Jim Long, President-CEO, Genesus Inc.
February 15th, 2021
U.S. Market Continues to Strengthen
U.S. Pork cut-outs closed Friday at 88.38 ?lb. A very strong price in our opinion considering a weekly slaughter of 2,664,000. What will cut-outs be when slaughter in summer months declines to 2.3-2.4 million a week? $1.10 -1.20?
Weights of Market Hogs are declining. We estimate the last four weeks a 5 lb. decline. This means to us packers have pulled hogs ahead to maintain current slaughter levels.
Sow liquidation continues. We understand the Chicken Little Economists spoke this past week and did not think PRRS was a factor this year any more than any other. At the same time was explaining there was little liquidation in the sow herd. We totally disagree. PRRS-PED ripping up production at a high level. There has been sow liquidation and it continues; currently 10s of thousands of empty finishing spaces. They were built to hold hogs. All hogs are in barns now. Empty barns mean less hogs.
Cash feeder pigs touching $80 each, highest price in many years. All of this in the face of $5 corn. A sign of supply versus demand.
Jan 1 to Feb 12 this year compared to last U.S. hog slaughter down 4.3% - some of this can be related to slaughter days year to date, but certainly a sign of lower production. Most months of Lean Hog Futures reached contract highs on Friday. June closed 91.90 up from 74.75 in mid-August. We expect further upside as hog supply plummets.
Genesus does business in China. We are paying attention to what goes on in that market. Below are highlights of some Chinese reports we have translated:
China Feeder Pigs prices have increased for 11 straight weeks.
?span style='font:7.0pt "Times New Roman"'> 16 kg. (36 lb.) feeder pigs 1681 RMB. ($260 U.S. dollars each)
?span style='font:7.0pt "Times New Roman"'> Considering corn is $11.00 U.S. a bushel - certainly indicates supply-demand.
?span style='font:7.0pt "Times New Roman"'> Breakeven over $400 per head
The ASF (African Swine Fever) epidemic is getting worse.
?span style='font:7.0pt "Times New Roman"'> The proportion of low weight pigs shipped is an increasing sign of fast pig liquidation when ASF strikes (18% of total slaughter ?light weights).
?span style='font:7.0pt "Times New Roman"'> The recovery of pig production has not gone as smoothly as expected.
?span style='font:7.0pt "Times New Roman"'> The widespread inoculation of substandard (illegal) ASF vaccines has made inoculated pigs infectious with mutated African Swine Fever virus.
Reports of pregnant sows sent to slaughter from vaccine poison.
?span style='font:7.0pt "Times New Roman"'> Report estimates some provinces sow inventory have declined 50%.
?span style='font:7.0pt "Times New Roman"'> Due to the rise of sow slaughter the inventory of sows is estimated nationally to have declined 1.76 million in the 3 months November 2020 to January 2021 (10%)
?span style='font:7.0pt "Times New Roman"'> The Report indicates cumulative pig semen sales from October 2020 to December 2020 are calculated down 16%.
?span style='font:7.0pt "Times New Roman"'> You do not use AI if you do not have sows to breed.
It is not only sows that are being eliminated.
?span style='font:7.0pt "Times New Roman"'> Mortality of infectious pigs can reach 70% which obviously cuts hog supply.
揥hat is even more frightening is that the modified African Swine Fever (ASF) virus can be transmitted through the air. If one pig is vaccinated the whole farm may be infected by African Swine Fever.?/i>
As you can see from above perspective, of the potential major issues slowing China's pork production recovery, this analysis is far different than some of the reports of rapid expansion in China.
A potential decline of 1.7 million sows in the last three months is far from expansion. We have seen the difficulties Russia has had to stop ASF in the last ten years.
Russia抯 biosecurity and space between farms are as great as any in the world. Russia does not use illegal ASF vaccines. They liquidate all pigs and close farm for 6 months minimum.
China uses illegal vaccine, does not liquidate pigs or empty farms. There are also maybe ten to twenty times more pigs in China than Russia. To us, it tells us ASF will continue at a high level in China for the conceivable future.
The high hog price and profitability will continue to encourage Chinese producers to keep producing in the face of ASF. The challenge; continual ASF breaks. We expect ASF will eliminate single farm operations that cannot afford the risk.
Our perspective is that China will continue to import pork at higher levels for a longer time than many are expecting.
The growth in pork production in China will be slowed by the continual ASF issue. For pork exporting countries these factors should be supportive to their hog prices.