You can also see the evolution of AI in production with half the boars in inventory compared to 2005. We see little in Canada to encourage expansion in the breeding herd with high feed prices and the Canadian dollar five per cent higher than the US dollar. It takes capital and courage to expand and we see little of that in Canada currently.

Currently, Eastern Canada (Ontario – Quebec) has 740,000 breeding animals (2005: 898,000) while Western Canada (Manitoba, Saskatchewan, Alberta) have 567,000 breeding animals (2005: 737,000). At one time, there was a belief the west would surpass the east in swine production due to the abundant grain and land available. It has not happened and it appears probably never will.

Great Britain
Last week, we read a report on the British pork industry by the British Pig Executive that the average producer of finishing pigs is losing around UK£18 (US$29.96) per pig sent to market. Little recovery in profits are expected soon with cost of production estimated at UK£1.60 (US$2.66) per kilogram carcass weight. That is a break-even of about US$1.20 lean per pound. Great Britain's sow herd slaughter is running 15 per cent higher than a year ago. High feed prices will continue to challenge global hog producers and we expect will continue to cut global pork supply.

US – Canada
US–Canada are essentially connected in a Continental market. Last week, the combined US–Canada first quarter combined inventory report was released.

First quarter inventory (thousands of head)
  2010 2011 2011
as % of 2010
Kept for breeding 7,074 7,096 100
Market 68,144 68,678 101
Pig crop 34,841 35,119 101

In total, 27,000 more breeding animals and about 500,000 more market hogs year-over-year or about 20,000 more market hogs a week. There is next to no change. Nothing in these statistics indicate expansion just productivity gains. With an ever increasing continental population and strong pork export demand, we expect to see lean hog prices to be around $1.00 lean a pound through the summer of 2011 and have strong prices through the summer 2012.


Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Tuesday, May 10, 2011
Pork Commentary: Corn Moves Lower
CANADA - This week's North American Pork Commentary from Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
July corn has moved from $7.61 a bushel on 29 April to $6.86 a bushel 6 May that is a drop of 75 cents in a week. That is the right direction in our world, taking $7.50 per hog off swine cost of production. A drop of 10 per cent in July corn follows the downward trajectory of oil last week from over $1.10 a barrel to below $100. A couple of weeks ago we made the observation the corn market will follow oils trends, so far lock step. We expect corn will continue to follow oil price trend.

Hog Markets
At the end of last week US National Base 53 – 54 per cent cash lean hogs were 92.17 down 3.00 week over week. Prices are going in the wrong direction. It’s making producers jumpy with feed prices where there at not much of any profit in these prices.

Market hog numbers continue to decline with last week’s US numbers at 1.989 million head we expect going forward week up week of hog numbers fewer than 2 million will push up hog prices to $1.00 lean per pound.

Cash feeder pigs and early weans have come under price pressure, with cash early weans averaging $24.33 (18.00 – 33.00) and 40 pound feeder pigs $62.20 (50 – 54) both groups are down over $20.00 per head from recent highs. These price declines are a reflection of the cost of feed and lean hog future prices and market psychology. Prices of $24.35 for early weans will not encourage expansion.

Larry Pope CEO Smithfield
When the CEO of the worlds largest hog producer talks it’s time to listen. (One million sows). Below is an interview that appeared in the Wall Street Journal with Larry Pope CEO of Smithfield Foods Inc. (not many of us read the Wall Street Journal regularly). We believe it’s a producer’s well articulated assessment of where the hog industry is and our challenges. Read it, largest to smallest producers we have many of the same challenges.

By Mary Kissel

New York

Bobbie Jean Pope, the 81-year-old mother of C. Larry Pope of Newport News, Va., can't afford her bacon.

"I said, 'Mom, I'll get you some bacon.' And she goes, 'I can't afford y'all's meat anymore! Why is y'all's meat so expensive?' And I said, 'Mom, you ought to understand why it's expensive—it's 'cause our costs are so expensive.'"

Mr Pope is the chief executive officer of Smithfield Foods Inc., the world's largest pork processor and hog producer by volume. He doesn't mince words when it comes to rapidly rising food prices. The 56-year-old accountant by training has been in the business for more than three decades, and he warns that the higher costs may be here to stay.

Courtesy of? "I'm not going to say, 'a political policy,'" he tells me. (His senior vice president, a lawyer by training, sits close by, ready to "kick his leg" if his garrulous boss speaks too plainly.) But politics indeed plays a large role, as Congress subsidizes favorite industries and the Federal Reserve pursues an expansive monetary policy.

Ours is a timely chat, given the burst of food inflation the world is living through. Mr Pope is running a multibillion-dollar business in the midst of economic turmoil, and he has strong views about why prices are rising and what can be done about it.

The Southerner is an old hand when it comes to food. He graduated from William and Mary in 1975, spent a few years at an accountancy, then joined Smithfield and worked his way up the ranks. He's something of an evangelist about his trade: He boasts that Smithfield employs some 50,000 people, many of whom are high-school graduates and immigrants others would consider "hard to hire." It's a "good business" that "gives people a good start."

It's also a business under enormous strain. Some "60 to 70 per cent of the cost of raising a hog is tied up in the grains," Mr Pope explains. "The major ingredient is corn, and the secondary ingredient is soybean meal." Over the last several years, "the cost of corn has gone from a base of $2.40 a bushel to today at $7.40 a bushel, nearly triple what it was just a few years ago." Which means every product that uses corn has risen, too—including everything from "cereal to soft drinks" and more.

Inflation: An overview of the prices consumers really pay

What triggered the upswing? In part: ethanol. President George W. Bush "came forward with—what do you call?—the edict that we were going to mandate 36 billion gallons of alternative fuels" by 2022, of which corn-based ethanol is "a substantial part." Companies that blend ethanol into fuel get a $5 billion annual tax credit, and there's a tariff to keep foreign producers out of the US market. Now 40 per cent of the corn crop is "directed to ethanol, which equals the amount that's going into livestock food," Mr Pope calculates.

The rapidly depreciating dollar is also sparking inflation, although Mr Pope says that's a "hard" topic for him to discuss, trying to be diplomatic. But he doesn't deny that money is cheap. Investment bankers are throwing cash at the firm—a turnaround from 2008, when money was scarce—even though Mr Pope doesn't need it right now.

Rising prices are already squeezing food producers' "two to three percent" earnings margins. "Many of us had our costs hedged in the commodity markets and we all took on strident measures to control our cost structures," Mr Pope says. "In the case of Smithfield, we closed six processing plants and one slaughter plant. We also closed 15 per cent of all our live production business." But "once those measures are done, we have no choice but to pass those prices down" to consumers.

Now food price inflation is popping up across the country. A pound of sliced bacon costs $4.54 today versus $3.59 two years ago and $3.16 a decade ago, according to the Bureau of Labor Statistics. Ground beef is $2.72, up from $2.27 in 2009 and $1.74 in 2001. And it's not just Smithfield's products: "You eat eggs, you drink milk, you get a loaf of bread, and you get a pound of meat," he drawls. "Those are the four staples of what Americans eat in their diet. All of those are based on grains."

"Maybe to someone in the upper incomes it doesn't matter what the price of a pound of bacon is, or what the price of a ham, or the price of a pound of pork chops is," he says. "But for many of the customers we sell to, it really does matter." Workers can share cars when the price of oil rises, he quips, but "you can't share your food."

Mr Pope also worries about the impact on farmers, who are leveraging up operations to afford the ever-rising price of land and fertilizer that has resulted from the increased corn demand. "There are record prices for livestock but farmers are exiting the business!" he exclaims. "Why? Farmers know they won't make money."

Weather is a factor, too. "We've had the luxury for the last three years of extremely good corn crops, with high yields and good growing conditions. We are just one bad weather event away from potentially $10 corn, which once again is another 50 per cent increase in the input cost to our live production."

Mr Pope says companies are coping by increasing prices "substantially" or shrinking "what's in the package." "That's the alternative way of passing on price increases . . . 'cause we're all trying to reach price points with our customers in terms of what we can sell somethan' for." "You're ultimately going to buy less bacon. . . . We're going to sell pizzas with less pepperoni on 'em." (Mr Pope's team also laments the effect on beer prices.)

Not all companies will survive this economic whirlwind. Mr Pope recalls what happened the last time there was a surge in corn prices, in 2008: "The largest chicken processor in the United States, Pilgrim's Pride, filed for bankruptcy." They "couldn't raise prices, so their cost of production went up dramatically." Could it happen again? "It darn well could!" Mr Pope exclaims.

Food price inflation isn't a problem confined to America's shores. "This ethanol policy has impacted the world price of corn," Mr Pope says. The Mexican, Canadian and European industries have "shrunk dramatically. . . . We have an unsustainable meat protein production industry," he says. "We're built on a platform of costs, on a policy that doesn't make any sense!"

Nor does the science. The ethanol industry would supply only 4 per cent of the nation's annual energy needs even if it used 100 per cent of the corn crop. The Environmental Protection Agency has found ethanol production has a neutral to negative impact on the environment. "The subsidy has been out there since the 1970s," Mr Pope says. "If they can't make themselves into a viable economic model in 40 years, haven't we demonstrated that this is an industry that shouldn't exist?"

So what's the solution? First, Mr Pope says, get rid of the ethanol subsidies and the tariff. "I am in competition with the government and the oil industry," he says. "It's not fair." Smithfield's economists estimate corn prices would fall by a dollar a bushel if ethanol blending wasn't subsidized. "Even the announcement that it is going away would see the price of corn go down, which would translate very quickly into reduced meat prices in the meat case," he says.

He also advocates lifting regulatory and tax burdens on business. "I fundamentally don't understand the logic of corporate income taxes," he tells me. "If I have a 35 per cent tax, all I do is take that 35 per cent tax and I transfer it into the price of bacon and the price of pork chops."

Then there's the challenge of opening up export markets, which Mr Pope sees as a long-term opportunity for US agriculture. "This is a land-rich country, with rich soils, with the right kind of temperatures and the right kind of cultivation practices," he says. "We can raise livestock and compete with anybody in the world. That's how we can help the balance of payments." (Smithfield has European operations but has had a hard time cracking Asia, and especially China. "It's easy to invest," Mr Pope says, but "it's hard to make money" there thanks to rampant intellectual-property rights violations and other hazards.)

While Mr Pope waits to see how the politics of ethanol and trade play out, he's not standing still. He's assigned one of his senior executives the task of figuring out what else Smithfield could possibly feed hogs, other than corn. Could Mr Pope have envisioned setting up such an enterprise a few years ago? "Absolutely not" he says. "It's me trying to change our business model to adapt to the realities that I have to live in."

Mr Pope says the "losers" here "are the consumer, who's going to have to pay more for the product, and the livestock farmer who's going to have to buy high-priced grain that he can't afford because he's stretching his own lines of credit. The hog farmer . . . is in jeopardy of simply going out of business 'cause he doesn't have the cash liquidity to even pay for the corn to pay for the input to raise the hog. It's a dynamic that we can't sustain."

Ms Kissel is a member of The Journal's editorial board.


Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Thursday, May 26, 2011
Pork Commentary: Road Trip to Russia
RUSSIA - The last week we spent in Russia we participated in the Livestock and Poultry exhibit VIV Moscow and we also toured some customer farms, writes Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
Our Observations
We thought Christmas had come early after we spoke to hog producers. Santa Claus arrived with Live Hogs $1.38 US live weight a lb. (85 rubles/kilo). Cost of production should be the same as the USA with similar feed costs. Who wouldn’t like making over $100 US per head.


Russia, a country of 145 million, is currently importing over 30 per cent of its domestic pork needs. Tariffs and Import Quotas lend strong support to hog prices.


We understand that approximately 50 per cent of Russia’s hog production is done by backyard farmers. These hogs are mostly consumed by the people producing them and few go into regulated slaughter plants. With market hogs around $300 a piece, its strong incentive for this type of production in a country where a worker makes less than $1000 per month.


One of the major issues of unregulated backyard swine production is the ongoing outbreaks of Africa Swine fever in Russia. The economic consequences of this disease are a major fear of commercial producers. Russia government officials are working diligently to stop Africa Swine Fever but with thousands of backyard open swine locations it’s nearly an impossible job.


VIV Moscow is a very large exhibition. Companies in the livestock and poultry industry attended from all over the world. There were dozens of companies from China in the equipment and feed ingredient business. You can see why China is successful exporting, they are aggressive. There were a handful of companies from North America. Sad in many ways to see so few. Russia is an ideal North American market. Similar climate and similar scale of projects. Genesus was the only North American Swine Genetic Company that participated.


The high profits in the swine industry and low interest Russia government loans are encouraging new sow barn construction. We spoke to several groups with plans for barn construction. Government officials we spoke to expect 800,000 new sow spaces built in the next several years. These new facilities are for expansion and the expected evolution from backyard production.


Last year Russia had a severe drought. In some areas yields were 35 per cent of norm. We saw hundreds of thousands of hectares (acres) of cropland in the Kuban region, 1,000 miles south of Moscow) an area many consider the breadbasket of Russia (between Caspian and Black sea). What we saw was excellent crops, wheat, corn, sunflower, and barley. If weather holds Russia’s crop production is back to normal.


We met with a high ranking official. He told us that there is over 40 million acres (20 million hectares) of potential cropland in Russia is not being used. With world grain prices as they are more and more of this land will come into production. Many tracts of land are being leased for forty nine years at $7 an acre. Once this land comes back into production it will be probably keep producing at the low land usage costs. Went by a Claas combine depot, must have been 150 combines there. Great place for John Deere, Case, Agco, etc. Russia needs equipment to crop farms.


Had a good trip from a personal and company perspective. Signed contracts for 12 planeloads of Genesus breeding stock. The demand for updated technology and management in Russia is paramount. Swine Genetics are a component needed to drive to rapid modernization.
Summary
Russia producers should be making $100 plus per head. There will be new sow barn construction. The crops we saw were excellent, with the high global prices encouraging maximum yields and more cropland coming into production.


Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Tuesday, June 21, 2011
Pork Commentary: Lower Corn Plus Higher Hogs
CANADA - This week's North American Pork Commentary from Jim Long.


Jim Long is President &
CEO of Genesus Genetics.
This past week hog producers caught several breaks. It’s about time! The list of breaks follows.

A week ago last Friday US lean hogs 53 – 54 per cent averaged $91.27 a lb. A week later they were $94.87. That is a bump up of $7.00 per head.


July corn hit $7.99 a bushel on 10 July a week later 17 June, last Friday July corn closed at $7.00 per bushel. That is a $1.00 a bushel decline which is about an $8.00 per head saving on cost of production. Higher hogs lower corn all good news for hog producers.


The latest Iowa – S. Minnesota market hog weights are 268.6 pounds live weight down 2.1 pounds from the week before and 2.4 pounds (271) from a year ago. This is real positive news. For months Iowa – S. Minnesota weights had been 5 pounds higher year over year. Now 2.4 pounds lower means hogs are more current, market hog inventory is down and packers will have to bid up to get hogs – which they are.


Last week’s US hog marketing’s were 1.973 million head down about 30,000 from the same week a year ago. Lower hog numbers and lower hog weights mean less pork.


Chicken producers are blinking after expanding with egg sets and production running 3 per cent higher than a year ago. The chicken coop boys are now down 3 per cent on egg sets. They deserve their red ink. Corn has doubled in price and they expanded. With 12 city chicken broilers 83.36 cents per pound versus 86.80 cents per pound a year ago. Allen Family Foods who produces 2 million birds a week filed chapter 11 bankruptcy on June 11. What do you expect in an industry that expanded in the face of high feed prices and no price increase for chicken? Red ink!


Big move in the cattle market last week with June live cattle up 7.03 or about $80 per head. Every dollar cattle go up in price there is more support for higher hog prices.


We expect cash early weans at a $17.77 average and 40 pound cash feeder pigs at $41.51 average are at a seasonal low. Over the coming weeks we expect lower feed prices and higher lean hog futures will pull prices higher.


Pork exports are going to stay strong. China’s live hog prices hit record highs last week reaching $1.22 US live weight a pound ($2.69 kilo). Prices that high mean China’s supply of pork is down and demand is strong. We expect greater pork exports to China and Hong Kong (gateway to China) in the next few months. High feed prices will dampen any Chinese expansion plans.


South Korean demand for imported pork should stay strong for the next year. Market hogs are over $500 US per head. Foot and Mouth Disease eliminated 350,000 sows and their production. It will take a couple of years for South Korea’s industry to recover.


Global demand for pork has pushed US prices to record levels. We expect in the coming week’s further price increases as the supply chain of hogs gets even more current.
Corn Ethanol Loses Key Senate Vote
Last Thursday the US senate voted 73 – 27 to immediately end the 45 cent Volumetric Ethanol Excise Tax Credit and the 54 cent import tariff. Further votes by the House of Representatives are needed to get this finished.

To say corn ethanol as a favoured child of politicians and environmentalists is over is not an exaggeration. Soon they will have their mandated usage under assault. The whole moral, social, and economic foolishness of corn ethanol will continue to erode corn ethanol support. As livestock producers having a level playing field with ethanol producers is imperative. 73 – 27 was the Senate vote, that’s a big difference. Probably Corn Ethanol plant shares have seen their historical highs.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

Wednesday, June 22, 2011       Global Interest in Needle-Free Injection Fueled
CANADA - Officials with AcuShot report the successful adoption of needle-free injection within western Canada's pork industry is helping fuel global interest in the technology, writes Bruce Cochrane.




Farm-Scape is sponsored by
Manitoba Pork Council and Sask Pork

FarmScape is a Wonderworks Canada production and is distributed courtesy of Manitoba Pork Council
and Sask Pork. 
Needle-free injection uses high velocity and pressure to create an opening, seven to ten times smaller than that of a conventional needle, to instantaneously force the veterinary compound being administered through the skin.

Both Manitoba and Saskatchewan currently offer incentives to encourage the adoption of needle-free injection.

AcuShot regional marketing and technical support manager Mike Agar, who was on hand earlier this month at World Pork Expo in Des Moines to demonstrate the technology, reports that Canada is already seeing this and awareness is building.

Mike Agar-AcuShot
The key is getting people using the technology successfully and ground swell grows from that.

We're seeing, in Canada there's been a real buy-in by the processing side of things that's really advocating the use of the technology because they actually see that it is viable and it helps them in what they're marketing and what they may or may not have to actually detect at the processing plant relative to needle reside.

Canada is really leading the way in this and getting people using it and we're seeing people uptake the technology there.

Get a number of successful situations and the word spreads pretty quick.

From my experience coming out of Canada here and in particular in Manitoba the sheer volume of calls based on what people are hearing from how people are doing in Manitoba with our technology, people are interested in using the technology and we're just on the forefront of this.

Mr Agar says in the United States there are grave concerns over the spread of PRRS and, because the technology eliminates the potential for cross contamination, it's grabbed the interest of American producers as a way to reduce the transmission of that disease.

He notes a lot of sales are being made to South Korea right now because of the foot and mouth disease outbreak there.

[Mustang Sally Farm]

Tuesday, June 28, 2011
Pork Commentary: US Hogs and Pigs Report
US - In this week's Pork Commentary, Jim Long writes about the latest Hogs and Pigs report released by the USDA on 24 June.

Jim Long is President &
CEO of Genesus Genetics.
US lean hogs reached over $1.00 lean last week. Some individual net lots exceeded $1.10 lean per pound. No matter how you figure it the average market hog is bringing over $200 per head. These are record prices. Since the World Pork Expo market hogs have jumped 15 cents a pound and corn has dropped over $1.00 a bushel. The cash price margin swing over $30.00 per head. This is an improvement we all need!

We wrote last week that we believe early weans and feeder pigs had hit the seasonal price floor. This week they were steady to $2.00 per head higher. Feeder pig brokers also told us this past week they believe the seasonal cash price floor had been hit.


July corn June 10 reached $7.99 a bushel; last week it closed at $6.70 a bushel. This is still too high but $1.30 lower in 2 weeks. The difference is $10 per head in cost of production. This has done wonders for psychology. When corn was $7.99 the idea was for it to go to $10.00, a terrible crisis for the swine industry. The $1.30 a bushel drop to $6.70 clearly shows that there is a down not just up to the corn market. It just needs to keep going down.


We believe that the cash hog market is going to remain strong in the $1.00 plus range over the coming weeks. Pork exports sales should be extra strong. China, Korea, Japan, Russia, Viet Nam, etc… all have cash hogs over $1.50 lean per pound. At that price it means supply is low and demand is high enough to sustain their market prices. There will be pull of North American pork to these markets.
We often hear the fable that US consumers will have price resistance with pork over $1.00 lean. Maybe it’s true but consider this: 2 per cent of the Chinese make over $15,000 US per year. Lean hog prices are over $1.50 lean a pound in China. It is not hard to figure US vs. China which consumer has more buying power. The US consumer also doesn’t want to buy $4.00 a gallon gasoline – but they do. It’s part of lifestyle just like eating meat is.

June Quarterly Hogs and Pigs Report

(Thousands)
  2010 2011 2011 as % of 2010
Kept for Breeding 5788 5760 100
Market 57808 58021 100
Sows Farrowing (March – May) 2929 2877 98
Pig Crop (March – May) 28730 28851 100
Pigs per Litter (March – May) 9.81 10.03 102

Treading water = record high hog prices would normally cause expansion, but real high feed prices and a hog to corn ratio of 12:1 has kept the breeding herd and pig numbers about the same. The good news is the market inventory is not expanding while global demand for pork is growing. Keep in mind a year ago 53 – 54 per cent lean hogs were 81.85 lean a pound. We are 20 higher currently or $40 per head. This is despite the same number of hogs going to market. Demand for the world’s most popular meat is being proven in this 25 per cent higher price year over year.

The productivity factor can be seen clearly in the report. Pigs per litter are up .22 year over year to 10.03 – a new record. We expect productivity to increase, at Genesus we see a genetic trend line of 25 per litter of pigs born per year improvement. Genesus now has customers weaning 13 pigs per litter consistently; 3 pigs better than the 10 per litter last quarter on the Pig Report. Productivity will continue to increase, with the most successful producers utilizing the best available technology.

Ontario Pork Congress
Last week we attended the annual Ontario Pork Congress in Stratford Ontario. Our observations:

Ontario is unique in that there are only two producers with over 10,000 sows in the sow population of approximately 330,000.


Most producers in Ontario are family farmers who work in the barns, grow their own feed, and put the manure back on the land. This is real integration. A model in these times of high hogs and high feed that works real well.


The psychology of producers at the Ontario Pork Congress was significantly more positive than the World Pork Expo. It is probably mostly due to the $30.00 plus gain in hog process and lower feed prices in the two week time period.


The Ontario industry we believe is treading water. Some finishers are being built but little sow herd expansion.


Ontario benefits from excess packer capacity and demand for hogs is strong.


The Ontario Pork Congress was well organized and well attended. The producers that came got full value for their participation.


Looking at the producers in the industry not only in Ontario but also the ones we met in the World Pork Expo and everywhere it is amazing the resiliency and determination there is in our business. The survivor’s are now benefiting from $1.00 hogs, it is needed.

Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Tuesday, June 28, 2011
Pork Commentary: US Hogs and Pigs Report
US - In this week's Pork Commentary, Jim Long writes about the latest Hogs and Pigs report released by the USDA on 24 June.


Jim Long is President &
CEO of Genesus Genetics.
US lean hogs reached over $1.00 lean last week. Some individual net lots exceeded $1.10 lean per pound. No matter how you figure it the average market hog is bringing over $200 per head. These are record prices. Since the World Pork Expo market hogs have jumped 15 cents a pound and corn has dropped over $1.00 a bushel. The cash price margin swing over $30.00 per head. This is an improvement we all need!

We wrote last week that we believe early weans and feeder pigs had hit the seasonal price floor. This week they were steady to $2.00 per head higher. Feeder pig brokers also told us this past week they believe the seasonal cash price floor had been hit.


July corn June 10 reached $7.99 a bushel; last week it closed at $6.70 a bushel. This is still too high but $1.30 lower in 2 weeks. The difference is $10 per head in cost of production. This has done wonders for psychology. When corn was $7.99 the idea was for it to go to $10.00, a terrible crisis for the swine industry. The $1.30 a bushel drop to $6.70 clearly shows that there is a down not just up to the corn market. It just needs to keep going down.


We believe that the cash hog market is going to remain strong in the $1.00 plus range over the coming weeks. Pork exports sales should be extra strong. China, Korea, Japan, Russia, Viet Nam, etc… all have cash hogs over $1.50 lean per pound. At that price it means supply is low and demand is high enough to sustain their market prices. There will be pull of North American pork to these markets.
We often hear the fable that US consumers will have price resistance with pork over $1.00 lean. Maybe it’s true but consider this: 2 per cent of the Chinese make over $15,000 US per year. Lean hog prices are over $1.50 lean a pound in China. It is not hard to figure US vs. China which consumer has more buying power. The US consumer also doesn’t want to buy $4.00 a gallon gasoline – but they do. It’s part of lifestyle just like eating meat is.

June Quarterly Hogs and Pigs Report

(Thousands)
  2010 2011 2011 as % of 2010
Kept for Breeding 5788 5760 100
Market 57808 58021 100
Sows Farrowing (March – May) 2929 2877 98
Pig Crop (March – May) 28730 28851 100
Pigs per Litter (March – May) 9.81 10.03 102

Treading water = record high hog prices would normally cause expansion, but real high feed prices and a hog to corn ratio of 12:1 has kept the breeding herd and pig numbers about the same. The good news is the market inventory is not expanding while global demand for pork is growing. Keep in mind a year ago 53 – 54 per cent lean hogs were 81.85 lean a pound. We are 20 higher currently or $40 per head. This is despite the same number of hogs going to market. Demand for the world’s most popular meat is being proven in this 25 per cent higher price year over year.

The productivity factor can be seen clearly in the report. Pigs per litter are up .22 year over year to 10.03 – a new record. We expect productivity to increase, at Genesus we see a genetic trend line of 25 per litter of pigs born per year improvement. Genesus now has customers weaning 13 pigs per litter consistently; 3 pigs better than the 10 per litter last quarter on the Pig Report. Productivity will continue to increase, with the most successful producers utilizing the best available technology.

Ontario Pork Congress
Last week we attended the annual Ontario Pork Congress in Stratford Ontario. Our observations:

Ontario is unique in that there are only two producers with over 10,000 sows in the sow population of approximately 330,000.


Most producers in Ontario are family farmers who work in the barns, grow their own feed, and put the manure back on the land. This is real integration. A model in these times of high hogs and high feed that works real well.


The psychology of producers at the Ontario Pork Congress was significantly more positive than the World Pork Expo. It is probably mostly due to the $30.00 plus gain in hog process and lower feed prices in the two week time period.


The Ontario industry we believe is treading water. Some finishers are being built but little sow herd expansion.


Ontario benefits from excess packer capacity and demand for hogs is strong.


The Ontario Pork Congress was well organized and well attended. The producers that came got full value for their participation.


Looking at the producers in the industry not only in Ontario but also the ones we met in the World Pork Expo and everywhere it is amazing the resiliency and determination there is in our business. The survivor’s are now benefiting from $1.00 hogs, it is needed.

Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Monday, July 11, 2011
Lower Feed Costs Improve Profitability Outlook
NORTH AMERICA - A US-based agricultural economist says a drop in feed costs resulting from the recent surprise increase in the USDA's planted area estimate for corn has dramatically improved the profit outlook for North American pork producers, writes Bruce Cochrane.




Farm-Scape is sponsored by
Manitoba Pork Council and Sask Pork

FarmScape is a Wonderworks Canada production and is distributed courtesy of Manitoba Pork Council
and Sask Pork. 
In its 30 June planted acreage report, released recently, the US Department of Agriculture increased its planted area estimate for corn to 92.2 million acres, a five per cent increase from 2010, lowered its acreage estimate for soybeans by three per cent to 75.2 million acres and raised its acreage estimate for wheat by five per cent to 56.4 million acres.

Dr Steve Meyer, the president of Paragon Economics, notes the estimates caught most analysts by surprise and have dramatically impacted feed costs.

Dr Steve Meyer – Paragon Economics
It's already provided what I think is a pretty good buying opportunity on corn and even soybean meal in the US.

We've had corn down about a dollar a bushel on the futures since then and so generally corn is priced on the futures market between five and six dollars a bushel right around six bucks.

It took cost of production down roughly five dollars a hundredweight or so just in one fell swoop and so certainly helped the profitability picture as we're looking forward through 2012.

I only project profits out through the middle of 2012 but, from June 9 until last week, that number got on average got about 14 dollars a head better than it was back in early June so it's a big change for U.S. producers and by extension Canadian producers from a profit outlook standpoint.

Dr Meyer stresses the name of the game is still managing margins so producers need to be watching lean hog futures prices, corn and soybean meal futures prices, Canadian barley prices and, in some cases, the wheat market.

He says this break in corn prices has given producers a chance to lock in some much better margins and suggests now might be the time to lock in margins on 25 to 30 per cent of the pigs that will be sold over the next six to 12 months.

[Mustang Sally Farm]

Pork Commentary: Corn Ethanol Suffers Setback
US - This week, Jim Long comments on the US market.

Jim Long is President &
CEO of Genesus Genetics.
Last week the US Senate voted to recall the Volumetric Ethanol Tax Credit at the current level of 45 cents per gallon and a 54 cent tariff on imported ethanol. The intention is for it to end on 31 July.

The Corn Ethanol apologizers appear to realize the ruse is up. They are painting a picture of a mature industry that no longer needs the subsidy or tariff protection.

Good Try Cowboys!! Corn Ethanol has been getting subsidized at $6 billion a year. That’s a big hole to fill.

The corn ethanol apologists complain about alleged subsidies for the oil and gas industry. Too bad as if hog producers have been getting subsidized to compete with $6 billion from the US treasury. Hog producers actually feed people. Oil doesn’t, natural gas doesn’t, solar doesn’t, and windmills don’t. Keep corn for food not SUVs!!

The next step as corn ethanol loses its aura will be eliminating the legal mandates forcing ethanol into fuel. It’s morally, socially, and economically wrong to burn our food. The insanity of corn ethanol has had a setback but the battle is far from over.

Pfizer to sell Animal Health Division
Pfizer, the world’s biggest drug maker and developer of the chemical castration vaccine – Improvac announced last week their intention to sell its animal health and baby food division.

One analyst put a value of $22 billion on the Pfizer two divisions. Probably a good idea for Pfizer to get out, with an animal health division that has invested heavily in the foolish Improvac vaccine for chemical castration. The top management must wonder where the leadership of the animal health division is going. Science with no common sense in regards to consumer acceptance is a gamble for any corporation. Pfizer Animal Health Management betting on the chemical castration vaccine demonstrates an ignorance of hog producers, packers, processers, retails, and consumers. Improvac does nothing for anyone including Pfizer shareholders.

Markets
The hog market played defense last week losing ground every day. Weekly marketing’s were 1.730 million. This past week’s holiday was not good for producers as fewer hours for slaughter plants take the edge off the pull for hogs. We expect a full week slaughter schedule will pull hogs higher. Last Friday Iowa – Minnesota was 92.66 lean per pound.

In the coming weeks we expect slaughter weights will continue their decline lowering pork supply. We see continued strength in US – Canada pork exports with global hog market prices in China, Russia, South Korea, Japan, Mexico, etc... at price points significantly stronger than USA – Canada. The US beef prices are $1.80 carcass per pound reflecting its supply – demand. Pork is half of beefs price which obviously keeps pork competitive for domestic and export markets. The US chicken industry has cut back egg sets and chick placements up to 6 per cent lower than a year ago.

Summary
Less beef, less chicken, no more pork and strong export demand will keep lean hog prices high. The downside high feed prices but fortunately the corn ethanol industry got a whack this past week.

Thank goodness we produce the most popular meat in the world and global demand is growing.


Author: Jim Long, President & CEO, Genesus Genetics