Jim Long, President-CEO, Genesus Inc.
October 7th, 2019
Hope – A Pre-requisite to be a Hog Producer!
The U.S. hog market has shown some life in the last week with lean hogs gaining about 5₵ lb., getting close to 60₵. But what is there to say. Current prices mean a $15- 20 U.S. per head loss. It’s not a pretty hog market for producers.
It’s once again good to be a packer. One estimate we read had Packer Kill and Cut Gross Margin at $22.00 per head. Currently with 6% more market hogs compared to last year, packers have lots of options. No one pays more than they have too.
Last week the U.S. Hog marketing’s were 2,669,000 up 169,000 from a year ago. The huge numbers of hogs have led to the finishing capacity to be maxed out. We expect current market numbers are far greater than the current small pig placements. This in itself is beginning to create finishing space.
The lean future market reflects the expectation of less hogs and greater demand, Friday with October 62.40; Feb 74.47; and April 81.50.
Last week in conversations with different industry veterans, they all commented on the negative attitude in our production base. Many producers wonder what the future is. They have lost money. They see the trade war hitting swine producers and them being sacrificial lambs for the bigger picture. This is in both the USA and Canada.
This concurrently with the real hope that a trade agreement can be made to fill the cavernous hole ASF has created in China's production base.
Rabobank- the world’s largest Ag lender reported last week that China’s pork production will fall by 10%-15% in 2020, on top of the 25% drop in 2019. Rabobank also expresses the opinion that China Pig herd has decreased by half in 2019 and is still falling.
We agree with Rabobank’s sentiment on where the China pork and hog supply is heading from our own observations in China.
What you really have to ask, what does a further 10-15% drop in pork production do to China's hog prices?
Currently, China's average price is 28.52 rmb/kg or $1.81 U.S. liveweight a lb. (a 260 lb hog-$470 U.S.). A further 10% drop is at least one million fewer market hogs a week on top of the current market hog supply.
It’s mind boggling. How high can prices go?
The pressure to import pork will be even greater as every week China’s hog and pork supply declines.
This week new trade discussions between the U.S. and China resume. Maybe some resolution that benefits U.S. hog producers? There is hope. Hope is necessary pre-requisite to be a hog producer.
Last week JBS - The second largest packer group in U.S.A. (93,000 per day capacity), announced they will now stop accepting swine fed Ractopamine (paylean), a growth promoter. China will not accept Pork fed Ractopamine. In our opinion this is a clear signal JBS is getting themselves in a position to sell large quantities of pork to China.
Smithfield Foods - the largest U.S. packer (130,300 per day capacity) has already banned Ractopamine usage.
Combined Smithfield and JBS at 213,000 per day are over 40% U.S. total packer capacity.
Last week, Dr. Steven McOrist wrote an article in Pig Progress on ASF. In Southeast Asia he estimates a drop in production from ASF – 30% on commercial farms and 80% of backyard farms.
If you add up the estimate he made for decrease in the expected supply in Southeast Asia- Viet Nam, Myanmar, Philippines, Thailand, Laos, and Cambodia, it comes to over 5 million metric tonnes. If close to correct, there will be a large increase in local hog prices and there will be increased pork imports to all these Southeast Asian countries. A further pull and demand on the U.S. hog market.
· It’s no fun losing money as a U.S. - Canada producer.
· As a pig producer, hope springs internal. This market could change on a dime.
· A major move for exports and the dog might not run out of chain for a long time.