Our cousins in the lean hog industry have new contract highs for summer 2023 closing at 104.875. Which is believed could still be undervalued since they saw highs earlier this year at $1.20. Why is this happening and why should we as heritage hog producers care.
- Less sow herds in the USA, Europe and China. Global feed prices has decreased the herds
- Recent USDA data projects 7% less beef in 2023 that’s over 2 billion pounds.
- More avian flu outbreaks in USA and Europe in past 60 days that has not hit mainstream media.
- Less, less, less. The only way to ration lower supply is higher prices.
So in a local retail store 10 minutes from my farm I see a great disparity in pricing
Boneless Pork Loin – $5.49 lb.
Lean Ground Beef – $7.49 lb.
Prime Rib Roast – $25.05 lb.
This is testament to what the lean pork industry has done. Producing piles of white loins devoid of marbling. The other white meat program has successfully created loins that are lower value than ground beef. Remember fat and marbling increase flavor and sales price. Just look at the prime rib selling for 5 times the price of the bland lean pork loins. Taste trumps all. Push those marbled Large Black Pork Loins
Alan McKamey, President, LBHA
Records are crucial for success of any niche pork producer. How can one evaluate their purchases of assets or find optimal levels of labor, scale and efficiency without good records? Records are necessary to help you make informed decisions that will directly impact your competitive position and overall profitability.
Not only will even basic records help you make informed decisions, it will help confirm what things are important to the bottom line of your farm. People will not enter into the market unless they know that they are making as much fair profit as possible. Also, a list of critical management areas to master is needed in order to be successful. You can only be effective at managing what you can measure.
Important questions that quality records can help you analyze
- Which tools are valuable?
- Will additional inputs increase profit? and which ones?
- What is your optima herd size?
- Is the way you raise pigs the most cost effective?
- Are there changes that you can make to improve your return?
- Are you spending too much time on things that do not change your financial position and too little time on the things that will?
- Is your farm financially stable?
Keeping records just for the sake of keeping them is only useful for taxes, but taking those same records and relating them back to your performance is very useful in making informed decisions.
In a small lower overhead farm, whole herd cost records related to gain are needed for benchmarking certain areas critical to financial sustainability. This type of record keeping links cost to performance and requires only minimum amount of data that is easily obtained.
The number of pounds pork produced by the farm is essential. Pounds produced can be calculated by the following formula;
Pounds Produced= (Ending Inventory Wt + sale Wt) – (Opening Inventory Wt + Purchase Wt)
Once the number of pounds produced is calculated, cost then can be related to performance (pounds produced)
For example, If you had the same opening and closing weight, did not purchase any animals, and sold 10,000 pounds of market hogs (40 head at 250lbs). If you spent $7500 on feed, the feed cost of grain would be $0.75/pound or $75/cwt.
Now an important discussion begins when you find out that another farm spent only $5000 on feed to produce the same amount of pounds, you will have to decide if the $2500 spent on additives or specialty feeds to possibly enhance your growth rate had a good payback or not. This is why records are important on making informed decisions.
The same formula can be used to benchmark all your costs on the farm. You need to track costs of things like utilities, fuel, repairs, supplies, bedding, meat processing, etc. After you have these costs recorded plug them into the formula to find out cost per pound.
You must charge enough to cover the costs per pound to make break even then add in enough profit for your own income.
World Market Update
- Our Premise – The three major hog-producing areas in the world USA, China, and Europe are all cutting production at the same time. This has never happened before.
- Feed prices have pushed the cost of production to record levels all over the world. Some relief in sight.
- Spain 370 Euros/ton or over $10.40 a bushel, was $11.60 a bushel
- China 3128 RMB = $12.50 a bushel, was $13.70 a bushel
Europe Pork decline 5% Q1 – was 7% lower in March
- 1.48 million sows May 2022
- Germany has declined 6.2% since December 1 (-100,000) down to 1.48 million. Down over 200,000 in the last 18 months.
- High feed prices
- Loss of exports due to ASF
- New animal welfare regulations
- 12% less pork in Q1 vs. a year ago
- The largest producer in Europe
- Business model – contracting unlike rest of Europe it has been the only country in Europe to expand in the past two years
- Last ten weeks slaughter has declined year over year
- Has the highest price on record – just over cost of production
- Livestock industry under huge pressure for nitrogen pollution
- $27 billion USD budgeted to radically reduce livestock production through farmer buyouts – voluntary to start with
Sow herd (1,000 head)
- Huge protests underway – some estimates sow herd will be cut by 30% -300,000 sows. Less hogs coming
- Sow liquidation began last July – 10 months later is March-April.
China Average Hog Prices
Price per lb.
35 lb. Feeder Pigs
Low was March 18
Week of July 7
- The only reason the price increased is because of fewer pigs. China just had its 1998.
June 1 USDA Hogs and Pigs Report
Kept for Breeding
Pigs per Litter Dec.-May
Sows Farrowing Actual Dec-May
Why less Hogs?
- Financial losses during Covid crisis
- High feed costs
- Difficulty to get labor
- High building costs – $4,000 sow farrow to wean
- Generational change
USA – Demand
- Chicken production lower year over year with prices now $1.60 lb. a year ago $1.05 lb.
- Beef cow liquidation and lack of Heifer retention at record combined levels. USDA projecting almost 2 billion lbs. less Beef in 2023 then 2022 (-7%). Equal to about 4 weeks of hog production.
- Inflation – we don’t think it will cut U.S. Pork demand – consumers will cut out other items. Beef $2.60 cut-outs – Pork $1.08 cut-outs.
Beyond Meat stock (Nasdaq: BYND)
- 234.90 High in 2019
- 27.17 Last week
Market capitalization – down -$15 billion from peak
Down -$1.74 billion since January 1, 2022
Taste does matter
- Survey by Iowa State of 2,000 U.S. residents
- Quote “Around 60% of the women in the survey said they would be unwilling to eat and purposely avoid gene-edited food.
- Challenge of Euro to U.S. dollar
- A year ago, 1.18 Euros to $1 USD – Now 1.03 Euros to $1
- This makes U.S. pork less competitive in World Markets at an almost 15% change
- Year to date exports down -24%
- Thank god for Mexico as it’s up 11% and is the leading export country
- China starts up most U.S. plants approved unlike Spain and Canada
- Our premise is China, Europe, and the USA are the major hog-producing areas with 75% of the world’s production all down at the same time, probably the first time in history.
- U.S. hog prices in our opinion are at minimum the same as this past 12 months with significant upside as global pork supply craters.
Thanks to all the active membership who came out and exercised your rights per our bylaws and voted. The bylaw change did pass. Finally for the first time in LBHA history we can now complete legal election of Directors. We will be establishing a timeline in accordance with the new bylaws so we can move forward.
The Registrar will be on vacation until next week. You super fantastic 48-96 hr turnaround may be slightly delayed over the next week. Thank you for your continued support.