Pork Commentary, July 6th, 2020
Jim Long, President-CEO, Genesus Inc.

Henry Ford was a man who went bankrupt more than once. It didn’t dissuade him, he kept going and in time built a business empire and became a legend in America/World business.

Henry Ford comes to mind as seven years ago this July 4th weekend, my family went to Detroit and toured the Henry Ford Museum, Greenfield Village, and the Rouge River Ford Assembly Plant, all legacies of his foresight. Of note, Henry Ford evolved the modern Car Assembly line after visiting a Hog Packing Plant in Cincinnati, Ohio where he saw hogs being carried by a moving line to stationary workers.

The U.S. hog industry is in a dark time. Prices and the losses associated with that are huge. Some estimates put potential annual U.S. producer losses at $5 billion total. Henry Ford statement “There are no big problems, there is just little problems.”

What are the little problems (little might be subjective) in the hog industry?

Lean Hog Price

Lean Hog Prices are in the mid 40’s.

Losses per head are $40-60 for many producers.

Coronavirus

Coronavirus tore up the Packing Plants. Now they appear to be back to near normal production. Can they keep going? Gross Packer Margins are excellent working as huge incentive to kill hogs.

Hogs backed up.

Certainly, the plant closures and slowdowns backed up Hogs. Our sense, most of Eastern Corn Belt is not backed up, Canada is not backed up, Eastern Iowa is okay. The dilemma is the 4-state corner of Iowa–Minnesota–South Dakota–Nebraska. There it’s a real issue.

Lean Hog Futures

Lean Hog Futures seem to us, an indicator of speculation more than the reality of the pork industry supply-demand too many times.

Observation – almost all if not all world hog markets are higher priced then the U.S. None of the other markets have a lean hog future market.

Spain which has the third-largest hog production in the world has a unique way to set their national hog price. Every Thursday 1:00 pm representatives from the Producers, Packers, Processors and Retailers meet to set the price of market hogs for the week. We have attended the meeting in the past. Seems to us these negotiations have led to a continual balancing of each segment of the industry’s interests where each sector’s margins are respected. It takes away one sector losing $40-60 per head which another is making $60.

Pork Export 

Exports have held it. Appears U.S. to China exports were record high in May. With China hog prices above $2.00 U.S. a lb. they should buy lots more. The little problem is the U.S.–China political relationship. Ag products seem to get targeted in trade wars.

China has agreed to a Phase 1 deal to purchase U.S. ag products including Pork. It’s to the U.S. pork industries interest this is honored.

Mexico, the U.S. largest pork importer by volume, in May saw its hog price collapse. Since then it has recovered. This will lead to a recovery of U.S. pork exports to Mexico that had declined substantially.

U.S. Legislation

This past week U.S. Senators: Inhofe (Oklahoma), Burr (North Carolina), Tillis (North Carolina), Ernst (Iowa) and Grassley (Iowa) introduced new legislation.

The bill would: 

1. Compensate hog producers who are forced to euthanize or donate animals that can’t be processed into the food supply due to Covid-19 related packing plant capacity reductions;
2. Increase funding for animal health surveillance and laboratories, which have been tapped to perform Covid-19 testing during this human health emergency.
3. Revise the Commodity Credit Corp. charter so a pandemic driven natural emergency qualifies for funding.

All these points are a reflection of the current swine industry situation.

Pork Commentary, June 29th, 2020
Jim Long, President-CEO, Genesus Inc.

The June 1 USDA Hogs and Pigs Report had what in our opinion some interesting numbers.

Some Observations

The breeding herd is shown being down 1% but farrowing intentions are down 5%. The two numbers don’t align. Being optimistic we will go with the 5% lower farrowing. If that is the case and assuming no litter size increase like in the last quarter, drop last year’s Pig Crop June–Nov by 5% that’s 72,575,000 x 5% = 3,628,750 fewer pigs or 140,000 less a week. A significant decrease.

We have a hard time figuring the 50,000 sow herd drop in the last quarter. Sow slaughter was 90,000 more in the quarter than the same year before. We know of many farms that liquidated. We know gilt sales decreased. No doubt gilt retention decreased. Sow mortality was not abated. The 1% drop in sow inventory doesn’t jibe with 5% less farrowing intentions.

The quarter before Dec 1-Feb sow herd decreased 96,000, but only 50,000 this last quarter with all hell breaking loose in the last ninety days? Hard to comprehend. We expect the sow herd is declining each and every day.

The USDA Report indicates over 1.6 million more hogs than a year ago over 180 pounds. Certainly feasible but certainly isn’t the 7 million some were speaking of.

The number we can’t figure is the 1.6 million (+12%) head more this year than last in the 120-179 pound range. Where did these come from? Who has been slowing up these pigs? These pigs would’ve been in the March Report under 50-pound range and that was a plus 4%. Can’t figure this one.

Other Observations

Pigs under 50 pounds in June 1 report are the same as last year.

Packers are out offering new contracts. We haven’t seen that for a while. Indicates to us they want to lock up hogs in a supply program at prices more to their advantage versus when hog supply gets tighter.

What we don’t understand is if hogs are backed up why are Packers calling producers to get hogs? Not everywhere but in some places. The old adage “who’s calling who” comes to mind. Producers recently weren’t calling but begging to get hogs in.

Some people have said recent sow slaughter has been inflated by large market hogs. Last year sows averaged 304 lbs. carcass weight. This year April – 305 lbs., May – 303 lbs. You would expect a big number of large market hogs in sow slaughter would pull down average sow weights. 

All barns aren’t full. We know of a large site of almost 20,000 spaces that was empty. On Friday were told if we wanted some empty barns we could get. Biggest question, who has the capital and courage to own the pigs.

Last Thursday the avg weight on the National Daily Carcass Report was 210.95 lbs., down 2 lbs. from the week before. We continue to have a hard time understanding how the average weight of hogs continue to drop if hogs are backed up. The weight has dropped 10 lbs. since May. The weights are also lower than the same time a year ago by 1-2 lbs. 

Packers continue to ramp up production. Last week getting to 472,000 head on Friday and 2,641,000 for the week. Weekly slaughter was significantly higher than a year ago with 250,000 more hogs. The first time year over year any significance for several weeks. This might explain the weights declining fast but then again if hogs backed up, what gives?

Lean Hog Futures – the trades had a good pounding down hogs on Friday. They focused on the backed-up numbers and minimal decrease in the breeding herd.

Summary 

June Hogs and Pigs Report did next to nothing to support the market. It will continue to be a tough slog until market numbers come down. We expect continued liquidation.

by: Chad Bierman, Ph.D., Geneticist, Genesus Inc

Pathogens are a global threat to the swine industry. They arise from bacterial, viral, fungal, and parasitic sources. Numerous and often prone to mutation, with a tendency to become immune to treatment efforts over time.

Production flows within the North American swine industry routinely face challenges from multiple pathogens, and a resultant annual cost to the North American swine industry estimated in the billion-dollar range; with PRRS estimated at $664 million alone (AASV 2011 Position Statement on PRRS elimination). This suggests the swine industry would benefit from animals that have a higher capacity to survive health challenges.

An animal’s ability to withstand a disease challenge can be defined in many ways. Resistance, Resilience, Tolerance, and Robustness are all relevant descriptors. Genetic selection for each concept is uniquely defined, distinctively implemented, and depending on the circumstances, it can be beneficial under differing situations. Genetic selection for disease resistance seems optimal, as an animal resistant to a disease would appear to have an advantage over an animal that is not able to control a disease challenge; however, targeting a specific pathogen requires a considerable amount of upfront investment. Adding to that, the earlier-mentioned fact that there are numerous pathogens presents a real challenge to become resistant to them all. Viruses also tend to mutate, which can lead to low-rewarding efforts should the targeted pathogen suddenly transform and become re-infective to the population.

Selection for disease tolerance instead of resistance recognizes that an animal can still perform under the burden of varying disease levels. However, selection for disease tolerance requires simultaneous measurements on both performance and the levels of infection. Another downside to genetic selection for resistance or tolerance is the challenge of acquiring continuous records of the pathogen burden. The burden levels will likely vary over time, yet are required for genetic selection in both instances (Doeschl-Wilson et al., 2012).  

A final hurdle is that pathogen burdens do not exist within high-health nucleus herd environments that the pork industry demands. Therefore, an alternative approach is warranted.  

The concept of disease resilience offers the aforementioned alternative. It is a combination of resistance and tolerance and is defined as the ability of an animal to maintain performance across environments when exposed to pathogen challenges (Albers et al., 1987). Disease resilience is unique in that selection in favor of does not require specific knowledge of any certain pathogen or level of challenge. The resilience phenotype can, therefore, be considered robust across stressors, both health-related and non-health-related, and more practical for selection on the population’s future fitness when considering there will be new pathogens that arise for which we are currently unaware.  

Selection for disease resilience targets those genes that allow an animal to have a tolerating consequence, or quicker recovery in their performance when challenged (Figure 1). Instead of targeted gene discovery for a single pathogen, the selection is placed on a multigenic scale within the genome, using quantitative and molecular tools inside our genetic toolkit. The Genesus answer to healthier pigs lies within genetic selection for disease resilience phenotypes.  

Genesus has been involved in funding disease research for over 10 years. Several useful tools have been discovered from genome-wide association analyses and incorporated into the Genesus toolkit.

• We have uncovered genomic regions that we place under selection to improve resilience to Porcine Reproductive and Respiratory Syndrome Virus (PRRSV).  
• We are monitoring genomic regions found to affect susceptibility to Porcine Circovirus Associated Disease (PCVAD).  
• Genesus is staying abreast of outside research and benefiting from our relationships within academia to improve our population’s resilience to E.Coli challenges.  

Furthermore, disease resilience traits have more recently been identified, which will aid in filling the previously empty, phenotype void. These phenotypes are necessary for selection purposes, and Genesus is now able to key in on those specific attributes to identify more disease resilient animals.  

The trek is not finished, however.  Active research continues, and more tools continue to unfold for use in genetic selection for improved health.  Diseases are becoming more numerous and geographically spread. For this reason, selection for disease resilience must continue to be a key component inside the genetic selection programs of swine.

Genesus continues its involvement in disease research and is working to actively combine genomics and disease resilience phenotypes in the selection for higher-health animals. In the forthcoming months, we will share more of the breakthrough discoveries from our involvement in major research projects involving Genome Canada, Genome Alberta, PigGen Canada, USDA National Institute of Food and Agriculture (NIFA) and the Alberta Meat and Livestock Agency. Through Genesus and these funding agencies, collaboration with projects and researchers at several major Universities around the world (e.g. University of Alberta, University of Saskatchewan, University of Guelph, Iowa State University, Kansas State University and University of Edinburgh) has transpired over the past decade.  

We look forward to sharing in more detail what implementation has occurred inside of Genesus from our collaboration with researchers at these organizations, and our involvement in utilizing these resources.  

Source: 

Albers, G. A. A., G. D. Gray, L. R. Piper, J. S. F. Barker, L. F. Lejambre, and I. A. Barger. 1987. The genetics of resistance and resilience to Haemonchus contortus infection in young Merino sheep. Int. J. Parasitol. 17:1355–1363.

Doeschl-Wilson, A. B., B. Villanueva, and I. Kyriazakis. 2012. The first step towards genetic selection for host tolerance to infectious pathogens: Obtaining the tolerance phenotype through group estimates.  Front. Genet. 3:265.

Pork Commentary, June 22nd, 2020
Jim Long, President-CEO, Genesus Inc.

Last week the U.S. hog market harvest reached 2,587,000, about 130,000 more than a week ago and a year ago. Packers are obviously getting more hogs killed as they navigate coronavirus issues including having enough employees at work. Packers have great motivation as the DTN Gross Packer Margins calculation is $53 per head, a year ago it was around $20 per head. We expect U.S. Packers to continue to ramp up production, motivated by excellent gross packer margins.

U.S. hog market weights continue to decline. The first four days last week had everyday weights about 1.5 lbs. lower than the same day the week before. Weights last week on the National Base were also over 1 lb. lighter than a year ago.

Some claim 4-7 million hogs backed up due to plant closings and shutdowns but we have a hard time, right or wrong, getting to that number with weights having dropped 10 lbs. liveweight since the first part of May. Also, we hear from the field a number of our Genetic customers are not backed up. Many are selling ahead in case of plant closures. The last week we heard of plants in the Eastern Corn Belt calling looking for hogs. The customers we do have backed up are in the Quad state corner of Nebraska-South Dakota-Minnesota-Iowa. There it is real. The multi-plant closures in that area have caused real problems. 

We also know there has been ongoing euthanization of market hogs and smaller pigs. How many is anyone’s guess but it has and is happening. 

Usually, this time of year is near maximum finishing capacity as all pigs to be harvested from now to January are in inventory. Question if the market thinks there 4-7 million hogs backed up what will market do if inventory is less than this? Should there not be upside? If you’re a pork buyer whether domestic or foreign, you all have the same news. All these hogs backed up, why would you want to be an aggressive pork buyer when this expected supply is coming? Bottom line we don’t believe 4-7 million hogs backed up. June 1 U.S. Hogs and Pigs Report will tell us the story. 

Sow Harvest continues to be aggressive the latest weekly was 69,000+, last year’s average 57,500. It appears to us last quarters sow harvest was about 100,000 more than the same quarter a year ago. We also believe many poor skinny sows of little value (Hello world’s largest genetic company) that would normally go to slaughter are now being put down and not in sow slaughter count.

We expect  U.S. breeding herd is down at least 150,000 in the quarter and would not be surprised if it’s down 200,000 or more. Whatever the number, the U.S. production capacity continues to contract.

SummaryThe June 1st Hogs and Pigs Report, in our opinion, has the makings to be a major market mover to the positive. For us producers let’s hope so.

Pork Commentary, June 15th, 2020
Jim Long, President-CEO, Genesus Inc.

For the second week in a row, U.S. market hog harvest was higher than a year ago. 2,457,000 vs. 2,439,000. We can only hope that U.S. plants can continue to ramp up production. Strong Gross Packer Margins certainly give an incentive.

Daily National Base Lean Hog Carcass weights continue to decline. The first four days of last week averaged 213.88 lbs; four weeks ago averaged 220.17 lbs. No doubt weights have come off the extreme highs. We certainly have a hard time fathoming how some can claim 4-7 million hogs backed up due to earlier plant slowdowns. In context, a week before averaged 215.51 and a year ago 214.58.

There is no way in our mind that hogs can be backed up to the extremes some are stating when we see average weights continuing to decline each and every week. We expect some producers are backed up while others have pulled hogs ahead. Depends on where in USA, which plant, fear of plant closing, feed ration management, etc. Many dynamics in play.

Question is how sow herd liquidation has happened. Last quarter December to February the USDA inventory indicated a 96,000 decrease. In that quarter U.S. sow slaughter was up 34,000 from the year before. When we look at the second quarter it appears to us that the U.S. sow slaughter will be up about 100,000 when final data is put together. We expect when combined with lower gilt retention and ongoing sow mortality the U.S. sow herd will decline in a range of 150-250,000. We realize this is a wide estimate.

We expect whatever it ends up on June 1st liquidation, currently cash isoweans and feeders at next to nothing and market hogs with a $40 loss per head is grinding the business to death. If it continues without profits more and more liquidation will happen. It’s hurting Big and Small. Some benefit from ownership in packing plants or percentage of gross packer margin but many do not.

Depending on the length and depth of the liquidation of the sow herd, packer capacity issues will not be a factor as millions of hog production disappear. Some call this Destructive Capitalism. Others destroying people’s livelihood and dreams.

Many of us have been in this business a long time. We remember the low prices of 1993-94 which ended most if not all the field farrowing – outside operations (now they would get premium). At the same time, there was the rise of Murphy Farm, Carrolls, Heartland Pork, Premium Standard Farm, Feed Company pig production in Purina. The low prices of 1998-99 hit and many of the organizations if not all ended up with restructured ownership due to the massive financial losses. Too big to fail was not true.

Over the last twenty years, there have been the issues of the hog cycle which continued to lead to further consolidation. 2019-2020 we have hit another big hog price issue. We have had Black Swan events related to ASF, Trade, and Coronavirus issues. Wham, Wham, Wham. It’s a big challenge. The word Force Majeure seems to have become as common as pigs per sow per year contracts of many types have been evolved. (nice word for broken). As a friend of ours says “no one goes broke if they can help it.”

By nature we are optimistic. Much as anyone in this industry needs to be. The upside we are producing a product that is the most consumed meat in the world. We know overtime the countries with the most competitive cost of production and access to markets will win. We also know that Darwinian Capitalism (hog cycle) will lead to higher prices from lower supply. It’s about capital and courage to get to the other side.

Pork Commentary, June 8th, 2020
Jim Long, President-CEO, Genesus Inc.

After several weeks of hog harvests significantly below a year ago, this past week the U.S. got to 2,452,000, up 42,000 from the same week a year ago. Certainly a positive sign that U.S. plants are getting closer to the new normal in the coronavirus situation and packers certainly have the incentive to push harvest numbers, the latest DTN Gross Packer Margin calculation is $70.

Harvest numbers have recovered faster than many predicted, obviously phenomenal profit margin motivated packers to get things going. What’s the saying “Follow the money!”

There are information services that charge for their astute knowledge of the Meat Industry. One of them last week wrote the following “We estimate there are 4-7 million hogs which have been backed up and ready to go to slaughter.”

Let’s consider this 4-7 million number of backed-up hogs. Some Farmer Arithmetic.

• 4 million hogs divided by 2.5 million hogs harvest a week is about 11 days of hog production;
• 7 million hogs divided by 2.5 million hogs harvest a week is about 17 days of hog production.

Let’s assume an indicator of hogs being backed up would be slaughter weights.

National Daily Lean Hog Carcass

Hogs were 220.43 lb. carcass the first week of May indicating hogs were backed up for sure. Since then we have dropped at least 5 lbs. and now weights are in line with a year ago. It’s hard for us to fathom that any feed adjustments can back up 4-7 million market hogs (11-17 days) while weights have dropped continually the last four weeks.

We don’t believe numbers of 4-7 million hogs backed-up. Why?

1. Weights same or lower than a year ago;
2. The idea that there are 4-7 million more spaces for hogs is beyond comprehension of barn infrastructure.

We believe there are backed up hogs but they are mostly in the Southwest Minnesota-South Dakota-Northwest Iowa-Nebraska region. The closure in that area of Smithfield Sioux Falls, JBS Worthington, and Tyson plants for the length of time they were, backed up hogs there.

In other areas producers going to other plants are current with some more than current. Due to the coronavirus issues producers continually jammed as many hogs as possible in case their plant shut. Some producers are under 210 lb. carcass weight.

Probably hogs are not backed up as much as some speculate is because alternate harvesting happened with small plants and on-farm sales ramping up. Hogs moved all over the country as low hog prices and high pork prices created opportunities for some. Also, there has been euthanasia of market hogs and other weights. How much euthanasia is purely speculative, but we believe it has been significant enough to cut hog numbers.

Last week we wrote, watch the weights for the next two weeks. Last week we dropped couple lbs. If we continue this trend this week it will indicate to us that we are closer to current hog inventory.

Ramifications – we believe Lean Hog Future experts have bought into the 4-7 million hog back-up. Lean Hog Futures are terrible. If we suddenly discover that there are fewer hogs than the experts predict, there could be a sudden surge in hog prices as the market finds a big surprise. We will know soon enough; slaughter and their weight numbers don’t lie.

China 

The below table shows the changes of market hogs produced by leading Chinese Public Companies for the four-month period January-April 2019 and 2020. As you can see, there was a significant drop overall in market hogs produced. It appears to us the reality of China’s lower hog production due to ASF is far from over. This in itself should continue to support Global Hog Prices.

We expect China will be back in U.S. market stronger now that Pork Cut-outs have declined from being over $1.20 lb.

Pork Commentary, June 1st, 2020
Jim Long, President-CEO, Genesus Inc. 

Last week we observed that U.S. harvest weights were decreasing. This totally baffles us. There is no doubt the official USDA slaughter numbers have been significantly lower for the last six weeks compared to expectations or last year.

Last week we would have expected hog weights to hold or increase due to Monday being Memorial Day and Plants were closed. Instead, Tuesday-Wednesday-Thursday averaged 217.03 lb. carcass weight. The week before average was 217.20 lb. and a year ago 215.54 lbs. Three weeks ago U.S. lean hog weights were over 221 lbs. 

It’s hard to believe hogs are backed up 5 million as some have stated. That is almost 3 weeks of U.S. weekly slaughter. Weight difference week over week and compared to last year don’t indicate anything close to this high a number.

In our opinion watch the next two weeks’ slaughter. We expect with current packer margins and plant productivity, weekly slaughters will be over 2.3 million head, watch the weights if they continue to decline it could be a strong indication that we are more current for various reasons (euthanization, non-major packer slaughter) then many expect. If so, we might get a nice bump in hog prices. We can hope.

Sow Slaughter

The latest weekly sow slaughter was 69,753 the week before over 70,000. Last year’s weekly sow slaughter averaged 57,500. From Dec 1st to Feb 29th the USDA Hogs and Pigs Report indicated the U.S. sow slaughter was 35,000 higher than a year ago. In March-April this year U.S. sow slaughter per week so far higher than March-April last year (up 36,000 total). 

We sell breeding stock at Genesus. There is no doubt gilt sales have declined. Not only for us but for the whole genetic industry. Producers are protecting cash flow and concerned about the future. Lower replacements cut the breeding herd.

Our farmer arithmetic on this. Looking at breeding herd decline from Dec to June 1st (6 months).

• Dec-Feb = 96,000 USDA report
• March-May = 180,000 (low side estimate 14,000 a week avg.) or 260,000 (high side estimate 20,000 a week avg.)
• Potential loss of Pig Production = 5-7 million head a year.

Wherever it ends up there are fewer hogs coming and we expect breeding herd liquidation will not stop June 1st. Could end up with breeding herd down 500,000 before all the dust settles.

U.S. Pork Export

It’s not hard to imagine that U.S. Pork Exports would drop when hog slaughter numbers have declined significantly over the last six weeks. Less Pork – less to Export. Also, the huge jump in Pork cut-outs that got over $1.20 lb. would have foreign buyers to take pause.

The good news, it appears exports continue to run about 12-15,000 tonnes a week higher than a year ago (about 120-150,000 market hog equivalent). These types of numbers if they continue will support Pork cut-outs and hog prices as plants come into fuller harvest production.

Genesus and The National Hog Farmer collaborate annually to survey the Global Swine Industry. The result is the Global Mega Producer Report which identifies the companies with over 100,000 sows.

The 2020 list identifies 34 Global Mega Producers that together own more than 11.5 million sows, adding more than 2.5 million sows to global production. These companies are located in 9 different countries respectively.

Click below for the listing and brief description of each company.  

GLOBAL MEGA PRODUCER LIST