Have we sold enough sows?

Later this week, Canadian government bean counters will release their July 1 inventory numbers. Everyone expectation is a continuation of the decline in sow numbers and on-farm grow-finish inventory.

 

That leads to the over riding question that I have been getting from clients and others involved in the swine industry the past few weeks – have we lowered the North American breeding herd enough? I don’t get a sense that we have.

 

In my travels across the upper Midwest and in my conversations with industry people, I can’t put enough names on enough sows sold to slaughter to convince myself enough liquidation has occurred in the US to position our industry for a very profitable year next year.

 

There is no doubt that Canadian producers have liquidated many females from their inventory. However, not all of the liquidation was via the Canadian Government buy-out. The buy-out specified that an entire facility must be emptied and that no pigs could go back into that facility for 3 years. I’ve heard stories of producers selling sows, but not participating in the buy-out as they wanted the ability to return to production sooner than 3 years. I think these stories are reasonable in light of the current weakening of the Canadian dollar and the dramatic decline in feed grain prices.

 

In the US, the rapid decline in feed grain prices in the past 4 weeks, along with the unexpected increase in market hog prices due to strong export markets has me suspicious that any large scale sell off of breeding stock has been curtailed. Many producers now sense a light at the end of the tunnel – so why sell sows which represent the pigs that would go to market next summer? Both feed grain and hog futures suggest that next summer will see a return to profitable pig prices.

 

One of the dark clouds on the horizon is a slowly strengthening US dollar. The year to date increase in pork exports is dramatic by any account and everyone I know suggests they are the reason live hogs are above $60/cwt in late August when we are slaughtering over 400,000 pigs per day. US pork products represent a good value to our foreign buyers, both because of our producer’s attention to quality production systems and the weak US dollar.

 

As the US dollar gains strength relative to the Canadian dollar, in some markets Canadian pork products will once again become competitive with US products. I don’t have anything against our fine neighbors to the north, but I don’t think we want to see our export markets shrink due to a rapidly rising dollar and experience many of the problems the Canadian industry has had in the past year due in part to their strong dollar.

 

Yes, we have much larger domestic market as a percent of our industry than Canada has, but exports have become our salvation when we consider that we are selling all of the product daily kills of over 400,000 head represents. As we go into the fall months when slaughter numbers historically increase we need every market channel we have to keep product moving. If something were to happen to our export markets, we have too much production to consume it all at current prices in the domestic market.

 

Long term, I think the North American industry (Canada plus US) needs to continue to lower the number of sows in the breeding herd to assure another string of profitable production years. I don’t know what the ‘right’ number of females is, but until we can demonstrate a significant increase in domestic usage, we currently don’t have the ‘right’ numbers for the long-term well being of our industry. The large export numbers we are currently seeing have been our salvation this summer – but should we continue to put our future success on something that is subject to government interventions and weak vs strong dollar signals? I am all for having a strong export trade, but with this trade comes a risk that many producers no longer can accept in light of record high feed grain prices.

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