American Hog News USDA

[Mustang Sally Farm]

Foot and Mouth Detection Improved Through Cell Line Discovery
17 May 2013

USDA ARS
USDA


US - Agriculture Research Service Scientists have developed a new cell line that rapidly and accurately detects the foot and mouth disease (FMD) virus.

The cell line was created by Agricultural Research Service (ARS) scientists at the Plum Island Animal Disease Center, Orient Point, N.Y. ARS is USDA's chief intramural scientific research agency. The research, published online in the Journal of Clinical Microbiology, supports the USDA priority of promoting international food security.

"This important breakthrough is an example of how ARS scientists are working to improve agricultural productivity in the face of increasing demand for food," said ARS Administrator Edward B. Knipling. "This new cell line will help in the global effort to control a disease that can cause significant economic losses."

"The new cells detect the FMD virus in field samples that come directly from naturally infected animals faster than existing cell lines currently used for diagnostics," said Luis Rodriguez, research leader at Plum Island's Foreign Animal Disease Research Unit (FADRU). "The new cells are the first permanent cell line capable of identifying all seven serotypes of FMD virus."

The United States has not had an FMD outbreak in more than 80 years. However, the disease is still a serious threat and is considered to be the most economically devastating livestock disease worldwide. Outbreaks in other countries have resulted in the slaughter of millions of animals to prevent the disease from spreading.

Being able to rapidly detect the virus during outbreaks would allow researchers to quickly develop the appropriate vaccine among the seven serotypes and dozens of subtypes, thereby saving valuable time and millions of dollars.

The novel cell line stems from earlier research where FADRU scientist Hernando Duque isolated a primary cell receptor, called alpha v beta 6, which allows FMD virus to attach to and enter the animal's cells and replicate, Rodriguez said. Molecular biologist Michael LaRocco was a member of the team, led by former ARS scientist Barry Baxt, which created the new cell line.

The approach used to make the new cell line consisted of cloning the FMD receptor genes from bovine (cattle) tissue and incorporating them into a cell line previously established at Plum Island, and then comparing them to other cells currently used in diagnosing and studying FMD.

FADRU molecular biologist Peter Krug designed tests to validate the cell line by comparing it to other cell types using virus samples from animal tissues. The new cell line proved to be faster and more reliable than all current diagnostic cell lines in detecting virus in FMD-infected cattle and pig tissue samples from numerous countries.

"Other cell types currently used to diagnose FMD don't survive long and have to be obtained directly from animals as primary cell cultures, causing variation from one batch to the other," Rodriguez said. "This new cell line can be continually grown in culture, maintains susceptibility to FMDV much longer, and doesn't require getting new cells from animals repeatedly."

Scientists have applied for a patent on the new cell line and are making plans to distribute it to diagnostic laboratories in the United States and other countries.

[Mustang Sally Farm]

Pork Commentary: National Pork Industry Conference Report
23 July 2013


Jim Long is President &
CEO of Genesus Genetics.


US - Last week we participated at the National Pork Industry Conference (NPIC) held at the Kalahari Resort in Wisconsin Dells, Wisconsin, writes Jim Long.

Our report:
•NPIC was well attended and well organized by Larry Graham, Glenn Shields, and their team. It was professional in all aspects.
•Over 600 attendees, a broad section of producers and industry people.
•In one of the breakout sessions we got to present our views on Global Swine Markets and the Genesus Genetic Research and Development Program.
•Mark Greenwood, Senior Vice President of AgStar (Farm Credit lender) gave some financial numbers from their lending database for swine operations.



 

2013

2012

2011

Owner Equity 57% 52% 52%
Working Capital/Sow* $939 $983 $869
Fixed Debt/Sow $612 $620 $640
Op/Debt/Sow $44 $65 $52
Profit loss per head ($5.11) $8.84 $22.95
•2013 numbers through 31 March 2013
•Working capital excludes sows in working capital numbers
•AgStar's financial participants breakeven in 2013 $64.44 lb. – 2012 $61.76

Cost of New Sow Unit
•$1,800 - $2,000 a sow unit – wean to finish
•Need at least $500/sow cash or 35 per cent – 40 per cent down payment
•Additional $450 /sow to get weaned pig out the door
•2,500 sow farrow to wean total cost to get up and running = $2,350 per sow = $5.875 million
•$2.35 million or 40 per cent cash to get financing or collateral enhancement
•Used sow units value are about $800 - $900 per sow space
•AgStar prefers farrow to finish model. Conversion costs from stalls to G-pens between $200 - $300 per sow space

Nurseries
•Existing nurseries value $80 per space
•New nurseries $180 - $200 per space

Finish
•Finish and wean to finish building new $260 - $300 per space (this includes site, well, etc...)
•Contract growers need 20 per cent - 30 per cent down

Operating Lines – AgStar
•Asset value on inventory $100 - $105 per head
•Sows valued at $225 and 70 per cent advance rate = $160 a head max
•Higher pig values and feed costs are leading to more cash use to invest in inventory

Summary

Mark Greenwood gave synopsis how AgStar is a major swine lender looks at lending and the industry. Good benchmark’s for us all to consider.

Speaker

One of the speaker’s at NPIC was Dr Peter Kristensen, Director Genus PIC Europe. Dr Kristensen spoke on Europe’s adjustment from Gestation Stalls. What he said was amazing. He basically said it’s all over for us his words several times "the train has left the station." "You’re four years too late." "You don’t have enough money."

His presentation was an advocacy for the North American Swine industry to capitulate and appease to the Animal Welfare lobby and convert from gestation stalls, maybe farrowing crates, castration, etc. It made me feel ill.

Here was a PIC director (of course from Europe) the world’s largest genetic company advocating an appeasement for our industry. He spoke as if all European farmers supported his view. But we wonder does he own a farm? Does he own pigs? What has it cost him to say it is inevitable?

His talk certainly was thought provoking and in itself created borderline hostile reactions from the producers who have their money invested in our industry.

The European model is making their producers uncompetitive in cost of production and it was said at NPIC that Europe’s export market will become next to non – existent due to the many new regulations. That’s a model we want? Don’t think so!

The difference could be mind set. In North America many of our forebears left Europe. We left for a better life and freedom. Freedom to choose. We don’t like top down edicts. We aren’t afraid to compete but we don’t like elites whether in Europe or Park Avenue Animal Rights Activists telling us what to do. Our nature is to fight for what we believe in. We are not appeasers; we drive Pick Ups not Renaults. We eat ribs not crepes, we play football not tennis. We are different, we are wired that way. Europe is Europe. America is America. We don’t like experts from Europe telling us what to do. Question: "How do you think you are doing with Greece? Keep your advice.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

Pork Commentary: National Pork Industry Conference Report
23 July 2013


Jim Long is President &
CEO of Genesus Genetics.


US - Last week we participated at the National Pork Industry Conference (NPIC) held at the Kalahari Resort in Wisconsin Dells, Wisconsin, writes Jim Long.

Our report:
•NPIC was well attended and well organized by Larry Graham, Glenn Shields, and their team. It was professional in all aspects.
•Over 600 attendees, a broad section of producers and industry people.
•In one of the breakout sessions we got to present our views on Global Swine Markets and the Genesus Genetic Research and Development Program.
•Mark Greenwood, Senior Vice President of AgStar (Farm Credit lender) gave some financial numbers from their lending database for swine operations.



 

2013

2012

2011

Owner Equity 57% 52% 52%
Working Capital/Sow* $939 $983 $869
Fixed Debt/Sow $612 $620 $640
Op/Debt/Sow $44 $65 $52
Profit loss per head ($5.11) $8.84 $22.95
•2013 numbers through 31 March 2013
•Working capital excludes sows in working capital numbers
•AgStar's financial participants breakeven in 2013 $64.44 lb. – 2012 $61.76

Cost of New Sow Unit
•$1,800 - $2,000 a sow unit – wean to finish
•Need at least $500/sow cash or 35 per cent – 40 per cent down payment
•Additional $450 /sow to get weaned pig out the door
•2,500 sow farrow to wean total cost to get up and running = $2,350 per sow = $5.875 million
•$2.35 million or 40 per cent cash to get financing or collateral enhancement
•Used sow units value are about $800 - $900 per sow space
•AgStar prefers farrow to finish model. Conversion costs from stalls to G-pens between $200 - $300 per sow space

Nurseries
•Existing nurseries value $80 per space
•New nurseries $180 - $200 per space

Finish
•Finish and wean to finish building new $260 - $300 per space (this includes site, well, etc...)
•Contract growers need 20 per cent - 30 per cent down

Operating Lines – AgStar
•Asset value on inventory $100 - $105 per head
•Sows valued at $225 and 70 per cent advance rate = $160 a head max
•Higher pig values and feed costs are leading to more cash use to invest in inventory

Summary

Mark Greenwood gave synopsis how AgStar is a major swine lender looks at lending and the industry. Good benchmark’s for us all to consider.

Speaker

One of the speaker’s at NPIC was Dr Peter Kristensen, Director Genus PIC Europe. Dr Kristensen spoke on Europe’s adjustment from Gestation Stalls. What he said was amazing. He basically said it’s all over for us his words several times "the train has left the station." "You’re four years too late." "You don’t have enough money."

His presentation was an advocacy for the North American Swine industry to capitulate and appease to the Animal Welfare lobby and convert from gestation stalls, maybe farrowing crates, castration, etc. It made me feel ill.

Here was a PIC director (of course from Europe) the world’s largest genetic company advocating an appeasement for our industry. He spoke as if all European farmers supported his view. But we wonder does he own a farm? Does he own pigs? What has it cost him to say it is inevitable?

His talk certainly was thought provoking and in itself created borderline hostile reactions from the producers who have their money invested in our industry.

The European model is making their producers uncompetitive in cost of production and it was said at NPIC that Europe’s export market will become next to non – existent due to the many new regulations. That’s a model we want? Don’t think so!

The difference could be mind set. In North America many of our forebears left Europe. We left for a better life and freedom. Freedom to choose. We don’t like top down edicts. We aren’t afraid to compete but we don’t like elites whether in Europe or Park Avenue Animal Rights Activists telling us what to do. Our nature is to fight for what we believe in. We are not appeasers; we drive Pick Ups not Renaults. We eat ribs not crepes, we play football not tennis. We are different, we are wired that way. Europe is Europe. America is America. We don’t like experts from Europe telling us what to do. Question: "How do you think you are doing with Greece? Keep your advice.

[Mustang Sally Farm]

Pork Commentary: Lean Hog Prices Continue Strong
07 August 2013

Jim Long is President &
CEO of Genesus Genetics.


US - Last week the US national lean hog average was 99.36/lb. Last year same week it was 93.93/lb, writes Jim Long.

This year $12.00 per head higher. Strong demand and no more market hogs is leading to current prices significantly higher than the “Chicken Little” ag-economist’s predicted i.e. 87¢. We expect lean hogs will continue to run year over year through the fall about 5¢ higher than last year as hog numbers stay about the same but with higher demand holding prices up.

Other Observations
•Feed prices continue to show a lower direction. Last week we wrote that it looks like a $38.00 per head farrow to finish swing from July to October. Huge difference.
•New crop corn in Ontario – Canada last week was under $4.00 per bushel or less than $160 per tonne. A long way from $7.00 a bushel.
•US: Feeder pigs are about $52.00 for a 40 lb. pig, a year ago they were under $20.00. Lower feed prices coming are being factored in the feeder pig demand equation. With a $25.00 per head feed cost decrease coming this fall to take a feeder pig to market, we expect feeder pigs will reach and exceed $70.00 by the end of October.
•Sow cull prices are extremely high. On August 1st 500-550 lb. sows averaged $83.91 a lb. A year ago they were $42.10 a lb. Double in price at about $200 more per head. The latest weekly sow slaughter ending July 20 was 56,398. A healthy number and not much different than a year ago. Year to date US sow slaughter up half of one per cent. Sow prices obviously must reflect stronger sausage demand year over year. There is no other explanation. Has cooler weather encouraged greater consumption? More barbeques? Whatever it is on 57,000 sows a week times $200 better prices, it’s about 12 million a week in greater margin for producer’s year over year. Great time to get rid of old sows and replace with a genetically better gilt and have money left over. I.e. Genesus.
•The higher hog prices and greater demand for pork is reflected in the USDA cold storage report. At the end of May the US had 658 million lbs. of pork in storage at the end of June 564 million lbs. of pork. A drop of almost 100 million lbs. We expect July will see a similar decline. (June 2012 pork inventory was 592). Keeping pork in storage right now is like keeping $7.00 corn. Why? Waiting for price to fall? For corn growers it’s already too late? Pork in storage owners should know no matter how high the price of hogs is this fall it won’t be $1.00 lean a lb.

Golden Age of Crop Farmers

As we travel the United States and Canada, we see the sign of wealth creation in the rural areas. New big homes being built by Grain Farmers, new storage facilities, new tractors and combines. A true reflection of wealth creation of farm land value increases and higher crop prices. It’s good to see. Farmers have been considered to some extent a lower grade livelihood for a couple of generations. It’s good to see entrepreneurial initiative being rewarded with enhanced standard of living. 315 million acres of crops in the United States if that land increased $1000 per acre that’s 315 billion dollars of increased equity and borrowing power. We all know the market value increase over the last few years could have been $5000 on an acre which heads to total value of over a trillion dollars. It’s not money in pockets but it creates security, stability and the borrowing power. The sense of greater wealth is certainly there.

We believe this wealth increase is why the hog inventories did not collapse when the industry was losing $40.00 per head. The staying power of not only the corporations that own hogs but the land based producers allowed most if not all the stand the deal.

It appears corn is going towards $4.00 a bushel. Still historically high but far from $7.00. We believe it’s for all intents and purposes due to the biological timeline to bring hogs into production is already established. We expect no significant increase in production year over year for the next twelve months with any potential increase in more pigs born checked by production losses due to PED. Consequently we see hog prices tracking the same or higher year over year with feed costs $40 per head lower. The combination a minimum $20 per head profit for the next twelve months. Pig Farmers turn. (The Chinese picked a good time to buy Smithfield.)


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

News


Hormel Reports Increased Earnings
23 August 2013

US - Hormel Foods, US-based global meat processing company, has reported that third quarter net earnings in 2013 rose to $113.6 million, up by two per cent from net earnings of $111.2 million a year earlier.

However, higher input costs for pork production hit margins in the refrigerated foods sector.

For the nine months to 28 July, net earnings were $368.9 million, as compared to net earnings of $367.4 million the same period last year.

Diluted net earnings per share for the nine months were $1.37, equal to a year ago.

Sales for the quarter were $2.2 billion, up by eight per cent from the same period in 2012.

For the nine months, sales reached $6.4 billion, up by six per cent from the same period last year.

“We had a solid quarter, with all five segments reporting increased sales over last year,” said Jeffrey M. Ettinger, chairman of the board, president and chief executive officer.

“We also generated improved earnings, with four of five segments posting increased operating profits.

“Earnings per share of $0.42 for the third quarter was in line with our expectations and keeps us on pace with our full year adjusted guidance range.

“Our Grocery Products segment benefitted from good performance by our new SKIPPY® business.

“Our Jennie-O Turkey Store segment delivered a strong quarter, despite higher grain costs and lower commodity meat prices.

“Our International business continues to achieve impressive results, led by strong export sales of our SPAM® family of products and fresh pork, as well as the addition of the SKIPPY® business.

“Higher pork input costs squeezed margins for our retail value-added products, particularly bacon, decreasing our Refrigerated Foods segment results during the quarter,” Mr Ettinger said.

“We are excited about the recent roll-out of our HORMEL® REV® snack wraps during the quarter, which is supported by a national advertising campaign that began in late July. I am also pleased with the progress our team has made in integrating and growing sales of SKIPPY® products, both in the U.S. and internationally,” Mr Ettinger said.

He added:“Earnings reported in the third quarter keep us on track to achieve results consistent with our adjusted annual guidance range of $1.88 to $1.96 per share.

“Toward the end of the third quarter we were able to adjust for higher raw material costs in key product categories such as bacon.

“We anticipate Jennie-O Turkey Store will continue to rebound from headwinds faced earlier in the year, which should benefit results through the rest of fiscal 2013.

“We expect four of five segments to outperform in the fourth quarter, with only Specialty Foods expected to experience a down quarter.

“We are excited about the new products that we are introducing to the marketplace this year, such as our HORMEL® REV® snack wraps and HORMEL® FIRE BRAISED meats,” Mr Ettinger said.

“We have solid marketing and promotional plans in place to drive sales of our value-added products in the fourth quarter.”

[Mustang Sally Farm]

July Pork Exports Rise
06 September 2013
 

US - Paced by strong performances from leading markets, both US beef and pork exports continued their upward trend in July, with beef sales setting new highs for the year, while lamb exports slowed slightly for the month but remain up for the year, according to statistics released by the USDA and compiled by the US Meat Export Federation (USMEF).

Double-digit increases to the top three markets (Japan, Mexico and Canada) helped US beef exports jump 9 per cent in volume in July to 118,913 metric tons valued at $622.8 million, a 21 per cent increase over last year. For the year, beef exports are up a fraction in volume (661,473 metric tons) and 9 per cent in value to $3.45 billion.

Strong performances by Mexico, the China/Hong Kong region and Central/South America boosted pork exports by 8.5 per cent in volume in July to 178,794 metric tons valued at $502.6 million, a 7.5 increase over 2012. Through July, pork exports were down 5 per cent in volume and value, at 1.23 million metric tons and $3.44 billion. Excluding Russia, which has been closed to US pork and beef since February, exports were down just 1 per cent from last year’s record pace.

Lamb exports dipped a modest 3.2 per cent in July on 15.7 per cent lower volumes, but remain up by double digits for the year.

Beef Growth in Asia

“On the beef side, we are seeing the results of further rationalization of import practices in a number of key Asian markets,” said Philip Seng, USMEF president and CEO.

“Expanded access in Japan, Hong Kong and Taiwan has helped each of these key markets move closer to their full potential, and we are focusing our resources there to maximize opportunities to serve the growing demand in the region.”

As Seng noted, for the first seven months of 2013, beef exports are up dramatically to these three key markets:
•Japan: up 57 per cent in volume and 43 per cent in value (142,875 metric tons valued at $855.8 million)
•Hong Kong: up 102 per cent in volume and 128 per cent in value (60,159 metric tons valued at $368.4 million)
•Taiwan: up 158 per cent in volume and 222 per cent in value (17,434 metric tons valued at $139.6 million)

Other top-performing markets for beef exports include:
•Mexico: rebounding from a slow start earlier in the year (down 9 per cent in volume and value for the year to 110,689 metric tons valued at $470.9 million), July exports rose 16 per cent in volume and 26 per cent in value (21,309 metric tons valued at $91 million)
•Central/South America: up 103 per cent in volume (6,636 metric tons) and 41 per cent in value ($17.1 million) in July; up 27 per cent in volume and 16 per cent in value for the year (25,963 metric tons valued at $88 million)

US beef exports in July accounted for 12 per cent of muscle cut and 15 per cent of beef and variety meat production versus 11 and 14 per cent respectively last year. The export value per head of fed slaughter set a new record of $272.90 – up $37.72 from last July. That despite the continued closure of the Russian market, which amounted to 42,319 metric tons valued at $179 million through July last year.

Pork Growth in Spite of Challenges

Pork exports in July were paced by the continued rebound of the Mexican market, strong variety meat demand in the China/Hong Kong region and rapid growth in both Central/South America (led by Colombia) and the ASEAN region (led by the Philippines). The 8.5 per cent volume and 7.5 per cent value increases in July were tempered by continued access issues in Russia and heavy competition in Japan.

“We are encouraged by the positive response to USMEF’s retail pork imaging campaign in Mexico, which is in direct correlation to sales growth there,” said Seng. “On the other hand, Japan is the highest-value pork market in the world, and we are facing intensified competition. We are one of 25 countries exporting pork to Japan, and while the US industry has deemphasized the priority of our promotional programs in Japan, our competitors are very aggressively working to take our market share. As a result, our share of Japan’s pork import market is down 3 per cent so far this year.”

Year-to-date, Japan’s total pork imports from all sources are down 3 per cent to 548,608 metric tons, but imports from the US are down 7 per cent (245,938 metric tons). At the same time, exports from four leading competitors (Mexico, Chile, Spain and Poland) are up by double digits for the year.

Top-performing pork export markets include:
•Mexico: up 21 per cent in volume (55,567 metric tons) and 29 per cent in value ($114.3 million) in July, and up 2 per cent in volume (346,368 metric tons) and 3 per cent in value ($645 million) over the record pace of 2012
•Central/South America: up 49 per cent in volume (9,437 metric tons) and 48 per cent in value ($23 million) in July, and up 36 per cent in volume (62,774 metric tons) and 34 per cent in value ($156.3 million) for the year
•ASEAN: up 60 per cent in volume (6,407 metric tons) and 53.8 per cent in value ($14.4 million) in July, and up 44 per cent in volume (38,079 metric tons) and 36 per cent in value ($91.6 million) for the year
•US pork exports in July accounted for 22 per cent of muscle cut and 27 per cent of pork and variety meat production, similar to last year (23 and 26.5 per cent respectively) with a per-head export value of $55.35, down from last year’s $56.04 total.

Lamb Exports Dip in July, But Up for Year

Lamb exports for July dipped a modest 3 per cent in value on 16 per cent lower volumes, totaling 914 metric tons valued at $2.1 million. For the year, exports are up 12 per cent in volume (8,177 metric tons) valued at $17.7 million, a 21 per cent increase. Mexico, Canada and the Caribbean remain the top three export destinations.

[Mustang Sally Farm]

Pork Commentary: USDA September Hog and Pigs Report
01 October 2013


Jim Long is President &
CEO of Genesus Genetics.


US - The USDA released last week the 1 September "Hogs and Pigs" Report. From our perspective it confirms our belief in strong hog prices over the next ten months. No more breeding animals or market hogs than last year with what we believe is strong current domestic and export pork demand, writes Jim Long.

Breeding Herd

A handful of more sows than last year 1 September with the USDA stating that the breeding herd declined about 70,000 from 1 June to 1 September this year. The breeding herd on 1 September is for all intents and purposes the base for the production of market hogs through next summer. There will be significantly more hogs with no more sows. It’s biologically impossible. Couple that with the PED disease that has hit and its subsequent resulting mortality we cannot comprehend more pigs being produced over the next several months.

Market

The USDA has the same number of market hogs year over year on 1 September. So far year to date the US has marketed one per cent fewer. Of note, 1 March and 1 June, USDA market inventories indicated 100 per cent year over year market inventories. The actual marketings have been lower. The USDA in their 1 September report indicates that over the last 20 reports they have had all Hogs and Pigs estimated 14 of the 20 times as higher than they actually turned out. The USDA estimates that chances are 2 out of 3 that the final estimate will not be above or below the current estimate of 68.4 million by more than 0.8 per cent.

Point is there is little chance we have significantly more hogs coming. Pork demand is strong and with little chance of more hogs we can expect lean hog prices to stay above last year prices. Couple that with the lower feed prices, profitability over the next ten months will be excellent. As we wrote last week, we have had ten weeks of profits! The equity hole that has been created over the last multiple months is huge. We still expect little expansion for months ahead. The industry needs to heal before much of anything happens. There will be talk. Talk is cheap. It takes courage and capital to expand. Not many have both. Expansion won’t happen in a minute.

[Mustang Sally Farm]

Pork Commentary: USDA September Hog and Pigs Report
01 October 2013


Jim Long is President &
CEO of Genesus Genetics.


US - The USDA released last week the 1 September "Hogs and Pigs" Report. From our perspective it confirms our belief in strong hog prices over the next ten months. No more breeding animals or market hogs than last year with what we believe is strong current domestic and export pork demand, writes Jim Long.

Breeding Herd

A handful of more sows than last year 1 September with the USDA stating that the breeding herd declined about 70,000 from 1 June to 1 September this year. The breeding herd on 1 September is for all intents and purposes the base for the production of market hogs through next summer. There will be significantly more hogs with no more sows. It’s biologically impossible. Couple that with the PED disease that has hit and its subsequent resulting mortality we cannot comprehend more pigs being produced over the next several months.

Market

The USDA has the same number of market hogs year over year on 1 September. So far year to date the US has marketed one per cent fewer. Of note, 1 March and 1 June, USDA market inventories indicated 100 per cent year over year market inventories. The actual marketings have been lower. The USDA in their 1 September report indicates that over the last 20 reports they have had all Hogs and Pigs estimated 14 of the 20 times as higher than they actually turned out. The USDA estimates that chances are 2 out of 3 that the final estimate will not be above or below the current estimate of 68.4 million by more than 0.8 per cent.

Point is there is little chance we have significantly more hogs coming. Pork demand is strong and with little chance of more hogs we can expect lean hog prices to stay above last year prices. Couple that with the lower feed prices, profitability over the next ten months will be excellent. As we wrote last week, we have had ten weeks of profits! The equity hole that has been created over the last multiple months is huge. We still expect little expansion for months ahead. The industry needs to heal before much of anything happens. There will be talk. Talk is cheap. It takes courage and capital to expand. Not many have both. Expansion won’t happen in a minute.



Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

CME: Status of Saturday Hog Slaughter Poses Questions
15 October 2013
 

US - We start another week with no USDA price and slaughter reporting. This means we could not update the regular weekly summary table that accompanies every Monday report, write Steve Meter and Len Steiner.

While there continue to be attempts on the part of market participants to replace some of the information provided by the regular USDA report, the information so far, in our view, is vastly insufficient given the size of the market and the value of product traded. On the supply side, it is difficult to get a good idea as to the number of cattle and hogs that are coming to market each day. So far, the only thing to go on are estimates from private analysts but that is no substitute for the actual FSIS inspector reports reviewed and reported by USDA.

Urner Barry provided some estimates on both cattle and hog slaughter based on their discussions with two private analysts. Their guess is that cattle slaughter for the week was around 623,000 head, about 0.8 per cent lower than the previous week and 1.6 per cent lower than a year ago. With no USDA data for confirmation, these numbers provide a rather broad guidance.

There is no indication as to how many cows are coming to market. Judging from the lean 90CL grinding beef prices reported, however, cow meat supplies are more than adequate at this point. We have been asking analysts around the industry whether they think USDA will issue a Cattle on Feed report this month.

All analysts we have contacted have indicated they expect no report will be published, removing a key piece of information with regard to cattle supplies in Q1 of 2014. We have no idea how USDA will handle the missing data, but it appears likely to us that we could have a missing data point in the series. We should get an update from USDA soon confirming the status of the upcoming cattle on feed and cold storage reports.

One of the big questions this week was the status of hog slaughter on Saturday. After all, we have had three consecutive weeks where hog slaughter has dramatically underperformed normal levels. At the start of the week analysts were indicating they expected hog slaughter on Saturday to be somewhere around 110 - 130k, higher than recent weeks but still well short of normal.



The two analysts interviewed by Urner Barry pegged Saturday hog slaughter at 126,000 head and total weekly hog slaughter at 2.275 million had. While weekly slaughter was about 70,000 head higher than the previous week, it still was down 4.7 per cent from a year ago. The number of hogs coming to market in the last six weeks has departed significantly from survey responses to the latest USDA Hogs and Pigs report.

Interestingly, however, pork prices were notably lower in the last three days, at least based on the market quotes from Urner Barry reporters. The decline takes more significance this week since some of the hogs traded on a formula basis by some packers will be priced off the UB composite cutout. On Friday, UB quoted the composite pork cutout at $92.50/cwt, about 4.6 per cent lower than where we started the week.

The decline was in part due to a drop in the belly cutout value, which declined 11.4 per cent for the week. It appears to us that the decline largely reflects a lower quote for skin on bellies, an item that is rarely traded these days. On the other hand, the price of 9/11 derind bellies was quoted on Friday at $197/cwt, 2.4 per cent lower. We think it is fair to ask how it is possible that the composite belly value drops 11.4 per cent while the price of derind bellies that make up 80 per cent of the trade is down less than 3 per cent. Using the cutout to price hogs certainly has it perils.

[Mustang Sally Farm]

CME: Pork Supplies Stay Lower Than a Year Ago
21 October 2013
 

US - So what did the USDA numbers tell us about the state of beef and pork supplies and some of the price trends in the spot market? Both cattle and pork supplies remain lower than a year ago, which has so far helped underpin pork and beef prices, according to Steve Meyer and Len Steiner.

There are some issues with the supply data, however, which bear watching. Total hog slaughter for the week was estimated at 2.297 million head, 3.56 per cent lower than a year ago. Hog slaughter has been increasing in the last few weeks, which is not unusual for this time of year. The data continues to imply that the USDA Hogs and Pigs report underestimated the supply of hogs on the ground, at least for the first marketing window.

Total pork production was estimated at 467 million pounds, down 3.8 per cent lower than last year. We think this is an estimate that will most likely be revised higher in the coming weeks. The hog carcass weight number is currently pegged at 203 pounds, which is most certainly incorrect. The chart below shows our tracking 7-day moving average of hog carcass weights based on the MPR data. Note that we had to make some estimates but we think the number is pretty close.



USDA quoted the weighted average hog carcass weight for Thursday (both produer and packer hogs) at 209.5 pounds per carcass. To come up with an estimate for the whole week, we went back and looked at the normal relationship of weights for other days in the week to Thursday weights (weights tend to be heavier on Thursday and Friday).

For the week, we estimate the average hog carcass weights at 208.8 pounds per carcass. If this number is correct, it implies weights that are about 2 per cent higher than a year ago. This kind of weight increase is consistent with the ramp up in weights in late September. It also implies that producers may be a bit behind in their marketings, which is understandable considering the uncertainty in pricing the last two weeks.

We would expect hog supplies to increase next week. Market participants continue to struggle with the implications of the September Hogs and Pigs report and what the marketing hole that opened up in September tells us for hog supplies for the next three months. Hog prices in the spot market continue to hover near 90 cents per pound but that could be short lived given weaker cutout values, heavy carcass weights and the expected seasonal increase in hog numbers.

[Mustang Sally Farm]

CME: Hog Weights Continue to Climb
31 October 2013
 

US - Hog futures have been buoyed in recent days by ongoing speculation that hog/pork prices will remain firm on good demand prospects and short supplies due to the spread of PEDv virus, write Steve Meyer and Len Steiner.

On the demand front, the expectation of tight cattle supplies and record beef prices certainly has been supportive of the hog and pork market. Consumer disposable incomes going into the holidays are modestly better, in part thanks to lower energy costs.

There is plenty of attention on the unemployment rate but given the number of people that have left the labor force and have yet to come back, that may not be as reliable an indicator as it appears. As for export demand, there is plenty of hope for the future even as the actual data continues to show pork exports tracking below year ago levels.

There continues to be a lot of speculation that China will become a more active buyer in the US market. At this point Chinese purchases of US pork are slowly moving up but the market continues to price significant gains in the coming year.

As we noted yesterday, market participants continue to focus on the potential impact that PEDv virus is having on US pork production in 2014. It is difficult to peg much of the shortfall in hog supplies in September and so far in October on PEDv.

While it is possible that the disease was active earlier than reports indicate, we have no knowledge of that being the case. More likely it appears that high feed costs caused producers to reduce the number of pigs that were born during Mar - May period.

Based on current slaughter numbers, it looks like a fair bet that USDA will have to go back and revise the pig crop numbers significantly for that time period. Now the focus is on the potential impact of the virus. There are plenty of guesses out there and there is simply too much confusion to really come up with any firm numbers.

The situation in North Carolina and the expansion of the disease there certainly is a cause for concern. Some wire stories quote that over 150,000 sows may have been affected. With a little over ten pigs per litter, we could see an impact of about 1.5 million pigs spread out over a number of weeks. Then there is the issue of new cases in Iowa.

The numbers there are vague as well. More importantly, however, the market remains particularly concerned as to what the current spread implies for the industry this winter. Normally there are more hogs being moved around in Q4 as total numbers are larger. This tends to contribute to the spread of the disease. For now, futures have built a significant risk premium in the hog contracts for Q2 and Q3. For those hog producers that are able to take advantage, this presents a good opportunity to lock in some of the best profits.

One final note that may offer some restraint to all the bullish talk. Hog weights continue to climb and they are now hovering near 210 pounds/carcass. Given normal trends, hog weights could climb further in November. This will offset some of the decline in slaughter and could limit the upside currently futures are pricing in the very short term.

 

[Mustang Sally Farm]

US Swine Industry Productivity Analysis, 2005 to 2010
Wednesday, November 06, 2013


Changes were observed in pig industry trends in the US between 2005 and 2010 in terms of both direction and magnitude, according to a new study. Breeding performance measures generally improved, as did mortality in the breeding and feeding sectors although no progress was made in feed conversion over the period studied.

In Journal of Swine Health and Production, Mark T. Knauer of North Carolina State University and PhD; Chris E. Hostetler of the US National Pork Board report their study to quantify US swine production trends for sow-farm and grow-finish traits from a large available database.

Data were provided by a data management company, representing annual production of approximately 1.8 million sows in the United States.

Sow-farm traits included pigs per mated female per year, litters per mated female per year, total number born, number born alive, number weaned, pre-weaning mortality, weaning age, weaning weight, replacement rate, culling rate, sow mortality, lactation-feed intake and gestation-feed intake.

Grow-finish traits included entry age, entry weight, exit age, exit weight, average daily gain, feed efficiency, caloric efficiency and mortality.

The researchers found that, from 2005 to 2010, pigs per mated female per year, litters per mated female per year, number born alive, number weaned, weaning age, weaning weight and lactation feed intake increased (P<0.05).

Sow mortality decreased (P<0.05) and replacement rate did not change (P>0.05).

Entry age and entry weight increased (P<0.05) for nursery and wean-to-finish pigs.

Average daily gain improved for nursery and finishing production (P<0.05) but not for wean-to-finish (P>0.05). No improvements were made for finishing caloric efficiency (P>0.05), and wean-to-finish caloric efficiency worsened (P<0.05).

They found that mortality for both finishing and wean-to-finish operations improved (P<0.05).

Knauer and Hostetler conclude that both scientists and producers can use these results to understand better US sow-farm and grow-finish production levels. Pig industry trends from 2005 to 2010 indicate varied degrees of improvement for pig production traits.

[Mustang Sally Farm]

Pork Commentary: USA Corn Crop Record Size
12 November 2013

Jim Long is President &
CEO of Genesus Genetics.


US - The US Corn Crop was estimated by the USDA last week to be a record 13.989 billion bushels. There will be much guessing on how much corn will be exported, used for ethanol and consumed for livestock. All we know is that corn is now approaching a price not seen for three years. Cheaper feed will let hog farmers make some money. It’s our turn, writes Jim Long.

Some other Grain facts:
•This year global grain production has yielded 167.2 million metric tonnes of increased production over last year. That’s equal to the entire European production.
•The strengthening commodity prices has meant an additional 72 million hectares of farmland (158 million acres) have gone into production globally over the last 10 years.
•6.7 million hectares (14.74 million acres) - additional global farmland in production for corn, wheat and barley in 2013 compared with 2012.
•60 per cent – the amount of global trade in corn, wheat and soy that the US market controlled in 1980.
•25 per cent – the amount of the global trade in corn, wheat and soy the US market controls today.
•The US Corn Ethanol Policy has not only cut US corn exports it raised commodity prices that in turn stimulated global grain production while at the same time high corn prices cut US livestock production potential which in turn cut corn usage and demand. Someday conventional wisdom could be that Corn Ethanol Mandates were the worst thing in long run for the profitability of American Grain Farmers. Many global competitors were created with significantly less land costs than the US.

PED Virus

Outbreaks of the PED virus continue unabated. There will be fewer pigs because of it. We have not seen sow herd expansion of any significance. (USDA had September 1st breeding herd up only 26,000 from the year before).

This past week we read one of Ag-Economists Steve Meyer’s article that he was very disappointed that PED was going to deprive Pork from an opportunity to gain market share relative to Beef, because Beef supply is plummeting.

Maybe we missed the point but we don’t care about market share by selling at a lower price. We care about making money and paying our bills. The last few years have not been good for most hog producers. We need to make money to back fill the hole in our equity, pay down debt and make some money. We don’t give a rat’s ass for market share and the idea that we sell cheaper if we had more hogs and if we didn’t have PED. We know Ag-Economists don’t own pigs, they tell us how to make money but if they’re so wise why don’t they go into the business. Armchair quarterback with no skin in the game.

Market share from lower prices as a business strategy such as Dr. Meyer suggests in not how to build a profitable business. We are in the Swine Genetic business, we suspect that Genetiporc was on a quest for market share by selling at lower prices with next to no profitability, doesn’t work, Genetiporc doesn’t exist anymore. The quest for market share by lower pricing is a spiral to the bottom.

Real and sustainable market share gains are accomplished by selling a quality product that encourages repeat customers. We believe the Pork Industry can increase market share and profitability by producing pork that has better taste, flavour, is darker, marbling, high Ph. etc. Stop producing white meat - produce red meat. Let’s produce a product competitive with Beef in taste and flavour. Our industry made a terrible mistake a generation ago with “The other white meat!” We branded to a cheaper product (chicken) that sells for less money. Now we see the demand for bellies and ribs, both with flavour and taste. Neither are lean products. Beef is not lean and repeatedly gets the highest prices in the meat case.

Real sustainable market share can be achieved with better tasting pork. The race to produce the leanest and whitest pig was a mistake.

Summary

Lean Hog Futures continue to show strength. A record US corn crop will keep feed prices reasonable. We expect farrow to finish profitability will exceed a $25 per head average over the next ten months.


Author: Jim Long, President & CEO, Genesus Genetics

[Mustang Sally Farm]

CME: Lean Hog Futures Drift Lower; Steady in Overnight Trading
14 November 2013
 

US - Nearby lean hog futures drifted lower and were for the most part steady in overnight trading, write Steve Meyer and Len Steiner.

In the short term, market participants continue to focus on seasonal factors, heavy carcass weights and increased supply of hogs available for marketing. Hog weights have exploded since mid October, coincident with the availability of fresh corn and cool fall temperatures. The latest MPR data (report LM_HG201) pegs average hog weights at almost 213 pounds. This includes both producer and packer owned hogs.

The average weight of producer sold hogs was pegged at 211.62 pounds. For the last five days, producer sold hogs have averaged 211 pounds and all hogs have averaged 212.3 pounds. So we are looking at a 3 per cent increase in hog weights and the seasonal tendency is for weights to continue to climb through the end of November. There is some pressure on producers to accelerate marketings to bring weights under control but one needs to also recognize the incentives at play.

Lower feed costs have reduced significantly the marginal cost of adding weight on hogs. Also, some producers are faced with fewer pigs than they would normally have due to the losses associated with PEDv. Hog slaughter normally increases at this time of year and we expect weekly slaughter to be just a little under 2.3 million head for the week, down about 3.4 per cent from a year ago but the largest weekly slaughter so far this year.

Normally this is the time of year when packer margins are best and the latest USDA numbers show that. Packers also have benefited from a notable improvement in consumer demand for pork. Hog supplies are steady to slightly lower than a year ago and yet pork prices are significantly higher than last year. The pork cutout closed last night at $95.24/cwt., up about $1.4/cwt from a week ago and $11/cwt (+13 per cent) compared to year ago levels.

Some of the year/year increase is due to the change in how the cutout is calculated with MPR data. That new calculation methodology adds about $4/cwt to the current cutout. Even when we adjust for that, the cutout is about 9 per cent higher than a year ago. While prices for loins and buts are up compared to last year, packers have benefited the most from sharply higher prices for hams.



The ham primal value is currently up 34 per cent compared to last year and the benchmark #23-27 bone-in ham price has been hovering above 90 cents recently, compared to 75 cents a year ago. About half of the increase in the value of the cutout has come from the improvement in ham pricing. Normally ham prices are a bit softer in the last two weeks of November before spiking higher ahead of Christmas. So far, however, there has been little weakness, helping underpin the overall cutout.

But even as the day to day seasonal pressures have negatively impacted the nearby market, out front the main concern, and biggest risk, remains the impact of PEDv disease on the flow of hogs coming to market. The chart below shows that the number of diagnostic cases testing positive for PEDv increased sharply in October.



The last week of October had about double the number of cases we saw in May and June. It would appear that the worst impact of the disease is ahead of us. And given the 5-6 month lag, spiking PEDv cases in the winter could constrain supplies in late spring and summer, a time of year when hog numbers seasonally decline.

The uncertainty comes from the fact that despite reports from AASV, it is unclear how many hogs have indeed been infected and what is the survival rate. At this point, the market is left guessing and the guess is that despite $4 corn, we could still see $100 hogs this summer, promising excellent margins for those with hogs to sell.

[Mustang Sally Farm]

Pork Commentary: Early Weaned Pigs Reach $82
19 November 2013

Jim Long is President &
CEO of Genesus Genetics.


US - The lack of pigs, lower feed costs and strong lean hog futures have pushed some cash early wean pigs to $82 last week according to the USDA. The average early wean last week was $73.69. Those are really high prices from any historical perspective, writes Jim Long.

We expect it’s not only lower feed costs pushing the market. It appears the PED virus has reached Central Iowa and into Illinois; areas it hadn’t been before. Major outbreaks are occurring in large production groups with many pigs dying. This in itself is creating demand for early weans. Nurseries – Finishers contracted are a fixed cost. If no pigs go into the barns payments are still made. Buying small pigs to fill these barns makes sense for many of the large producers. Even at a loss. Remember Cattle feedlots lose money almost all the time but for many reasons, cattle still go on feed (feedlots have lost money for 30 months!) We have been in the business a long time, all things are not rational. Pigs will go into barns with no chance of making money; they will now and will for some times in the future. In the meantime we expect in three months early wean pigs will be at real high prices - $70 plus average.

PED Virus

PED virus appears to be spreading, several large production systems have gotten it in the last few weeks. It’s far from under control. We expect PED will cut hog production through next summer by 2 per cent overall, this will ensure a profitability of $30 per head through next summer. We still believe that there has been no significant sow herd expansion. The survivors in our business (all of us) have bills to pay and equity holes to fill.

Smithfield

The Chinese buyers of Smithfield had great timing on their purchase. Feed costs have dropped $25-$30 per head since their offer was made; times 15 million hogs Smithfield produces – that’s close to $500 million a year in lower costs. Couple that with the strong hog prices, it’s not hard to see a $750 million plus change in Smithfield’s operating position. That goes a long way to helping make the payments and look smart to the stock market.

Corn Ethanol

The US Government, EPA announced last week plans to reduce the corn based ethanol mandate from 14.4 billion gallons to roughly 13.0 billion gallons for 2014. The EPA reduction will cut in all likelihood 170 million bushels of corn out of ethanol production and put US ending stocks above the 2 billion bushel mark for the first time since 2004-2005! It appears the good times might be taking a lull for grow producers and it will likely quickly stop crop land value appreciation (indeed probably go lower). Cash Corn is about $4.10 a bushel currently, the USDA estimates the cost of production of corn is at $4.05 a bushel. Not much margin to go buy a new tractor iron or farmland in 5¢ a bushel. We expect land rents have peaked and will trend lower. Farmers like planting and just like hog finishers can’t stand an empty barn. Expect lots of crops still planted in USA next year. Some other parts of the world where credit is hard to get and they have little equity, lower grain prices will cut next year’s planting.

The bloom has come off Corn Ethanol. The only reason Corn Ethanol survives is the EPA mandate. Otherwise with the US becoming self –sufficient in energy with Oil and Natural Gas production rising rapidly from fracking; it would be over. If the EPA ever allowed national gas to be substituted in the Ethanol mandate, it would be the death knell for Corn Ethanol. We feel bad for the shareholders of Ethanol plants, soon they will be as valuable as a house in downtown Detroit.

Summary

High early wean prices reflect lower feed prices and empty finishing spaces looking for pigs. PED is and will be a market price mover. The drop in the Ethanol Mandate will make more corn available for feed. We expect the hog producers will make $30 per head though next summer.


Author: Jim Long, President & CEO, Genesus Genetics