Pork Commentary, September 27th, 2021
Jim Long, President-CEO, Genesus Inc.
The USDA September Hogs and Pigs Report is Bullish. Why?
- Year over year almost 3 million hogs less in inventory (-4%).
- Year over year herd down 143,000 (-2%).
- Year over year 119 lbs. pigs down 2.7 million head (-6%) (down about 150,000 head a week).
- Pig Crop June – July – August down 6%.
- Farrowing Intentions September – November down 4%.
Year over year no doubt all inventory numbers and intentions are significantly lower. We expect these numbers will add a charge into market hog prices throughout the fall and winter. We expect high feed prices. The damage from financial Covid crisis in 2020 and cutting of farm capacities due to Prop 12 adjustment, all factors that have cut hog numbers.
Lean Hog Futures should gain 5–10 due to this bullish report in December and onward due to 2.7 million less head under 119 lbs. (-6%), that is about 150,000 fewer hogs per week to slaughter year over year.
|USDA September 1st (x 1000)|
|Market by Weight Group|
|Under 50 lbs.||23,144||21,855||94%|
|50 – 119 lbs.||21,020||19,751||94%|
|180 lbs. and over||13,069||12,899||99%|
Spain Road Trip
This past week we attended the Figan Show in Zaragoza, Spain. Our Report:
The Figan Show was held over 4 days and attendance was much better than many expected.
Producers we talked to were concerned for the future as the industry has gone into a lost position and feed prices are historically high. Fortunately for Spanish producers, they have had good prices for many of the previous months.
Many exhibitors at the show from around Europe. All major global swine genetics companies attended except for Topigs–Norsvin which was surprising to us with Spain being the major swine production country.
Spain is the third-largest hog-producing country in the world and the largest in Europe with about 2.6 million sows. The market has been profitable until recently with prices now at 114 Euro/kg live, breakeven 120–122 Euro/kg live.
Spain has been the largest exporter of pork to China accounting for approximately 20% of China’s imports. With price collapse in China, Spain’s exports have dropped significantly putting more pork into Spain’s domestic market and other EU countries. Some countries i.e. Germany, Netherlands, Belgium, etc. are losing 35-40 Euros a hog currently ($50 US).
Spain’s swine industry is organized much differently than most of the rest of Europe, Spain uses an integrated model. Integrator usually owns sows, pigs, feed mills and in many cases slaughter plants. Contractors supply nursery, sow, finisher barns, and labor for a fee usually per head. In much of the rest of Europe, producers are independent family farms. Spain’s model has proven successful with its growing by over 1 million sows over the last decade while much of the rest of EU countries lost sow and pig numbers.
A unique part of Spain’s industry is the Mercolleida pricing structure. Every Thursday integrators, packers, and producer groups meet to discuss market and set suggested price for market hogs for the next week. This has gone on for decades. It’s unique in that a collaborated price is agreed between producers and packers. When you meet every Thursday, participants develop relationships that are not adversarial, how can it be, you know you are going to be together next Thursday and the Thursdays after that. It appears to have mostly struck a balance between packers and producers that has led to a sharing of hog profits better than other systems in the world.
This week we continue our tour of Spain. We will report other observations.
Genesus team at the Figan show in Zaragoza, Spain
Manuel Garcia of Vall Companys (World Mega Producer with 213,000 sows), who is also President of Interporc which is the national pig association of Spain, alongside Jim Long, President-CEO, Genesus Inc.