future

Mark Greenwood
March 2008 

It is not getting any better – The losses are continuing in the swine industry. This past month feed prices kept going up while hog prices improved some but not near enough. Losses in the open market are still close to $40 a head and everyone keeps wondering when will it get better and what do prices have to get to before we start getting profitable? Well, the first thing we need to do is to somehow get supply reduced. The last cold storage report shows that we have an abundant supply of product. Even though exports have been very good we need to reduce supply to get any significant improvement in prices.

Mark Greenwood
February 2008

Producers are Nervous – I attended both the Minnesota and Iowa Pork shows this month and there are a lot of producers that are nervous about the future of the Pork industry. I spoke to several groups and outlined what I am currently seeing in the countryside. There are very few systems that locked in 4th quarter and 1st quarter of 2008 margins. I have been asked to give an estimate on margins that were covered and I would say 30-35% have feed coverage and hog coverage through that time period. These producers that locked in that amount of coverage are still losing over $20 per head. Even if you locked in the futures on hogs, the basis widened dramatically because of the large slaughter numbers. In summary, swine economics are ugly and people are hoping that we will see some liquidation.

     I was hanging around some beef guys last week and I have to say, it was a great time.  The people involved in animal production in this country (and around the world that I have traveled) are some of the most genuine, thoughtful, fun-loving and creative human beings I have ever met.  A lot of them are suffering now of course both financially and psychically as they face the daunting uncertainty of low prices and record input costs.

     One of the guys I was talking to reacted genuinely surprised and intrigued when I shared with him the inevitability of his business shrinking over the next 10 years.  I told him he had to read a little bit wider than his trade magazines if he wanted to see the future more clearly. 

Mark Greenwood
January 2008

Bad As I Have Ever Seen - The current economics of the pork industry makes me look back at 1998 and 1999 and that seems not as bad. With most producers in the last 60 days getting maybe a $100 for their hogs on the open market and with cost of production on close outs at $140 a head producers are losing money quickly. The other part of this equation is that cost of production keeps going up with corn in Southern MN at $4.75 a bushel and soybean meal at $330 a ton. In looking at cost per head on a farrow to finish operation we are over $90 per head! We were almost at a point where feed costs were not being covered by what the producer was receiving for revenue. The mood of the industry is one of almost disbelief and fear.

Mark Greenwood
October 2007

Now at the end of September, the cash hog market is hovering in the high $50s. Corn has jumped from $3/bu. to $3.50/bu. in southern Minnesota, and soybean meal has jumped from around $220/ton to $265/ton.

In just a 60-day period, your cost of production has risen about $8-$9 a head, and your revenue has dropped $30 a head. Needless to say, I do not think September will be a profitable month for the pork industry – and we could be looking at a tough fourth quarter for the industry.

Lots of Pigs – The fact that there are a lot of pigs out there should not be a surprise to anyone in the industry if they have been looking at a couple of things.

The first factor responsible for this trend is the number of weaned pigs and feeder pigs coming down from Canada. I do not see this trend slowing down. The Canadian dollar was on par with the U.S. dollar last week. What many Canadian producers are doing is selling weaned pigs and/or feeder pigs into the United States, retaining ownership and feeding them out. To the Canadian industry, this is a means of self-preservation.

Secondly, performance in most sow herd systems in the United States is excellent. That fact combined with improved production due to the circovirus vaccines being so effective, equates to a lot more pigs being produced and marketed.

I remember writing a column in the beginning of 2007 and stating that death loss on hog farms in the United States was up 1-2%. That equates to a loss of 70,000 sows.

Today I believe that death loss is down at least 2%. Along with the improvement in sow productivity, that equates to the addition of 100,000 more sows to the marketplace, even though we didn’t actually add more sows to the U.S. breeding herd.

The Future for Pork - What does the future hold? If you look at the futures market for pork in 2008, things do not look that bad, and there are still opportunities to lock in profits for next year. If you look at prices on the Chicago Board of Trade through October 2008, the average price is above $72 or a total return of $140 a head on a 200-lb. carcass. Even with the higher feed costs, there is still profit potential for 2008!

I have stated numerous times in this column about locking up profits. It is up to you as a producer to manage that risk. Since 2004, locking up prices on the futures market has proven to be the wrong decision, and you were better off just using the cash market. That still might be true, but also betting that the cash market will always be there is also a hedge in my mind. If you know your costs and can see a margin that you can live with, I think you might sleep better at night than not knowing what lies ahead. I firmly believe in the next two years that marketing – selling your pigs and procuring your feed needs – will separate the best from the rest more than any other factor in the marketplace.

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