One of the interesting global factors in the pig industry is what’s going on in Russia, and how this will affect the markets, writes Jim Long President – CEO Genesus Inc.
Russia
- Current market price is 113 rubles a kilogram, or $0.86 USD/lb liveweight (about $215 USD per market hog).
- Feed costs vary by region but generally globally competitive
- We estimate that Russian producers’ profit range currently is $35-70 USD per head
Other Factors
- Sanctions between European Union and United States has stopped all pork or pigs from being legally imported
- Pork can be imported from Brazil, Serbia, and a few other countries, but most is from Brazil. For Brazil, Russia is a very important import market.
- Import limitation has been supportive for profitability for Russian producers. If we compare Russia’s hog price of $0.86 USD/lb to Spain’s (Europe’s leading exporter) $0.54 USD/lb, the $0.32/lb difference is approaching $80 per head advantage for Russia. Sanctions have been very good for Russian producers.
- The flip side of Russian’s higher hog prices is that they are non-competitive in export markets.
- Russia’s industry is working hard to expand. One of the detriments is the prevalence of African Swine Fever in the Eastern regions of the country. When African Swine Fever hits, many pigs die and all pigs must be destroyed. It’s a huge financial impact, as compensation is next to non-existent. We are aware of 30,000 sows and all their offspring being eliminated in the last two months on several different farms. The reality of the financial impact of African Swine Fever creates investor anxiety.
- Russia continues to expand its grain production. In 2016, they had the largest in their history. More land is coming into production, with estimates of 40 million acres (18,000 hectares) arable available but not in production. Land is inexpensive relative to most of the world, rent is about 15 USD per hectare. The world’s farm equipment companies (John Deer, Case, CAT, etc.) have benefitted. As you travel Russia, their large depots are quite evident. Russia has all the means to feed a large livestock industry.
- This past week, we were visited by a large Russian production system. They are expanding, they are profitable, they are looking for the best technologies whether it be equipment, nutrition, or genetics. They were optimistic of the future but fearful of what African Swine Fever could do.
- Over the next year, we expect Russia will expand further, driven by profitability. With sanctions until the end of 2017 by the Russia government, there will continue to be little importation of pork. We expect this could go well beyond 2017 as Russia uses border protection and resulting higher prices to finance food self-sufficiency.
US Market
- June lean hog futures closed Friday at 78.60 a lb. The highest June has reached since the middle of July 2016.
- The US lean hog prices has started its seasonal run up. In the last week 53-54% lean hogs have gone from an average of $56.90 to $62.46 – a jump of $12.00 per head. A year ago, 53-54% lean hogs were averaging $54.99. In the last couple weeks, year over year prices have flipped from being below a year ago to higher. With US pork cut-outs at $0.80/lb, packer gross margins are still excellent. We expect packers’ margins will erode as they chase seasonally fewer hogs resulting in continued price increases for producers.
- US cash early weans averaged $51.28 last week and 40 lb feeder pigs $69.51. A heck of a lot better prices than September when early weans collapsed to $8 per head. Price is stronger due to better demand and lower seasonal supply.
- We are weary of PED and PRRS breaks. Seems to be more significant than last two years. Reporting of PED breaks used to be relatively accurate. Now that the government has got involved in reporting protocols, we suspect less reporting. Most producers have no interest in government oversight. Thanks, but no thanks.
- We have felt lean hog prices would be in the 60’s in January. We expect 80’s in lean hogs this summer. Demand for pork is good.
There are Good People
Last week, I was leaving an airport. Put my wallet on the roof of the car (pretty stupid) and drove away. Got a call an hour later. Mr. Ruiz had found my wallet in the middle of the road. He had tracked me down. All the money, credit cards, etc. There are good people. I am embarrassed but happy to know a person would have the honor, integrity, and decency to do the right thing. We live in a world with some exceptional people.
