Jim Long Pork Commentary-United States – Canada Hogs and Pigs Inventory Steady Eddy, August 29th 2011

By Jim Long, President and CEO Genesus Genetics

Last week the United States and Canada combined inventory was released.  To say it its steady is an understatement.  This quarter 7.102 million kept for breeding last year same quarter 7.103 million.  This is a change of 1,000 sows!  That’s what you call going nowhere fast!

Hogs and Pigs Inventory United States and Canada June

1,000 head

Some Observations

            *The breeding herd has declined 632,000 since 2007.  A reflection of the productivity growth we have seen, the Pig Crop in 2007 was essentially the same (35, 743) using 632,000 fewer breeding animals.  The sad part of 632,000 fewer sows is many of these producers have quit.  Their dreams and equity dashed by what has been less than a lucrative industry the last five years.

* The Market Inventory in June was 450,000 head higher than a year ago -   about 20,000 more market hogs a week.  The market place is handling the supply quite well.  A year ago 53 – 54% U.S. National Lean hogs were 85.56 cents a pound, last Thursday 53 – 54% were 101.33 or about $30.00 more per head.  Domestic and Global pork demand is strong.

*The United States – Canada combined inventory is truly relevant as we are in a continental market.  Hogs and pork prices of both countries are tied together.  Canada exports approximately 50% of its production and the U.S. 25%.  Both countries are extremely export dependant.  If you are a regular reader of this commentary you are aware we are predicting $1.00 plus lean hogs for this summer a year ago.  At the same time the usual suspect Ag – Economists were projecting $75 – 78.  We were bullish because we saw no U.S.A. – Canada expansion, we believed domestic demand will hold but the panacea was going to be global exports due to the high prices of hogs and pork in importing countries.  The scenario played out.  With China, Russia, Korea, Japan, and Mexico all wanting pork and the only volume high quality price competitive source was the United States – Canada.

*We are all fortunate that our genetic business exposes us to these countries and markets on a first hand basis.  We have the benefit of this reality and it isn’t fair for the desk bound ag – economists.  With over 90 % of the pigs of the world not in United States – Canada if you don’t get out and find out what’s happening in that 90% you are left with a big fish little pond mind set.  United States – Canada depend on exports for profitability, exports happen when importers have a need and an ability to make money.  With many Global Markets significantly above United States – Canada we expect pork exports to continue strong for the next several months.

Corn Prices

September corn futures closed at $7.52 a bushel Friday a price that puts further pressure on swine, cattle, and poultry producers.  We expect with Cash Early weans at $17.00 to see some breeding herd liquidation as producers and bankers get tired of seeing losses.  The only upside is producers with land are seeing appreciation of this asset and if they are feeding their own $7.52 corn to their $1.00 lean hogs their cash flow should be excellent.  Even so we believe in total there will have a smaller breeding herd on December 1^st year over year as producers lose money through the fall and quit.

Chicken Cutting Back

            The chicken industry is cutting back.  High feed prices and a chicken price less than a year ago. (2011 – $81.22) (2010 $84.73) means red ink.  The brakes are on; weekly egg sets for the week ending August 20 – 194 million down 7% from a year ago.  7% is almost 10 million fewer chickens per week.  This is extremely price supportive for lean hog prices through the fall as 7% is around 50 million pounds less chicken per week.

U.S. Total Meat and Poultry Production

Week ending August 20

(Millions pounds carcass)

            Year over year combined is 52 million pounds lower.  In the coming weeks chicken production should decrease further while in the coming few months Live Cattle Futures are reflecting on an expectation of lower supply.  Tonnage matters, we expect the combination of lower meat and poultry supply with domestic demand steady to stronger coupled with global demand will hold prices high.  We expect next summer hog prices to meet and exceed this years.