Pork Commentary, January 3rd, 2022
Jim Long, President-CEO, Genesus Inc.
We are at a New Year. Like most in our industry, we are optimistic. Our industry has by its very nature evolved into a collection of optimistic participants. We are all the survivors of the huge consolidation of the last three decades. Thousands of producers have left our swine business throughout the world primarily because they didn’t have the capital and or courage to go on. Optimism is part of the courage. We can all list the issues that can make things go wrong in the pig business: disease, markets, costs, labor, environment, etc. The list is daunting, but we all still go on because we are optimistic and, in some sense, we have no choice but to forge ahead defying the list of obstacles to success.
A few years ago, we heard a large producer say re our industry “The women and children are dead, all that is left are the warriors.” Sums up where we are. For many of us, our Journey has had its challenges but we continue on with the spirit of optimism. We look to 2022 with optimism, because we are optimists.
The last few months in North America, Europe, and China producers have been losing money. It’s the first time that the three largest producing areas in the world have all been losing money at the same time. Collectively our calculation has the three areas losing $2.5 – 3 billion U.S. a week. History tells us when producers lose money you have less pigs in the future. We believe history will repeat itself. This time the collective decrease in hog production due to financial losses will be unprecedented.
Charlie McVean, the legendary trader from Memphis used to say “wait until the dog hits the end of the chain.” That’s where we are today, liquidation has happened in USA with no expansion in sight; Europe and China have been for months liquidating at high levels. Sometime in 2022 when their liquidation levels push hog numbers down, the dog will hit the end of the chain. Then we expect hog prices in many parts of the world will match or exceed their highest price ever. Last year in the U.S. there were many weeks over $1.20 lean lb. Why would we not expect that price to be surpassed? There are less lean hogs in U.S. this year by summer there will be less hogs in the rest of the world. The U.S. future market today in the mid 90’s is significantly undervalued.
2022 – Here We Come
In our opinion before 2022 is over we will all consider the year as one of the best years ever. Less Hogs lead to higher prices. We will achieve profit levels unprecedented. Observation – our strengths are our weaknesses. We are maybe optimistic to a fault. But as Elon Musk says; “I’d rather be optimistic and wrong, than pessimistic and right.”
To all have a great 2022. The journey continues.