If Misery loves company, we have a real hootenanny* going.
(*Scottish word, meaning party)
The Utter Collapse of the U.S. and some other countries’ pork markets is unprecedented. Coronavirus and what it has done to the food chain logistics and demand is crushing.
Market not working for anyone:
- U.S. Pork Cut-Outs last Friday at $52.85.
- Integrated packers with own production, in all likelihood, have a breakeven of $70. If correct losses would be in the $36.00 – $40.00 per head range.
- Producers farrow to finish losing at least $30.00 per head.
It’s one Ugly Duckling. No one is winning.
The last week of March the U.S. sow slaughter was 67,201. Last year the average was 57,500. We expect we are in the throes of a massive sow head liquidation.
Last quarter (Dec-Feb) the U.S. herd decreased 96,000. We expect a decrease of 150 – 250,000 this quarter. We are already cutting supply of hogs for this fourth quarter.
We expect Canada to also decrease sow numbers in proportion to U.S. declines. Cutting overall supply in the U.S.A-Canada in 2021.
The damage the market price is doing will be hitting all size of producers. We had already started the sow head liquidation last quarter as the industry had been losing money. This will be the death-bell for many.
We expect this Black swan Event to lead to further industry consolidation.
China might be a communist country, but they sure can understand capitalism. With U.S. pork at an unexpectedly low price, China jumped in last week to purchase 38,730 metric tonnes. All country sales last week were 55,900 metric tonnes. Both numbers were at historically high levels.
Take home – Everyone loves a bargain and they can use the pork.
China hog price last week was $2.25 U.S. liveweight a lb. China early wean pigs averaging $325. U.S. Also we had more than one report last week that African Swine Fever (ASF) still a big factor. Use of illegal ASF vaccine (ineffective) has compounded the issue.
All indications: China slaughter will decline from here to end of summer, making China’s need for imported pork even greater.
Sioux Falls (Smithfield), Columbus Junction (JBS), and Quebec (Olymel) have all lost days due to Coronavirus in the workers. It will be a challenge to keep plants going.
We suspect all producers are pushing as many hogs to their designated plants as possible, trying to stay ahead of the fear their plant might slow down.
Below, Kenneth Sullivan, CEO of Smithfield sums up reality of Sioux Falls plant closing and what it can mean.
Smithfield warns of food shortages:
April 12, 2020 5:55 PM ET
by: Stephen Alpher, SA News Editor
The U.S. is “perilously close to the edge in terms of our meat supply,” says Smithfield CEO Kenneth Sullivan, earlier today announcing the closing of his company’s Sioux Falls processing facility.
That facility alone accounts for 4%-5% of U.S. pork production, and Sullivan notes a growing list of closings of other protein producing plants.
Sullivan: “It is impossible to keep our grocery stores stocked if our plants are not running.”
Sullivan also warns of the “disastrous” consequences up the supply chain once plants stop running, i.e. for the nation’s livestock farmers. “These farmers have nowhere to send their animals.”
We have a stark choice as a nation: “We are either going to produce food or not, even in the face of COVID-19,” concludes Sullivan.
One good thing, we are heading to summer when supply of hogs declines seasonally (usually starts mid-April). This seasonal decline will help in packer capacity effected by Coronavirus and hog-pork pricing.
We should be thankful (really reaching here) that Coronavirus is hitting now moving towards summer hog supply, rather than October-November hog supply.
Chicken Price has also been affected by Coronavirus.
- Last Friday National Composite wtd avg. was 50.51₵ lb.
- 2 weeks ago, 60.61₵ lb.
- March avg. 79.35₵ lb.
- A year ago, 96.25₵ lb.
Obviously chicken price has cratered like hogs. A week ago, chicken placements were same as year ago. We suspect the chicken industry will cut chicken placement significantly, as it is almost a totally integrated industry.
Within 5-6 weeks of cutting chicken placements, they can cut supply supporting their price and help alleviating fears of processing capacity slowdowns due to Coronavirus.
We don’t know the cost of production of chickens, but a 6 lb. bird compared to a year ago is $2.70 less, times 150 million chickens, it’s a big difference in revenue. Farmer Arithmetic – over $400 million. We expect chicken production will be cut significantly and fast.
- Hog Losses are big.
- Sow herd liquidation is accelerating.
- U.S. Export sales supportive at historically high levels.
- Packer capacity challenged by Coronavirus. Good we are going into summer with lesser hog supply.
- Huge drop in chicken prices will likely lead to quick cut in chicken production.
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