Pork Commentary, August 10th, 2020
Jim Long, President-CEO, Genesus Inc.
Global Mega Producer Exits
Last Friday it was announced that Goldsboro Milling – Maxwell Foods would be exiting the Swine Industry. A year ago, at this time Maxwell Foods was a Global Mega Producer with 100,000 sows. Last August 19 Maxwell sold about 46,000 sows and production contracts to Country View Farms whom are part of the Clemons Food Group.
Maxwell has announced that it will begin phasing out current production of about 54,000 sows beginning August 6th. See link below.
This is unprecedented in our industry. We understand most if not all breeding of sows has stopped.
“To breed a sow is to believe in tomorrow.”
There has never been a liquidation plan of this magnitude by one entity in the U.S. swine industry history. It appears that there were no buyers for the business. In the past when large producers such as Maxwell had an exiting plan another large producer took them over. IE Smithfield Foods – Murphy, Carrol, Premium Standard. Maschoff – Sands, Christiansen – Heartland, JBS – Cargill and so on.
Maxwell Foods continues to be a major shareholder in Butterball Turkey. The exiting of Maxwell from the swine industry is in our opinion a real reflection of the financial losses our industry has been enduring. Be real sure they aren’t quitting because of making too much money. When we hear from independent producers that the “Big Guys” aren’t being hurt by our negative margins we always disagree. The more hogs you have the more you can lose. There is no magic in the business, Maxwell wasn’t directly involved in the packing plant. They were like a big independent producer. Let’s say selling 25,000 hogs a week times $30 per head loss = negative $750,000. At some point you might ask “What’s the future?” If you don’t see one. Stop breeding, exit stage right.
54,000 sows equal about 1.2 million market hogs per year, almost all currently to Smithfield Foods. If one needs confirmation sow herd liquidation is ongoing this is it. Who knows if this market continues as is who might be the next large entity to stop breeding? To assume there won’t be is reckless.
If slaughter weights and field reports from our customer base are an indication, we believe few if any hogs are backed up. Our opinion is far different from the commodity traders and vested interest that say “3 million hogs backed up” a crude but effective way to depress hog prices.
Despite the best efforts of the vested interest to continue to hype huge pork supply. Cut outs were $73.84 Friday. Lean Hog futures even showed some life Friday with a significant bounce.
Pig Production is decreasing. From Dec 1st to June 1st, 150,000 fewer breeding sows. June sow slaughter 52,000 more than last June. We are aware of several farms beyond Maxwell Foods that have decided to exit. Euthanization, sow herd abortions & lower gilt retention are all factors in decreasing the pig production. June 1 USDA report projected 5% less farrowing in this time frame. That is about 150,000 less pigs a week. We are being offered empty barns both nurseries and finishers. The hog supply is dropping. Barns are becoming available. When does price increase? When the market realises there are not millions of hogs backed up. When is that? Hopefully sooner rather than later.
“Surest cure for low prices is low prices!”
Potential PRRS Game Changer
In Feedstuffs a report that the University of Connecticut assistant professor of animal science Young Tan and professor of pathology and veterinary science have now identified compounds that successfully use a vaccine to block the PRRS Virus. Click below to see article.
If this technology is effective this has huge ramifications in the future of our industry. Unlike Gene Editing (GMO) being done by companies like Genus – PIC which face huge regulatory and consumer acceptance of GMO food. No one has much issue with vaccines. Vaccines can be available to the world industry unlike a GMO Pig which will have huge restrictive, cost and litigate issues beyond consumer acceptance.
We can only imagine the fear at companies that have invested 10’s of millions to produce a GMO-PRRS resistant pig to see the vaccine option potentially destroy the value in the GMO technology investment.
At the end of the day, we need to produce Pork that consumers will feel comfortable with. GMO pork has been banned in Europe. Not sure GMO pork is a direction that will drive consumer demand in North America. A vaccine is a real solution that doesn’t collide with consumer or regulatory issues.