Jim Long, President-CEO, Genesus Inc.
November 25th 2019
If Misery Loves Company be a Pig Producer
The last two weeks it’s like we have reached a tipping point in production misery. The words “Survival Mode” we have heard more than once.
Some things we have heard from different producers:
“When is this going to get better?”
“I am tired of hearing about China.”
“I expanded, now I wish I hadn’t.”
“I am in survival mode and hunkering down.”
“It’s obscene how much packers are making, while producers lose their ass.”
“Not only are hog prices bad, but I am fighting to harvest my crop and now with rail strike we can’t get propane to dry what we do get off. It really sucks!”
“Talked to our bank about new money. They are not interested in financing hog production.”
“Our Congress is incapacitated by impeachment, when are they going to realize agriculture is in crisis and it needs help as one of the greatest strengths of our country?”
“A group of us producers has gotten together and won’t sign the Packer contract being offered us until offer gets better.”
Not exactly quotes from a group of happy campers. We are afraid it’s a reflection of many producers. Losing money is a grim reality.
“Hope is Mankind’s greatest weakness and greatest strength”.
Below is our reason for Hope:
U.S. Pork cut-outs at 84₵ lb. in the face of record hog slaughter is amazing sign of pork demand. Packers making gross margin north of $50 per head (some claim its $80), means they have the resources to invest for future higher hog prices. At $50 times 2.7 million head (U.S. slaughter). $135 million gross margin a week, if it’s not more than $50 a head. You do the arithmetic. Certainly profits giving Packers huge incentive to kill all they can.
Feed prices are reasonable and should stay there.
To have hog price increases we expect hog slaughter numbers need to come down. Last week the average weights Monday to Thursday were lower than the same time the prior week. If hog weights drop it’s an indicator we are starting to lower potential slaughter numbers.
North America- U.S.A./Canada/Mexico is essentially one market. Canada starting again to ship to China is a positive. Canada was 15% of Chinas imports- January to June. Then exports were stopped. That pork went into other markets. Now that Pork is going to China again, any pork that goes to China is off all other markets. China needs meat to fill the black hole caused by ASF.
China didn’t start buying U.S. poultry a few days ago because they started loving America. They had banned U.S. poultry for the last five years. Any poultry that goes to China is not in any other market. China needs meat to fill the black hole caused by ASF.
Tyson and JBS didn’t stop allowing Paylean (Ractopamine) to their plants as of January 1 for any other reason than to qualify pork for China. Combined they slaughter 180,000 head a day. Sure the hell this means more pork to China, or at least they expect to do it.
We have been told there is a scramble on for freezer space to get pork frozen for China, and that more inspectors have been hired by the U.S.D.A. to inspect pork to China. A real indicator of more exports happening.
The latest U.S. Pork Exports data from two weeks ago totaled 59,800 metric tonnes. The second highest week on record. Our farmer arithmetic says to an equivalency of 10 hogs per tonne. So our arithmetic equals 600,000 hogs (about 35% of U.S. weekly production). No wonder pork cut-outs are 84₵ lb., pork is moving at record volume. Everything that leaves supports prices. There is no other source of large amounts of meat protein left in the world that China can get except U.S.A. Chicken, Pork or Beef.
Indications are that ASF is far from under control in China. They will have less pork domestically in coming months, increasing further their meat protein needs.
It appears that Europe might be near or at maximum amount of pork they have available for exports. The price in Europe due to the huge amount of pork being exported is between 95₵-$1.00 U.S. lean a lb. The wildcard is ASF is now in Poland- 60 miles from the German border. If it gets to Germany, does China accept pork from Germany? Currently Germany is China’s largest source of imports, with Spain second. China will do what they think is best for China.
“Don’t Lose Hope - You never know what tomorrow can bring”.
We are optimistic that once we get slaughter numbers down, which they will do seasonally, the cash hog price will chase the pork cut-outs. The profits from Exports, which we expect to continue at record levels will push the industry into profits. We expect once that happens this will continue for a significant length of time.
“Hope is seeing the light in spite of being surrounded"