Pork Commentary

 

Jim Long, President-CEO Genesus Inc.

September 8th, 2020

 

Yes, a Vested Interest!

 

For weeks we have strongly questioned the reported_ "3 million hogs

backed up"_ opinion of Ag. Economists and futures traders. We just could

not comprehend 3 million as a reality. We observed the ripping down of

slaughter weights over the last several weeks. We were told we had a

"vested interest", we weren't sure what that meant other than compared

to know nothing chicken little ag economists, we own hogs and our

interest in the business far exceeds a cubicle without a door.

 

Yes, all we have is in the hog business. We are all in as many if not

all our customers and many of our readers. We are proud we are vested.

Maybe some of the people who have trumpeted "3 million hogs backed up"

had a vested interest to depress the hog prices? Only they know the

truth.

 

Some Observations

 

Chasing Hogs to Fill Slaughter

 

Some Packers are chasing hogs to fill slaughter. Why need to do that if

hogs backed up?

 

National Daily Base Lean Hog Weights

 

In the first part of May this year National Daily Base Lean Hog Weights

averaged 221 lbs. the same time a year ago they were 215.6 lbs. Last

week the first 4 days the Weights averaged 206.4 lbs. a year ago same

week 211.38 lbs. So, we have gone from about 5 lbs. heavier year over

year to 5 lbs. lighter year over year. We don't have a database to

confirm this but we expect the 5 lb. year over year be as a large

decline ever recorded. More importantly, anyone who owns hogs knows

large levels of backed up hogs don't lead to lower weights. It would be

quite the opposite.

 

U.S Cut-outs

 

Last Friday U.S. Cut-Outs averaged 80.56 lb. This is real positive as

a week ago were 72 lb. Pork Cut-Outs indicate strong demand.

 

Feeder Pigs

 

Historically this time of year is the low price for feeder pigs. Reason

is Sept. 1 - Dec. 31 is maximum annual slaughter and the barns are close

to maximum capacity and this cuts feeder pig demands. What we are

hearing from sales team and other industry people is right now there are

numerous empty finisher barns which is not normal for this time of year.

Also, hard to believe hogs backed up if numerous barns empty?

 

Its real obvious the collapse of feeder pig prices that occurred during

pandemic. What's interesting to us is the current narrowing of year over

year prices in what is traditionally the low price for the year. No one

pays more if they don't have too, what we are seeing in our opinion is

the beginning of the realisation of no pigs backed up and fewer pigs

being born everyday year over year.

 

The DTN calculation of the breakeven you can pay for a 40 lb. feeder pig

last Friday was $43.64, we expect week upon week appreciation of cash

feeder pigs to continually increase. We expect to see $90 plus feeder

pigs in 2021.

 

Empty Finishers

 

* Since last December the U.S. sow inventory has been declining

steadily. Sow slaughter year to date is about 9,000 more each and every

week than a year ago.

* Low Sow prices is leading to euthanization of poor sows - they don't

end up in current sow slaughter stats.

* New Sow barn construction is next to non-existent.

* Gilt retention has declined - we see it in gilt sales.

* Industry record sow mortality - 12.5% per annum (1% a month). Don't

replace and you have less sows and pigs.

* USDA Hogs and Pigs Report June 1 indicated 5% less farrowing's for

the balance of 2020.

* Euthanization of small pigs in May - June is cutting need for barn

space and obviously hogs for slaughter.

* We don't believe much ration formulation to slow hogs is ongoing.

 

Summary

 

* Guilty - Yes, we have a vested interest in hog prices being

profitable.

* Guilty - We have believed hogs weren't backed up to the degree "3

million hogs" level spoke about a week ago by the "industry experts".

* Guilty - Weeks ago we expressed opinion that Cut-Outs would be first

indication of lower hog numbers - closed 80 lb. plus Friday.

* Guilty - We believed liquidation of the sow herd is much greater

than the "industry experts".

* Guilty - We say to the "industry experts" who claim there will be

more hogs in 2021 then 2020 are absolutely wrong, wrong, wrong.

* Guilty - We believe all lean hog futures are undervalued relative to

collapsing hogs supply we expect in 2021.

 

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