Jim Long President – CEO Genesus Inc.
May 17, 2023
Last week the U.S. Supreme Court ruled that California’s Proposition 12 can proceed. The law means in simple terms sows must be in gestation pens at 24 sq. ft. to have their fresh Pork sold in California.
The ruling is not a win for a Pork Industry facing financial headwinds.
There has already been sow barns built or renovated to meet the Prop 12 rules. Estimates range from 350 – 500,000 sow spaces. We don’t know if this will meet California’s Pork demand.
One of the challenges of Prop 12 is not only the cost of building and equipment but the lower production results due to lower litter size, farrowing rates and the higher sow mortality. There are premiums being offered for Prop 12 pigs which are necessary to cover the increased production costs.
In a selfish note. Genesus sows with a combination of structure and temperament have an edge versus competitors in pen gestation i.e., Prop 12 barns.
This past week we had several conversations with producers telling us Packers were calling looking for hogs. This is a good sign of increased demand. One producer told us a Packer called they never do business with looking for hogs. My Father used to say, “Who’s calling whom.” He always equated it to a reflection of market direction.
We all can see corn prices have fallen, at the rate we are going down. Corn under $5 bushel will be happening. Lots of corn in Brazil, U.S. crop getting planted in timely manner with U.S. corn exports continuing to languish (-36% ytd.). Lower feed costs would be beneficial to the Pork Industry.
It appears to be a reality that major sow liquidation is underway. The low price of cull sows indicates their abundance. We expect in U.S. 300,000 sows will be gone. If correct decreasing U.S. hog production by about 6 million head a year.
We expect liquidation in Canada of 50,000 sows or about 1 million pigs disappearing a year.
All supportive for higher hog prices in fourth quarter into 2024.
If Misery Loves Company Department
Reports from China indicates 17 of the 21 listed public companies lost money in the first quarter due to pig production. Wens 2.7 billion RMB ($385 million). New Hope 1.7 billion RMB ($242 million). Muyuan 1.2 billion RMB ($171 million). Zhengbang 1.2 billion RMB ($171 million). The top three companies have losses of at least 400 RMB per head ($57 per head). Some of the main companies have announced plans to decrease production a combined 6 – 9 million pigs per year (similar to what we expect in USA).
If we assume $57 is an average loss per head for the whole industry. China markets about 12 million hogs per week the loss would be $684 million per week. No doubt there is herd liquidation. The loses in China are due to the lower hog price driven by large volumes of ASF infected pigs dumped into market (all weights get sent). We expect sometime in June – July China’s price will move higher as fewer hogs come to market. China is the world’s largest importer of Pork. Less Pork in China will lead to more imports.
We have been writing about our concern with Pork Demand and prices. A reader sent us the picture below of Ham in a Hy-Vee grocery store. 49¢ lb! Probably at 49¢ it is getting to Dog Food price. We have a real problem in this industry when we are using that as a benchmark.
In our opinion one of the best brands in the U.S. Pork industry is Johnsonville. They make only sausages and only high-quality sausages. They sell for more than other sausages each and every day. They have advertised and developed a brand and backed it up with consistent and predictable quality. In stores Johnsonville sausage is $4.99 lb. – the ham was 49¢ lb? Johnsonville knows what matters BIG TASTE and they advertise to deliver the message.
Johnsonville has got it. TASTE. When are we as an industry make the changes to mirror what Johnsonville has realized and profited from make a brand and product that consumers want and pay for.
Ham at a Hy-Vee grocery store being sold for 49¢ lb.
Johnsonville’s Big Taste Grill