Wed, 31 Jan 2018
Last week we attended the Iowa Pork Congress in Des Moines, Iowa. Iowa is the number one hog producing state in the US.
The Congress was well attended. The first day was quite busy. The number of exhibitors increased from last year, probably as a reflection of vendor optimism for the pork industry.
The Iowa Pork Congress organisers do a very good job in running the event. It runs seamlessly, and this has lead to Iowa Pork Congress becoming, without doubt, the industry leading winter trade show.
Producers we spoke too are cautiously optimistic about profits for this year. A reflection, no doubt, of the lean hog futures that indicate such a scenario.
In Iowa the new Seaboard-Triumph plant is in production. Iowans also have the new Prestage Plant under construction, scheduled to open this fall. Iowa has lots of slaughtering capacity for the future.
While at the Congress, we presented a 2017 Global Mega Producer Plaque to Jeff Hanson, owner of Iowa Select. He told us they had expanded significantly last year and plan further expansion in the near future. We believe Iowa Select new farm expansion is the most aggressive of any US producer. Obviously, they are believers in the future of the US swine industry.
As far as US sow herd expansion, there is some; though, we are not convinced that net US expansion will exceed 60,000 sows in 2018. Issues that slow expansion are: the higher cost of labour and availability, environmental regulations to build and cost of building, and somewhat concerns on long term profitability. Also, when we speak net 60,000 expansion, part of this is the fact producers go out of business; so, net 60,000 is the plus and minus of the sow herd reality.
It appears the USDA’s proposed new Grade System is getting opposition from some packers and producers. Most of opposition is not change the status quo. Packers don’t want further government oversight. Packers, having profits that have been excellent the last three years, it is hard for them to want change. Some producers have build the production base on lean lean pigs, they too are afraid of change. The new Grade system would reward dark and more marbled pork. The lean, lean product would get discounted. The question for the opposers to the Grade System is; What’s your solution to loin prices languishing at a huge discount to Bellies? Indeed, the opposed know that more marbled and darker pork brings higher prices because lots of these are currently being sorted and sent to Japan at a premium price.
One person at the Congress told us one of the issues of the grade system acceptance is the dominance of PIC genetics in the US industry. He defined PIC as Pigs Into Chicken for the last sixty years. We found that funny, but also with a lot of truth in it, as they have had extremely white meat lean genetics. Not sure PIC executives will be keeling over with laughter.
On the grain front, we heard several producers speak about the general lack of moisture this winter, and how dry the land was. Early to discuss potential drought, but talk reflects sensitivity to conditions that can affect the market.
We don’t believe disease levels are usually market changers (except PED, 2015). Not sure if we are getting old or more sensitive but seems to us that there is significant PRRS and PED breaks; if true, this could lower summer hog numbers.
Demand for early weans and feeder pigs has certainly pushed prices to very high levels - $70 and $85 US. Coupled with, what we expect will be lower packer margins this summer, and what we expect steady pork demand; we expect summer lean hogs to reach into the 90’s.
Finally, thank you for all attending Genesus Reception at the Iowa Pork Congress. It was a festive atmosphere that facilitated lots of pork industry dialogue.