JIM LONG'S PORK COMMENTARY
GENESUS is a registered trademark of Keystone Pig Advnacement Inc.
February 5, 2007
Last Friday Iowa-Minnesota average lean price was 62.39 ($0.46 lb Liveweight), below breakeven for many producers that are buying feed. With Thursdays USDA Pork Cut-outs averaging 63,08, quick arithmetic tells us that the spread between cut-outs and market price is less than $0.01 lb. Usually there is at least a $0.05 lb spread. Something will have to give at $0.01 lb margin - packers are losing big time money. Either hog prices will go lower or cut-outs will go up. We lean toward the latter scenario as weekly hog marketing's are in a seasonal decline. Last week the USDA slaughter was 2.045 million, or 1.8% lower than the previous week. In the next couple of weeks we expect near or below 2 million for the week. Less pork in the market place will maintain and strengthen pork salesmen's leverage on retailers.
Last week Sara Lee announced its pending closure of its slaughter plant in Mississippi. Not a real surprise a this had been expected in the industry for the last couple of years. Bad news for the producers in the region who have significantly higher trucking costs to get their hogs north. The Swift Plant in Louisville Kentucky and the Cargill plant in Beardstown, Illinois could benefit significantly from this pending closure. Prestage Farms has major production interests in Mississippi but we understand that they had already begun moving small pigs to Iowa for finishing. Prestage is one of the large operators in this business and its not too hard to believe they had seen the writing on the wall. While Prestage has critical mass, expertise and capital to shift finishing production, other producers in the Sara Lee area are not as fortunate and we expect a number of them will exit the business. This plant closing will not only decrease shackle space but also decrease US hog production.
Olymel in Canada last week announced they are planning on closing a plant in Quebec that slaughters approximately 28,000 par week. We understand Olymel had asked their workers to accept wage contract concessions that would have lowered hourly wages from $28.00 per hour to $22.00 per hour. By a large majority the Union rejected this proposal. Olymel then announced the pending closure of the plant in four months. Stay tuned - unlike the Sara Lee plant, of which there is no hope of staying open, we expect further discussion or to put it more aptly, more games of Chicken in the Olymel situation. This being Canada and Quebec we expect Olymel (which has been losing $1 million a week for three years) and the Union to look for government assistance. Olymel had hired the former Premier (Governor) of Quebec, Lucien Bouchard, to help develop a turnaround plan and you don't hire former politicians and lawyers to sell meat. They are looking at hoovering concessions and money from farmers, workers and government. As we say, stay-tuned. If in the end the plant did close, there would be fewer sows in Quebec. Prices in Eastern Canada (Quebec and Ontario) basis to the US would be lower than even now as packer capacity would be negative to hog supply numbers of small pigs that are being purchased in Quebec from Ontario would in all probability be reneged on and those pigs would then move to the US.
The potential closure of Sara Lee's and Olymel's plants reflect another issue, the difficulty of high cost feed areas to sustain production and profitability. The new Triumph Plant in Illinois will replace shackle space lost by these two plants but it is in the corn belt. Hogs are continually moving to where there is cheaper feed and where manure can be utilized to its maximum.
There are few public disclosures of financial results of Hog companies and one of the few is Premium Standard Farms, who last week released their quarterly results. Premium Standard Farms (PSF) has approximately 225,000 sows, farrow to finish, with feed mills, packing and processing. PSF has previously announced plans 10 merge with Smithfield Foods.
Smithfield Foods two weeks ago announced their intention to end the use of gestation stalls in ten years. With their pending merger with Premium Standard Farms, Smithfield will have one million sows in the US or over 15% of all sows. Last week we projected that other packers and producers would quickly adjust to this new production reality. Last week Maple Leaf Foods, Canada's largest hog packer and producer, announced plans for a ten year phase out of gestation stalls in their own production system. In our opinion it’s all over, the momentum will not be stopped. The animal rightists have lost an issue, go pick on Chickens in cages.
Lean Hog Futures project a $0.50 lb liveweight average price for 2007, similar to what we projected for the last few months. The usual suspect ag-economists continue to question the future prices. We listened to them in October projecting $0.43 - $0.44 lb for 2007 and they are still beating this hollow drum. Get over it, you were wrong then and still are. There will be no more hogs in 2007, exports will grow, and we will have lower carcass weights. Domestic consumption will be steady and there will be production contraction. Prices will be $0.50 plus in 2007. $0.43 - $0.44 lb in your dreams.
We are pleased to announce Bob Fraser, formerly Vice-President of Farms.com (M&F Trading) is joining the Genesus team.
Bob will be managing partner of the Genesus associated early wean producer marketing group. In the past the group marketed under the name Excel but in the future, the group will be known as . is a branded added value product company with producers partners that work and collaborate to sell high quality uniform predictable early wean pigs to various finishers.
In the last ten years with Farms.com (M&F) Bob has been associated with marketing millions of small pigs. This experience will enhance the further development of relationships that are win-win for both buyer and independent sellers.
Genesus, with industry leading maternal production is ideal for all sow producers to maximize revenue. Finishers demand healthy pigs that grow, convert feed efficiently and receive top grades at all packers. Genesus deliveries on all these requirements.
Involving partners of a branded like product in a single added value marketing program is a natural extension of business evolution and collaboration.
If you are interested in knowing more about partnering with give a Bob a call or e-mail.
Contact:
E-mail: bobfraser@execulink.com
Cell.: 519-494-1550
Toll free: 866-436-3787
Jim Long, President Genesus
Mike Van Schepdael, Executive Vice President Genesus
