Pork Commentary, February 10th, 2020 Jim Long, President-CEO, Genesus Inc.
The Wild Gyrations in the lean hog futures are best illustrated by the following:
June Lean Hog Futures January 23 88.175 January 31 75.625 February 7 81.555
The insane drop in a week of over $25 per head has since been followed in a week by a rebound of about half that amount. The word “stable” should never be used in the current scenario of the lean hog futures or maybe even the psyche of many of the US producers.
As we wrote last week, it is bizarre to think Coronavirus would stop Chinese from eating pork or any other meets (not related to bats, snakes, etc.). As our Genesus General Manager in China told us “The only stores open are supermarkets. We go to stores, buy food and sit at home eating.” Point is they aren’t buying cars, apple phones, going to restaurants, etc. Food, yes.
There are reports that travel restrictions had prevented pig and poultry farms from receiving feed. Livestock perished as a result. Last week the Chinese Federal Government put a priority on ensuring food and agriculture products were prioritized in movement with little restrictions.
There are reports that imported pork is backing up at Chinese Ports. Not enough trucks arriving to take pork to the next destination due to Coronavirus reaction. We expect this is to get sorted fast. These are some advantages to a command society.
We were with a Chinese Company last week that is a Global Mega Producer. They are still very optimistic that the Chinese hog price will hold near current levels ($2.39 U.S. liveweight a lb.).
A reflection of breeding stock demand are these current prices in China.
A Duroc bred to a York/Landrace gilt offspring with decent health- $350 U.S. for 50 lb. pig (here we call this a market hog).
Maternal AI, $120. U.S. / dose.
Terminal AI Duroc, $25 U.S. / dose
Certainly, high price points. Reflects supply and demand of genetics in China and optimism of future hog pricing. China government gave a signal last week of further need for U.S. pork by cutting tariffs by 5%. They will stay in market.
U.S. Pork Exports in the last week of January at 42,000 tonnes, were double from a year ago. So far up 460% to China year to date (YTD), up 62% to Mexico YTD and up 107% to Canada YTD. Mexico and Canada are duty-free to China. We expect U.S. pork is filling holes in both countries for pork going to China. It’s a North American market. Any pork leaving is a good idea.
Last week’s average price for market hogs in China was 36.86 rmb/kg. or $2.39 U.S. /lb. ( for a 270 lb. hog= $645). Go Figure, we should be able to ship pork from here with current market hogs about $122.00 a head 270 lbs.?
Last week we wrote wondering if the Chicago Board of Trade and lean hog futures were really related to the swine industry any more than show pigs. The rest of the world has no lean hog futures and most countries are doing fine without them. We are told about 70% of current lean hog future participants are non-hog farm related. Are these speculators? Not sure, but, there is a group of people making a living unrelated to the direct participants in the industry.
Was interesting this past week, we had producer comments wondering too if lean hog futures did anything but create a more volatile market. They also had never thought about that no other pork country had its own “Las Vegas”.
Our point is, no other major hog producing country has had the extreme reaction in pricing that lean hog futures had the last two weeks. It’s not anything but harmful to producers. We sense many producers who invested huge capital resources and are committed to our industry resent their destiny being tied to sharpie speculators that live in New York City and Chicago sitting on gobs of money to run the market up and down.
They don’t care if its hog, orange juice, oil etc. It’s all about people who make nothing tangible for society, living on speculation.
Genesus Customer Testimonials
Country View Farms, NE, USA
“The hardiness of the Genesus females continues to mpress us. We broke with PRRS in January 2019,but it was amaing to see the Genesus animals desire to live ad get through it. The gilts we purchased from Genesus have been great”
Hutterville Farming, AB, Canada
“Little over halfway through the conversion to Genesus animals; and so far we are seeing huge difference in live born (over 1.5pigs extra). Genesus sows areweaning nice even litters easy to manage and good geed intake in lactation. Overall nicely satisfied for now. Salesman 5 stars.”
Pork Commentary, February 3rd, 2020 Jim Long, President-CEO, Genesus Inc.
To say last week was bad seems like an understatement. When you get to the spot to rationalising “It’s not that bad, I am not living in Syria”.
It appears for some reason lean hog futures traders believe Coronavirus in China is going to have consumers stop eating pork. Not sure where that idea comes from. Is this rationale or just panic by a group driven by the reality and/or fears of margin calls?
On Thursday, January 30, 2020, in China the average price of hogs was 36.32 rmb/kg ($2.31 U.S. liveweight a lb.) steady with the prior week. In our minds, the hog price is an indicator of demand. If hog price holds it means the market is in place. It seems so far the Chinese continue to eat pork (i.e. food).
Europe (Germany & Spain) have been major exporters to China. We thought it worthwhile for us to check where their hog prices went this week from the week before.
Jan 29, 2020 Germany 1.85 Euro/kg +1.6%.
Jan 30, 2020 Spain 1.424 Euro/kg +0.3%
So far prices are holding.
U.S. pork exports were 43,600 MT. (Jan 17-23), double a year ago. China was 18,620 MT. (the highest week ever) up from 3,000 MT. a year ago.
Exports are strong- Our farmer arithmetic tells us over 200,000 more equivalency hogs were exported this past week compared to a year ago. Price going forward is going to be driven by demand. The number of hogs we have, we have. If exports hold and/or be enhanced we expect no reason domestic pork demand should be lower.
There is a good chance the collapse in lean hog futures will turn around and prices will rebound.
Other Observations:
Sow slaughter the last two weeks has averaged 66,000. Maybe due to Christmas holiday back-up, but if it continues at a pace over 60,000 a week it would tell us to expect some liquidation underway. The U.S. averaged 57,000 a week in 2019.
The U.S. cattle inventory report last week was bullish. It’s the first by animal report in last 12 reports that showed a decrease in total cattle numbers- down 1%. Maybe a cattle future bump this week will support lean hog futures. Certainly less beef can be pork price supportive over the coming months.
Brazilian Meat Packers JBS S.A. (Also in USA) and BRF S.A. told Reuters on Wednesday that the coronavirus outbreak in China could boost Chinese demand for their products, including pork. Mainly for food safety issues.
An Article in eFeedLink calls pork, beef, chicken and dairy the big winners in the U.S. – China Phase 1 trade agreement. Premise is to live up to the $40 billion Ag import increase committed by China.
The logical way is to purchase high-value products. Beef ( U.S. $6200 tonne), Pork (U.S. $2,600 tonne), Chicken (U.S. $1,090 tonne), Dairy i.e. butter ($4,030 tonne), versus soybeans (U.S. $340 tonne), Corn (U.S. $153 tonne). 200,000 tonnes of combination meat-dairy products are equal to 10 million tonnes of soybeans.
With African Swine Fever (ASF) and its decimated swine herd, China doesn’t need corn-soybeans as much as they need meat (pork) to fill the ASF pork shortage. eFeedLink predicts Chinas pork imports from U.S.A. to reach $3.1 billion in 2020 up from about $1.25 in 2019. Some of the increase will be at the expense of Brazil and E.U. to meet the Phase 1 import commitment.
Tim Hortons is the largest fast-food chain in Canada. They have been selling Beyond Meat products (Fake Meat). Last week they announced they are stopping the sale of Beyond Meat Products because the demand is not there.
Last week we reported my son works at a local McDonalds cooking Burgers and “Beyond Meat burgers”. Only 1 out of 100 burgers sold is a “beyond meat burger”. Maybe this “fake meat” will sell somewhere. But where?
Summary:
It is rattling futures dropping over $10 in a week. Maybe unprecedented.
Upside-cash hogs have held so far.
Pork Cut-outs declined but not a scale close to the lean hog future drop.
Appears so far China and Europe Hog Prices have held. We suspect the futures collapse is an overreaction by a market my late friend Doug Maus called “Chicago! Las Vegas with no rules”.
We ourselves wonder if the futures market is related to the hog market as show pigs are to the swine industry.
Lots (almost all) countries do fine without a lean hog future market. Does it really help producers?
Jem Farms
“A. very rigid and durable animal. Excellent litters and strong sows. Farrowing’s are quick and trouble free.”
Jem Farms, ON, Canada
Brenelm Farms
“Providing Consistency – large uniform litters, good consistent growth from wean to harvest. 25 pigs/sow/year with PRRS break.”
Brenelm Farms, ON Canada
Diamond Z Farms
“We have an older unit. The Genesus sow holds up very well in challenging conditions. The Duroc Sire proves to be the leader in Growth.”
Relationships are crucial in business, and the pork business
is no different. In many Asian societies, the importance of relationships is
elevated even higher than other parts of the world. If you are doing business
in Asia, like the Canadian pork industry, face-to-face interactions are
priceless.
In November 2019, two separate Canadian pork delegations visited Japan and China with two separate yet similar goals of convincing buyers that they need our product. While the consumer needs and desires differ between the countries, the importance of these markets to our value chain cannot be overstated.
Canadian embassy in Tokyo full to the brim
More than 40 representatives of the Canadian pork industry
visited Japan in early November 2019 to attend an event organized by Canada
Pork International (CPI) at the Canadian embassy in Tokyo.
The representatives were on-hand to extol the virtues of
Verified Canadian Pork, the consumer-facing brand for the Canadian Pork
Excellence (CPE) quality assurance program, which is being implemented by many
producers across the country as a value-added identify for premium Canadian
products.
In 2018, Canada’s pork exports to Japan totalled $1.3
billion, making it our second-most value market, just behind the U.S. Japanese
buyers have a great deal of respect for the Verified Canadian Pork brand and
what it represents. In fact, CPI uses more than one million branded stickers
every month to distinguish our pork in that country.
“Canadian producers can be proud to know just how
appreciated their efforts are overseas,” said Neil Ketilson, Chair, CPI.
“Japan’s culture for quality and detail is known around the world, and it’s a
testament to the work our producers and processor’s do to ensure our product is
the best in the world. The Japanese appreciate quality and consistency and the
Canadian industry delivers to their specifications.”
The embassy event featured a news conference, information seminar and pork tasting reception to excite guests. Speeches and presentations were delivered by CPI and CPC officials. Reportedly, the embassy had never hosted an event of this magnitude and scale, with the crowd of eager Japanese buyers overflowing into the hallway outside the theatre where the event was hosted.
Touring Japan to gain a first-hand consumer perspective
Following the highly successful embassy event, some members
of the delegation returned to Canada, while others stayed behind to embark on a
series of tours highlighting the Japanese pork consumer market.
The first tour was scheduled to take place at Costco Japan—a major buyer of Canadian pork. Costco Japan is a wholly owned subsidiary of Costco U.S., with 26 locations in the country since expanding there in 1999. In contrast, Canada has 100 locations. The deal-breaker: Japan has more than three times as people as Canada and a higher proportion of its population as Costco members.
Brochures are used to explain the value proposition of Verified Canadian Pork to Costco Japan customers.
In Costco Japan’s meat coolers, Canadian products are
featured distinctly from lesser-quality, lower-priced products, side-by-side,
which speaks to the power of Canadian pork. The competitive sales levels,
relative to Japan’s own domestic product, reinforces that understanding.
The second tour brought the delegation to HyLife Pork Table—a direct-to-consumer marketing concept that separates the company from many contemporaries in Canada. HyLife’s pork, raised mostly in Manitoba and Saskatchewan, is processed at the company’s plant in Neepawa, Manitoba, then shipped worldwide, with a strong emphasis on Japan. The Pork Table draws a direct line from the Canadian producer to the Japanese consumer, creating a narrative around the product that sets it apart in the market.
HyLife Pork Table is a concept restaurant in Tokyo that introduces HyLife’s products directly to Japanese consumers.
“Pork restaurants are unique in Japan. Generally, Japanese consumers think of pork as more of a daily food to be eaten at home. But actually, they recognize that things like pork steak and dry ribs are very attractive for them. We can also provide these meats at a reasonable price compared with something like beef,” said Nick Funakoshi, Chief Marketing Officer, HyLife Pork Asia. “We also serve Canadian maple syrup, ice wine, whisky and beer. As a business, HyLife Pork is constantly growing, and we now have customers from Hokkaido to Kyushu.”
African Swine Fever has China hungry for Canadian pork
Right on the heels of the Japan visit, a separate delegation
of representatives from the CPC and Canadian Meat Council (CMC) made its way to
several locations in China with strategic trans-Pacific shipping positioning:
Tianjin (near Beijing), Shanghai, Shenzhen (near Hong Kong and Guangzhou).
The delegation went to China to make connections and talk about where improvements can be made, given some of the recent barriers to trade. The delegation had a goal to rectify any issues that could cause hurdles for Canadian pork’s entry into China in the future.
In June 2019, China banned all imports of Canadian pork
products after the discovery of a fraudulent veterinarian’s certificate that
indicated a product of supposedly Canadian origin contained ractopamine—a feed
additive that is legal in many countries, including Canada, but banned in
China.
More than four months following the declaration of the ban,
just as the Canadian delegation had arrived in Japan, an announcement was made
signalling that the ban in China had been lifted.
In 2018, Canada’s pork exports to China totalled $514 million, making it our third-most valuable market, just behind Japan. Sales in 2019 were on pace to double 2018 levels until the ban was put in place, which would have effectively placed the two countries neck-and-neck by dollar value to the Canadian pork industry.
Nova Scotia Premier Stephen McNeil spoke at the Canada-China Business Council’s annual general meeting in Shanghai about the importance of relationships.
When the ban was lifted, the news quickly spread, exciting
Canadians, but concerning the Japanese, who are left to wonder if Canadian pork
will now flow more slowly into their country, on account of China’s demand.
Only time will tell, and it will be important for the Canadian industry to
navigate these areas carefully to preserve the long-standing, treasured relationships
we have, which has resulted in nearly half a century of uninterrupted trade.
Neither the Canadian nor the Japanese take that lightly.
“Thanks to our special relationship with the Japanese, we have been able to flourish in the export business,” said Brent Moen, Chair, Alberta Pork. “The Japanese have always been exceptional customers, and our industry can’t ever lose sight of that. We look forward to increasing sales.”
While concerning for our partners in Japan, the lifting of the ban is very welcome by Chinese consumers, who have been hit with prices that have more than doubled since the ban was put in place, thanks to a similar restriction on U.S. meat imports and the loss of nearly half of China’s pig herd to African Swine Fever (ASF).
The Verified Canadian Pork logo stands out on a meat cooler placard for Sunterra Meats of Trochu, Alberta, found in a supermarket in Guangzhou.
With the two recent Asian visits under its belt, the Canadian meat industry is feeling confident that critical trade relationships have been effectively fostered. As our industry continues moving in an export-based direction, this can only be a positive outcome during a time when the news has not always been so positive.
Pork Commentary, January 27th, 2020 Jim Long, President-CEO, Genesus Inc.
Every January the Iowa Pork Congress is held in Des Moines Iowa. It is the premier winter trade show in the United States and gets visitors from all across the country
The Iowa Pork Congress was held the same time this year as the Davos’ Global Economic Forum in Switzerland. We wondered if Iowa Pork Congress was the Davos’ of the Pork Industry with the snow like Davos’ minus the mountains, billionaires, helicopters, private jets, etc. To be clear, our wondering stopped quickly. There is no comparison!
What Iowa really had last week was a political bonanza. The Iowa Caucus, held every four years were ten days from the vote. Iowa is the first vote for the U.S. presidential candidates.
Last week the TV channels were inundated by political advertising. For TV stations and other media in Iowa, the caucus must be like the four-year hog cycle. Every four years they get a big surge in income.
Other Observations:
The Iowa Pork Congress had lots of exhibitors, probably more from what we could see than in the past years. Attendance was solid but probably effected by some icy weather that kept some people away.
The attitude of producers was termed by one person as “Growly”. Not a happy production base. More than one producer said they hadn’t made money for over a year and a half.
As far as expansion in the industry it’s hard to figure. This time of year, every year there are lots of quoting for new sow barns. Then the potential expanders go to the bank and find out if they can get money. A place where dreams die.
Talking to one packer, he said he was surprised if the production sector is losing money, why has there been an expansion in inventory. Good question. We didn’t have an answer.
A number of people we spoke to were riled up. Their belief, that carcasses are still not going into U.S. pork cut-out data. Was supposed to start January 1st. We expect there might have been some delay but the U.S.D.A. will get sorted soon.
Geneusus Team at Iowa Pork Congress 2020
China, China, China.
Producers are glad that Phase 1 of the trade deal is signed. Now they hope to see lots more pork going to China. Some producers spoke of the sad part that producer prosperity depends on more trade to China. It’s the Reality. Maybe a grim reality, but “it is what it is.”
Genesus U.S. sales team had a meeting prior to the Iowa Pork Congress. As a group, we did a field trip to Fareway store. The regional store is selling Genesus derived Duroc Pork as its premier product. On every product item, it’s a minimum $1.00 lb. higher than the comparison pork.
Fareway stores feature butchers serving from behind glass meat cases. They are salesmen behind the counter.
We asked the head butcher “When customers ask why the Duroc Pork (Genesus) is worth over a $1.00 lb more, what do you say?” Answer “It tastes better!”. He added, “Once they try it they always come back for more.”
“Taste better” not because it’s a Duroc, it’s because the Genesus Duroc has more marbling, firmness and redder pork. All Durocs are not the same! If we use a so-called Duroc but it won’t qualify for legal use of Duroc name in U.S. meat case, is it really a Duroc? It won’t grow our industry.
If we want to grow our industry we need to produce pork that “tastes better”.
Maybe this is an oversimplification but as pork producers, we chase $1.00 in the cost of production in a hog. When demand drives price, such as taste can potentially increase hog values by $10 bills.
Final Note:
My youngest son is 17, he works at McDonald’s part-time. He cooks and puts together meals. The store he works at would be considered in a higher-income area. He estimates that for every 200 burgers there are about 2 that are plant-based. Small focus group but not a resounding testament to demand for plant-based burgers. There is hype, then reality.
Genesus Customer Testimonials
“We have raised hogs in the past that are high maintenance. The Genesus boar is not. They are a rugged, fast-growing animal that is even at market. The Genesus boar line makes managing finishing barns enjoyable.”Hamland Acres Inc. IL, USA
D & S Brassington
“We started with Genesus Duroc Semen in 2014 and we noticed the piglets were more uniform with a higher appetite and reaching slaughter weights of 85kg (deadweight) 10 days earlier. We decided to switch 100% to Genesus (maternal and terminal).
Today we are weaning more pigs per litter, averaging 10 days less to market and grading has improved.”D & S Brassington, UK
Quality assurance program materials are a familiar sight for producers.
Financial sustainability in any industry value chain depends
on a viable business model in each part of the chain. In the pork industry,
quality assurance programming has long been hailed as a victory for the
producer, processor, retailer and consumer alike, representing how the
industry’s efforts are responsible for delivering a safe, nutritious, environmentally
friendly, high-quality product.
Few would doubt the inherent value of an effective quality
assurance program whose benefits are realized by everyone affected by it. But
in between the barn and the dinner plate, quality assurance both adds to the
end cost for the consumer and adds cost for each stakeholder in the value chain.
Processors’ contracts with producers over the years have become increasingly detailed and directly market oriented. In fact, many contracts outline very specific production conditions and assign dollar values to those conditions, which include things like pharmaceutical usage, feed additives and even shelter costs. Quite conspicuously, costs directly linked to quality assurance are omitted.
Historical pork production quality assurance programming
Between 1995 and 1998, the Canadian Quality Assurance (CQA)
program was developed as a national quality assurance standard for pork
producers. In some jurisdictions, the cost of implementing CQA was jointly
shared by producer organizations and processors.
In 2004, the CQA program became more stringent in its
criteria, following a review of food industry HACCP (Hazard Analysis Critical
Control Point) principles, which were originally created for food processing
operations, not production. Nearly a decade later, the Animal Care Assessment
(ACA) program, based on the National Farm Animal Care Council’s (NFACC) Code
of Practice for the Care and Handling of Animals, was made compulsory for
CQA-certified producers, further adding to the rigour.
To the chagrin of producers, by the time CQA had been fully fleshed out, any processor funding to assist with program validations had disappeared. In the meantime, CQA certification had become a requirement for producers to ship pigs to any federally inspected processor in the country. The processors argued that this requirement was becoming necessary to satisfy the increasingly specific demands of foreign markets. For most commercial producers, certification was a given, and processors no longer had incentive to reward behaviours supported by the CQA program that were essential to the industry’s reputation for more than a decade.
Introducing the Canadian Pork Excellence program
After several years of development, in 2017, the Canadian
Pork Excellence (CPE) program was launched with a foundation of three pillars:
PigSAFE (representing food safety), PigCARE (representing animal welfare) and
PigTRACE (representing traceability). The program was created with the
intention of phasing out and modernizing the CQA program.
Among many characteristics, the program represents
producers’ commitment to the judicious use of antimicrobials and the desire to
develop a producer-led quality assurance program, rather than falling back on
government regulations or processor requirements alone. The program has also
been designed to address Canadians’ concerns for transparency in animal
agriculture, which translates into public trust for consumers here at home.
CPE is the basis on which the Verified Canadian Pork brand is being built. You can already find the handy visual identity on select pork products in grocery stores domestically, but its true potential lies in what the brand promise means to global consumers.
The three pillars of the CPE program
The brand is meant to recognize Canadian pork producers’
commitment to high quality and represents a modern approach to addressing
consumer habits and beliefs, especially in the lucrative Japanese market, where
a certain prestige is affiliated with Canadian pork. To that end, value for the
program has been realized and capitalized upon.
And few are arguing against the importance to establishing
such a brand. In many ways, the industry has worked for a long time to
cultivate a positive reputation in overseas markets, where this brand will
further enhance the presence of Canadian pork. The expectation is that the
brand will boost sales, thereby turning profits for processors and producers at
home.
CPE is actively being implemented across Canada, despite some timing setbacks. Validators are being trained, and producers are being introduced to the program specifics, which is the domain of each province. The program’s objectives are clear in principle, but in practice, CPE implementation has faced challenges in some provinces.
Producers ask for compensation
Producers in four provinces, including Alberta, have sought compensation on a per-head basis.
From early 2017 to late 2018, however, anxieties and
questions started to be raised by producers who were still uncertain about how
the program would benefit their bottom lines. Exacerbating these concerns was a
history of feeling forgotten when it came time to share in the value of quality
assurance program implementation.
Compared to their processor contracts, in which every aspect of production is assigned a dollar value, there was no consideration for the new program, despite having overhead costs associated with its implementation. To date, these overhead costs have gone effectively unaddressed by most processors in western Canada.
At various provincial producer meetings, rumblings turned
into resolutions, and several provincial producer organizations—including
Alberta, Saskatchewan, Manitoba and Quebec—demanded compensation for CPE,
anywhere upwards of $9 per pig.
In Quebec, action was taken most quickly, given that
province’s unique single desk selling system. The Quebec system also includes
the use of a price control mechanism, which helps stabilize the market by
raising up or bringing down the amount paid to producers, according to the
conditions at any given time.
“Producers in Quebec have been reaping the benefits of
shared value for their pigs,” said Vincent Cloutier, Director, Economic
Affairs, Les Éleveurs de porcs du Québec. “The price control mechanism has
given producers renewed confidence in the system, and the premium paid for
quality attributes, including CPE, was independently determined, which was a
fair process. At the same time, the result is a renewed relationship with
processors, which opens a new growth path, which is desperately needed.”
Under Quebec provincial law, an independent arbitrator was
commissioned to evaluate the proposed disparity of cost between producers and
processors, and to determine if the ask for compensation was fair. The arbitrator
concluded that, while important, producer evidence was insufficient to build a
case for compensation at $5 per pig. Ultimately, the arbitrator did recommend an
amount of $2 per pig to be added for some specific production attributes, such
as tattooing, stomach content and the presentation of clean animals at
slaughter. On the other hand, it was decided that the processor could also
apply demerits for sub-standard animals.
For pork production in Quebec, $2 per pig accounts for the
province’s added favourable market situation. But in western Canada, other
underlying factors seem to be lacking in consideration.
“Quality assurance programs have been a contentious issue
for producers following years of negative margins. It translates into a drain
of our time and resources, with no compensation being offered to us in return,”
said Stan Vanessen, a producer near Picture Butte, Alberta. “I consider this
highly upsetting since our uniquely Canadian pork brand is so highly
appreciated in overseas export markets. Currently, the quality assurance
programs add nothing to the bottom line financially for producers, but there is
extra value going to and staying with the packer-processors and
exporters.”
He continued, “This is insulting to struggling producers, as many of the program requirements and practices are implemented on the farm level. We recognize the marketing value these Canadian programs have, but our industry cannot afford to support them if there isn’t shared value for the pork producers.”
Moving the industry forward for mutual benefit
Verified Canadian Pork branding already features prominently on some consumer products domestically and abroad.
While producers have asked for compensation specific to CPE,
larger considerations remain on the table that could satisfy all parties.
If the issue of shared value is separated from CPE
specifically, all parties may be able to come to the table and negotiate with
open minds. Pig producers want to get paid fairly for the pigs they sell. Processors
want to pay appropriately for the pigs they receive. But when producers are
asked to continuously improve and better their products but experience shrinking
and mostly negative margins, it is difficult to consider this a sustainable
relationship.
The result of this unsustainable relationship appears to be a push back from producers, as many are now advocating that they and their fellow producers refrain from signing long-term contracts with processors, as a manner for gaining leverage in the situation.
What’s at stake?
When producers see the value of their efforts realized by
fair compensation, the industry benefits by encouraging increased
production—sorely needed by processors who often operate under capacity at
their facilities. And when processors take initiative to reward producers, it
fosters stronger relationships for mutual benefit.
In the wake of the current pricing dispute, it is
unfortunate the CPE program and the Verified Canadian Pork brand have been
caught in the middle. They are universally recognized as important tools for
the industry, but they are also readily available targets when it comes to
pricing discussion. This has been major stumbling block for producer especially
in western Canada, who have felt the need to bring CPE into the discussion.
When western Canadian producers see their counterparts in Quebec sharing in the
value of their pigs, it sticks like a thorn in the side.
The CPE program is much more valuable to the industry than a
sticker on a package. We can only hope calmer heads will prevail and that the entire
industry realizes something must be done to address the pricing issue before
permanent damage is done to the brand and long-term goodwill that has been
developed with global customers.
Pork Commentary, January 20th, 2020 Jim Long, President-CEO, Genesus Inc.
Last week was Trade Deal week in the U.S.: with both USMEF* and China Phase 1 signed.
*USMEF is the new revised NAFTA between U.S., Mexico, and Canada.
For U.S. – Canada pork producers it means the trade between the two countries will continue relatively easy and tariff-free.
For the Mexican industry, it means lots of U.S. – Canadian pork will continue to be imported there. January-November 2019 exports to Mexico from USA were 522,563 metric tonnes. Mexico is the largest volume importer of U.S. pork.
U.S. – China Phase 1 trade agreement appears to initiate a $40 billion annual increase by China in U.S. ag products. Certainly, China can use some pork to fill the black hole created by a 40% drop in their swine inventory. An estimated 15,000-tonne decrease in China’s production.
From January to November 2019 China purchased 311,043 metric tonnes of pork from the USA, at a value of $691 million dollars. You would like to think that within a $40 billion commitment it is logical that U.S. pork imports will ramp up further. The last few weeks have been at record levels and as more U.S. slaughter plants become Ractopamine free we expect even more pork exported to China. Between USA and Canada, we would not be surprised to see well over 120 million tonnes a month exported to China in 2020.
Pork that goes to the Black Hole in China created by African Swine Fever (ASF) will be hugely supportive to Domestic Hog Prices in both countries.
Other News
To get a boost in U.S. prices we need slaughter numbers to decrease. An early indicator of hog market readiness is the daily carcass weights the USDA publishes.
Last week the first 4 days was 212.5 lbs. The week before the average was 215.26. Well over a 2 lb. carcass drop. As large a decrease week over week you will ever see. Let’s believe it’s an early indicator of fewer hogs coming to market.
Last year same time 53-54% lean hogs were 57.49₵ lb. This year 60.27₵ lb.
DTN Gross Packer Margin calculation shows last week at $40 per head. Interestingly the same as last year and the three year average at the same time. Over the last three years, Gross Packer Margins didn’t reach the $40 threshold again until September.
U.S hog slaughter last week was 2,574,000 down from the week before 120,000. Probably shortened by bad weather in the Western mid-west Friday – Saturday.
U.S.D.A. Pork cut-outs closed Friday at $75.47. They are slowly increasing which is a good sign of demand.
Total U.S. Pork Exports were 41,500 metric Tonnes the first full week of January, up from 21,920 the same week a year ago. China imported 16,512 tonnes the first week of January from the U.S. Last year same week 3,046 tonnes. Up 442%
China imported in 2019 2.1 million tonnes of pork, up 75% from 2018. In December China imported 375,000 tonnes, the most on record. If that pace was to continue for 2020 that would be over 4 million tonnes. That would be a price game changer.
China reported last week that its pork production was 21% lower in 2019 than it was in 2018. Pork production at 21% lower with a reported 40% lower swine inventory is a result of herd liquidation putting more pork into the market as the liquidation happened.
Last week the average hog price in China was 36.02 rmb/kg. which is $2.38 U.S. liveweight a lb. A 260 lb. hog (120 kg.) would be selling for $620. Reminds us when we were in China last May, not one producer we talked to thought the price would go over 25 rmb/kg. which is almost $200 less a hog then-current prices. Go figure, it would be nice to get that sort of jump here.
Pork Commentary, January 13th, 2020 Jim Long, President-CEO, Genesus Inc.
U.S. hog slaughter continued unabated with 2,713,000 last week, jumping up from the two holiday-shortened weeks previous. We do expect weekly hog marketings to drop soon and/or hog weights to decline rapidly.
U.S. average cash early weans were steady at $61.46 while 40 lb feeder pigs jumped $6.00, up to $67.60. The canary in the coal mine is small pigs, a reflection of supply and demand. They have shown a 70% increase in the last few weeks.
U.S. pork exports in November were the best ever.
Up 26% from a year ago.
Up 11% from the previous high in July 2019
November Pork exports of 259,812 metric tonnes are over 3 million hog equivalent. China/Hong Kong lead way with 86,213 metric tonnes, up 284% from a year ago. We need to export and we are.
Last week (January 3rd) the German Ministry of Agriculture confirmed that African Swine Fever (ASF) was present in Poland 20-30 km (12-20 miles) from the German border. If ASF gets into Germany could be game-changer. China is importing approximately 16-18% of pork imports from Germany. Up until now, China has not been accepting any Pork from ASF countries i.e. Russia, Poland, Romania, Ukraine, etc.
The Phase 1 tariff agreement between the USA and China is reported to be signed on January 15th when a Senior Chinese delegation comes to Washington. Pork and Ag is supposedly a key component. We should see details after the signing is completed. Clarification could lead to a boost to Pork prices.
We believe that our industry should produce Pork consumers want to eat for its taste and flavour. This past week we were in Iowa Falls and visited a Fareway store. They offer Duroc Pork sired by Genesus (Purebred Registered Durocs). We saw a huge price difference.
Duroc (Genesus) boneless chops
$5.00 (2 chops)
Other Boneless chops
$5.00 (3 chops)
Duroc (Genesus) bone-in Pork chops
$3.49 lb.
Thick cut bone-in Iowa chops
$1.98 lb.
(Good chance the “Other” could be sired by pretending Duroc, all Durocs are not the same)
Quite the price difference isn’t it. As you can see by the picture it was a fresh meat counter. We asked the butcher why the price difference. He replied the Duroc (Genesus) Chops taste better, that’s the only pork he eats himself. He said he was surprised by the demand, that in Iowa Falls people would pay such a premium for the Duroc (Genesus) taste.
To say we were proud to see and hear the butchers’ comments is an understatement. We (Genesus) have invested millions to create genetics that is cost-competitive in production with the added bonus of better tasting pork.
It’s sad when we hear from industry people consumers won’t pay for better tasting pork. It appears in Iowa Falls they will. When will we figure out as an industry the people of New York City and Los Angeles will too. Taste Creates Demand. Demand drives price.
Genetic Round-Up
Last week we wrote about our observations of the 4 major global Swine Genetic Groups; PIC, Topigs-Norsvin, the Danish and Genesus. Some of our competitors didn’t much like what we said. Some didn’t like our observations that the former CEO’s want to sell grass seed and medical devices. Some thought it funny that our plans weren’t to leave Genesus to sell grass seed.
Probably the world’s biggest didn’t like their 5-year profit trend line. The emperor has no clothes comes to mind.
To Sum up:
The Global Swine Genetic business is a rough game. The attrition of players over the last decade has been intense. As one person wrote to us last week, ones that don’t get it should watch the Bruce Willis movie “Last Man Standing”. Sums up the battle for the world’s swine producers.
Get acquainted with the
Global Mega Producer
A program of recognition led by National Hog Farmer sponsored by Genesus Inc.
Iowa Select, now 242,500 sows was started in 1992 with a contract and financing for 10,000 sows. With a current marketing number of more than 4 million pigs per year, Iowa Select has more than 800 farms in 50 counties and is one of the leading economic engines for rural Iowa communities.
The business employs and contracts more than1,850 Iowans’.
Iowa Select is a Premier Pork business in the United States.
Noel Williams, Chief Operating Officer, Iowa Select (left) and Jim Long, President-CEO Genesus Genetics (right)
Pork Commentary, January 6th, 2020 Jim Long, President-CEO, Genesus Inc.
Last Friday, lean hog futures decreased in some months the limit. The market story was primarily due to U.S. pork exports the week of Christmas, decreasing about 10,000 tonnes from the previous few weeks. God help the stupidity of so many futures traders, in 2017 and 2018, exports declined 10,000 tonnes during Christmas week. It’s not a market correction it’s a reality of logistics.
Historically, the week of New Year is also lower than the first full week of the new year export numbers released. One other factor, both the week of Christmas and New Year have fewer hogs slaughtered.
Christmas week was 2,029,000;
New Year week 2,293,000.
Prior weeks were in the 2.8 million range.
Almost 1.3 combined fewer hogs in the last two weeks.
Go Figure- there were fewer exports; there was less to export.
It’s like saying there is less ASF in China now. Of course there is, half the pigs are dead, there are less to die.
January is now here, the holidays are over. Now the fun will begin. Tyson and JBS are on the brink of being Ractopamine free and able to export to China. Combined 180,000 slaughter hogs per day with new market potential. These are smart companies, the only reason they would have had going to Ractopamine free is access to China market. No other country in the world that matters in U.S. pork exports cares about Ractopamine.
What to watch in the next few weeks is hog slaughter numbers relative to carcass weights. We would expect a rapid decline in slaughter weights if U.S. Packers continue at a pace of 2.8 million head per week. If hog marketing’s decline, weights will not decline as rapidly but total weekly pork tonnage will decline pushing hog prices higher.
We expect over the coming weeks Gross Packer Margins to decrease. According to DTN Agdayta, they peaked near $70 a head in November and have since fallen under $50. As hog numbers decline so will Gross Packer Margins. We only have to go back to last summer when they were below $20 per head.
In the commodity business, it appears everyone gets a chance to ride on the wheelbarrow.
Genetic Company Gossip
We are in the Swine Genetic business it’s our life and passion. Here’s where we see the business in 2020:
Genus-Pic:
CEO Karim Bitar resigned as CEO after eight years. He left to go to a human medical company. After exhaustive search Genus appointed CFO Stephen Wilson as CEO. PIC is the largest swine genetic company in the world. They claim in their annual report to genetically influence 150 million pigs per year and have 24% of the genetic industry. Not sure which number is correct, the world had about 1.2-1.3 billion hogs per year in 2018. 150 million is about 12%.
According to the Genus annual report, PIC also dealt with “higher customer credits arising from a few contract farm locations.” This was probably due to non-estrus issues in North America.
PIC also touted the Danish “Mollevang-inflicted PIC 800 Duroc line.” Our translation – we got Danish genetics to improve, our own genetic team wasn’t keeping up.
As a public company, Genus-PIC publishes its financials.
Genus Statutory profit before tax. – British Pound
2015 £ 57.8 m
2016 £ 68.9 m
2017 £ 40.7 m
2018 £ 7.8 m
2019 £ 9.9 m
Topigs-Norsvin:
The combination of two co-ops, one in Norway and the other in the Netherlands, also had their CEO leave last year. Martin Bijl-CEO left in August to join Royal Barenbrug Group, an international grass, and forage seed company. Two people, the CTO and CFO are leading Topigs-Norsvin until they find someone to become CEO.
We find it interesting that both the CEO of Genus-PIC and Topigs-Norsvin left the swine industry. One to medical devices the other to grass seed. Obviously Pigs were not their passion.
Danish:
We quote from PIC Annual Report:
“The porcine market also saw significant changes in FY 19. The break-up of one of PIC’s main global competitors, Dan Avi into three companies has reshaped the European market.
Dan Avi continues to operate as a smaller rebranded company called Danbred.
A new competitor, Danish Genetics, has been created by former Dan Avi nucleus breeders and multipliers.
Lastly, Mollevang Genetics partnered with PIC, starting from July 2016.”
To sum it up, once one company, now three. Deluded Genetics and resources is the reality.
Genesus:
CEO has not resigned. The current CEO has been in swine business all his life, no intention to sell grass seed.
Genesus now works in 17 languages, production in 10 countries and has quadrupled sales in the last ten years.
Plan to keep every customer and add new ones, one at a time. Whether it be USA, Canada, China, Nigeria, India, Mexico, France, Spain, and Russia – on and on.
Every day get up and make better pigs and then get them sold.
We are all pig guys.
More from Genus- PIC Annual Report:
“We are also the only listed porcine and bovine genetics company globally giving us strategic access to finance. Our competitors are largely private companies and farmer owned cooperatives.” – quoted from PIC Annual Report
Market Share (according to PIC annual report)
PIC
24%
Competitor 1
12%
Competitor 2
9%
Competitor 3
3%
Competitor 4
3%
Competitor 5
3%
Internal progress
12%
Other
34%
Who knows if the above percentages are correct. These are estimates at best. The only thing for sure is the swine genetic business has consolidated over the last ten years and will continue too.
Only genetic companies with the will, people, capital, technology, and customers will be left standing in 2030.
General Motors was once the biggest- nothing is forever!
New Genesus Nucleus/Multiplier in Ukraine
On the 21st of December 2019, the first official supply contract of Genesus breeding stock to Ukraine was finalized with a delivery of 749 York gilts, 7 York boars and 6 Landrace boars to the isolation farm of “Agrarna Kompaniya 2004” located in the Chervoniy Kut village of Khmelnytskyi region.
Agrarna Kompaniya 2004
Pigs all came from Genesus Genetic Nucleus in the UK, Bridge House Farm, located in Northamptonshire in the UK. After 21 day of quarantine in the UK, pigs were moved to the farm located in Bohdanivka village of Khmelnitskiy region where the first Ukrainian official Genesus multiplication unit will be opened.
The unit will produce pure Genesus York gilts and boars, as well as F1 gilts. At least 50% of the gilts will be used by “Agrarna Kompaniya 2004” as they plan an expansion of their own swine business (currently the customer has 4000 Danish sows that will be replaced by Genesus breeding stock).
The customer has different agricultural businesses (50,000 hectares* of farming land under long term lease, orchards with fruit storages and processing facilities, feed mill, swine units, dairy cattle farms, etc.) as well as a construction business.
*One hectare is approximately equal to 2.5 acres.
Until 4 years ago Genesus had no real presence in Europe or the countries of the ex-soviet Union. This new nucleus in Ukraine is a very exciting continuation of the rapid growth we are seeing. So far, Genesus has established nucleus herds in UK, Ireland, Germany, and Spain. In 2019 we exported pigs to Poland, Bulgaria, Africa, Belarus, and Armenia. These are all new markets for Genesus.
The European genetics business has been dominated by European genetic companies based in Denmark and Holland. The European market trend for many years weighted toward ultralean pork, which tends to be dry and tasteless. Breeders have focused on born alive per litter as a major genetic trait.
Canadian genetic company, Genesus, pays particular attention to producing tasty pork. Better taste and juiciness leads to consumers wanting to eat more pork more often. We believe taste and flavor are the ultimate enhancers of demand. Genesus’ breeding focus is a productive and robust sow that is easy to manage with a lower cost of production.
“Production cost in Canada is 25% to 30% lower than in Europe. The combination of easy to manage, lower cost and tasty meat has been the backbone of Genesus’ rapid growth in Europe”.
Simon Grey, General Manager Russia, CIS and Europe.
For further information on the supply of Genesus breeding stock in Ukraine contact:
Pork Commentary, December 30th, 2019 Jim Long, President-CEO, Genesus Inc.
Last week the U.S.D.A released the December 1st Hogs and Pigs Report.
DECEMBER 1st, 2019 (x1,000 head)
Item
2018
2019
2019 as % of 2018
Kept for Breeding
6,326
6,461
102
Market
68,475
70,877
103
MARKET HOGS BY WEIGHT GROUP
Under 50 pounds
21,858
22,128
101
50-119 pounds
19,369
19,696
102
120-179 pounds
14,323
14,976
105
180 pounds and over
13,195
14,076
107
Sows Farrowing (Jun-Nov)
6,377
6,346
Pig Crop (Jun-Nov)
68,515
70,416
Pig Per Litter
10.74
11.10
Our Observations:
Breeding Herd is up 135,000 from a year ago. A significant increase. It is up 30,000 since September 1st.
Market Hog numbers up 2.4 million or about 100,000 a week. Interesting under 50 lb. up 1%. Falls into comment this past week that buyers scrambling to find small pigs to buy.
Sows Farrowing over the last six months the same as a year ago, this despite 2% more sows in inventory.
We expect a lower farrowing rate mainly due to the Chlamydia non-estrus issues one genetic company is having with gilts. The same company in its yearly financial statement reports results were being impacted due to compensation charges related to the problem. Probably means if you bought pigs including Chlamydia (non-estrus) its best to be looking for compensation if you not already have. It also goes to show that gene-editing genomes still doesn’t replace basic swine health management and biosecurity to reach optimum production.
The Pig Crop Jun-Nov was up 1.9 million all due to greater litter size up over a ¼ pig per litter.
Summary:
More Pigs. It appears to us the market expected this type of increase. We expect the market to handle this increase in inventory with the expected increase in exports due to ASF in 2020. Current lean hog futures, Corn and Soymeal futures indicate an average profit of $30 U.S. per head in 2020. If so, a good year. When current loses in the $10-15 range per head, can’t come soon enough.
Other:
Small pig market heating up. Cash early weans last week according to U.S.D.A averaged $55.86 up $21 from 3 weeks ago.
February lean hog futures are over 70¢ lb. Current 53-54% lean hogs 58¢ lb. Need to see strong price increase after January 1 to get to 70¢. We expect we will.
ASF China is in mainstream media. Lots of articles everywhere, if it’s like PED when there becomes perceived pork shortage that’s when prices take off. Need non-ag. money to come into market to drive futures higher. The shortage of pork in Asia (China) is real. It’s not if, but when the “Dog hits the end of the chain” and our hog prices surge.
Christmas is almost here. North American pork producers are looking for some nice Christmas cheer in the Swine Market.
Our Christmas take:
Last week the U.S. slaughtered 2.810 million market hogs. A huge kill, but one that reflects the appetite of packer’s to get hogs and have pork. Packer margin north of $50 is a big incentive for packers to kill everything they can. The positive is this huge volume of pork still has U.S. pork cut-outs in the high 70’s showing strong pork demand despite the pork deluge.
Last week the National Daily Base Lean Weight Monday-Thursday was 211.04 lbs. The average the week before was 213.48 lbs. To us the significant weight drop indicates the weekly 2.8 million slaughter head number will drop significantly in January as predicted. We expect the projection of 2.5 million head is real. It’s the main reason February Lean Hog Futures are 71₵ lb. – $25-$30 head higher than current hog markets.
Last two weeks the small pig market has had a big price increase. U.S.D.A. cash average early wean pigs last week were $46.60 up $12 from 2 weeks ago. 40 lb. cash average feeder pigs last week averaged $65.70 up $17 from two weeks ago.
The old adage of “who’s calling who” is a real indicator of small pig market. For several months sellers were calling buyers, now its buyers calling sellers.
We expect the small pig price will continue to appreciate as demand outstrips supply. $100 feeder pig will be seen before the dust settles.
A reflection of pig supply is producers last week contacting us to see if we were looking for empty barns. We aren’t and we weren’t. The pendulum swings.
Latest weekly U.S. pork export report indicates the highest ever weekly export to China (15,280 mt). China is taking pork at record levels, we expect the tonnage to increase as in the new trade agreement China has committed to purchase more U.S. Ag products.
Canada wasn’t in the China market from June-November. We expect it has, or will return to the pre June level of 30,000 tonnes a month.
There is no doubt USA-Canada will soon be doing at least combined 100,000 tonnes a month. That is equivalent to 1-1.1 million market hogs leaving the North American market. As JBS and Tyson get to Ractopamine free at the first of the year we wouldn’t be surprised if U.S. exports to China reach 25,000 tonnes a week.
We have to get through holidays when plants are shuttered. When we look at the large decline in slaughter weights the last couple weeks we expect the holiday closures will work out okay. Current Lean Hog Futures indicate current cash hog prices (58₵) are the lowest expected for the next 18 months (lowest month, December 2020, 69.075)
Lean Hog Futures Rebound – Somewhat
Pork Commentary, February 10th, 2020
Jim Long, President-CEO, Genesus Inc.
The Wild Gyrations in the lean hog futures are best illustrated by the following:
June Lean Hog Futures
January 23 88.175
January 31 75.625
February 7 81.555
The insane drop in a week of over $25 per head has since been followed in a week by a rebound of about half that amount. The word “stable” should never be used in the current scenario of the lean hog futures or maybe even the psyche of many of the US producers.
As we wrote last week, it is bizarre to think Coronavirus would stop Chinese from eating pork or any other meets (not related to bats, snakes, etc.). As our Genesus General Manager in China told us “The only stores open are supermarkets. We go to stores, buy food and sit at home eating.” Point is they aren’t buying cars, apple phones, going to restaurants, etc. Food, yes.
There are reports that travel restrictions had prevented pig and poultry farms from receiving feed. Livestock perished as a result. Last week the Chinese Federal Government put a priority on ensuring food and agriculture products were prioritized in movement with little restrictions.
There are reports that imported pork is backing up at Chinese Ports. Not enough trucks arriving to take pork to the next destination due to Coronavirus reaction. We expect this is to get sorted fast. These are some advantages to a command society.
We were with a Chinese Company last week that is a Global Mega Producer. They are still very optimistic that the Chinese hog price will hold near current levels ($2.39 U.S. liveweight a lb.).
A reflection of breeding stock demand are these current prices in China.
Certainly, high price points. Reflects supply and demand of genetics in China and optimism of future hog pricing. China government gave a signal last week of further need for U.S. pork by cutting tariffs by 5%. They will stay in market.
U.S. Pork Exports in the last week of January at 42,000 tonnes, were double from a year ago. So far up 460% to China year to date (YTD), up 62% to Mexico YTD and up 107% to Canada YTD. Mexico and Canada are duty-free to China. We expect U.S. pork is filling holes in both countries for pork going to China. It’s a North American market. Any pork leaving is a good idea.
Last week’s average price for market hogs in China was 36.86 rmb/kg. or $2.39 U.S. /lb. ( for a 270 lb. hog= $645). Go Figure, we should be able to ship pork from here with current market hogs about $122.00 a head 270 lbs.?
Last week we wrote wondering if the Chicago Board of Trade and lean hog futures were really related to the swine industry any more than show pigs. The rest of the world has no lean hog futures and most countries are doing fine without them. We are told about 70% of current lean hog future participants are non-hog farm related. Are these speculators? Not sure, but, there is a group of people making a living unrelated to the direct participants in the industry.
Was interesting this past week, we had producer comments wondering too if lean hog futures did anything but create a more volatile market. They also had never thought about that no other pork country had its own “Las Vegas”.
Our point is, no other major hog producing country has had the extreme reaction in pricing that lean hog futures had the last two weeks. It’s not anything but harmful to producers. We sense many producers who invested huge capital resources and are committed to our industry resent their destiny being tied to sharpie speculators that live in New York City and Chicago sitting on gobs of money to run the market up and down.
They don’t care if its hog, orange juice, oil etc. It’s all about people who make nothing tangible for society, living on speculation.
Genesus Customer Testimonials
Country View Farms, NE, USA
“The hardiness of the Genesus females continues to mpress us. We broke with PRRS in January 2019,but it was amaing to see the Genesus animals desire to live ad get through it. The gilts we purchased from Genesus have been great”
Hutterville Farming, AB, Canada
“Little over halfway through the conversion to Genesus animals; and so far we are seeing huge difference in live born (over 1.5pigs extra). Genesus sows areweaning nice even litters easy to manage and good geed intake in lactation. Overall nicely satisfied for now. Salesman 5 stars.”