Pork Commentary, March 8th, 2021
Jim Long, President-CEO, Genesus Inc.
The most recent week U.S. Pork Export Sales were 59,600 metric tonnes. Of that 28,200 were to China. Both numbers the highest since September. Quite a positive sign with U.S. hog supply declining and exports showing good demand.
U.S. Cull sows in the 70₵ range. This past summer they were in the 20₵ range. Huge jump in value. A $200 per head increase. Good time to sell your sows that you kept going (because you had too) and replace with gilts. Sow is worth more than a purchased gilt, a real-time opportunity.
Agriculture Canada recently released Canadas Swine Inventory as of January 1ST. It indicates the almost static production level Canada has had over the last 5 years.
Canada January 1st Inventory
Breeding Stock 2017 2018 2019 2020 2021 6 Months and Older 1,255 1,259.5 1,253.5 1,244.4 1,256.9 All Other Hogs 12,680.0 12,910.5 12,721.5 12,725.6 12,768.1
As you can see, almost no change for five years. Canada’s Pork Exports are about 70% of production. It goes to show that export markets haven’t been a path to expansion for producers. We believe Canadian Packers have had a good go the last five years. Producers’ returns have been high enough to hold on but not to expand. If you believe in the adage, if you’re not growing you’re going backwards, you can see Canada’s reality in a world that is consuming more pork than 5 years ago.
Our industry is facing the challenge of California’s Proposition 12. A law that will impose California’s theory on swine production into other states jurisdiction. California has 7,000 sows. Now the National Meat Institute has applied for a writ asking the U.S. Supreme Court to review previous ruling upholding California’s law. For some producers that law will have major effects on production costs and practices.
The big question at Supreme Court will be, does a state (California) have the right to extend its police power beyond its territorial borders through a trade barrier, dictating production standards in other states and countries?
When you consider the widespread implications in so many facets of business, manufacturing and the economy, the ability of any state to impose their laws and police powers on another state has far-reaching implications beyond livestock. It could create trade chaos and friction between states if each and every one enact legislation that imposes their laws on other states then use their police powers to enforce.
It’s no wonder 20 sovereign states, the National Association of Manufacturers, and Chamber of Commerce support the Supreme Court Challenge.
This isn’t just about Pigs, but a fundamental challenge to all interstate trade. Stay tuned. This is a battle beyond sow space square footage.
There was a good article in Beef Central that featured Simon Quilty from Global Agri-trends regarding China
- African Swine Fever (AFS) will impact China for years to come.
- Global Agri-Trends estimates that China has lost between seven million and eight million sows in latest disease outbreak over the last eight weeks.
- A sign of pig supply is 7 kilo (15 lb. pigs) selling currently for 1,600 rmb ($246 U.S. pig).
- With the recent announcements of further ASF outbreaks across the country, we expect 2021 to now well exceed last year’s meat import volume- possibly around 9.5 million tonnes.
- Last week a futures analyst working with COFCO, the Chinese government’s meat buying arm, said the damage caused by the epidemic this winter was much more serious than last year, estimating 20 percent of sows in Northern China had been impacted and up to 30 percent in parts of Southern China.
- Another consulting firm, Yongyi, said that “China breeding sow numbers for both January and December were down significantly, estimating that overall sow numbers were down 37 percent compared to pre ASF levels”.
So what led to the estimated 7-8 million sows being lost in the past eight weeks? There were two factors in play, Mr. Quilty said.
- Two new strains of ASF had emerged, due to the use of illegal (less effective) vaccines.
“The end result is that highly virulent strains have now come forward, and in addition, a natural mutation has occurred in ASF.”
- Between them, they were sweeping through the large Chinese piggery ‘super-complexes’ that had been constructed on the past two years, to shift the country’s pig herd out of smallholder backyard operations to much larger, more efficient, and easier to manage (against disease threats) multi-story ‘industrialized’ pork-producing facilities.
“These facilities were once thought to be bullet-proof, disease protection wise,” Mr. Quilty said. “But this ‘solution’ has now become the problem. These large complexes each house an enormous number of animals, and have concentrated the disease spread problem. As a result, the disease has swept right through these large complexes.”
There were also a number of other reasons why Chinese pork production was struggling.
Poor genetics and low litter sizes had caused real problems. This was partly because females that were to be used for meat consumption were now being used for breeding, and experts were saying these retained gilts were not performing at all.
“The end result is lower carcass weights and smaller litter sizes. In addition, the ASF disease has never stopped, and other diseases have also appeared, such as SARRS and Foot & Mouth, which continue to plague Chinese pork production,” Mr. Quilty said, “Add that to the new strains of ASF being seen, and it means Chinese hog rearing, as well as sows, is really problematic in China today.”
Mr. Quilty is echoing much as we have been reporting. The devastation of ASF continues, the loss of so many sows in the last two months certainly tells us more are being lost now. It doesn’t just stop.
The implications are continued strong Pork imports to China (last week China’s U.S. Pork purchases were highest since September).
Germany being out of the China Market due to ASF will support prices in Brazil, Canada, U.S.A., and Spain as major sources of China Pork. The last couple weeks prices are increasing in Spain, we expect supported by export activity.
The loss in China of so many sows and pigs in production will affect feed demand. The loss has been equal to or has exceeded the total of U.S. hog production. Not hard to see Chinas demand for feed will decline radically in the months ahead.
So in summary- despite the Chicken Littles September 2020 predictions:
“It’s shackle space that will dictate pig prices moving into the future, not the pig supply. With that, it will be likely 8-10 quarters before the profit picture looks much better.”
“The pork industry doesn’t see a full recovery until at least 2022.”
It’s the dilemma of predictions i.e. Saudi Arabia…
“Saudi Arabia appears devoid of all prospects for oil,” attributed to a director of Anglo Persian Oil Company in 1926.
Despite these Chicken Little Predictions- we continue to see strong prices in 2021. Less production- strong domestic and export demand. Prices will blow by $1.00 lb.
Its producers turn to make some money!