Many of you have noted that I didn’t write a blog last week. I was attending the annual meeting of the American Association of Swine Veterinarians in Dallas, Texas and conducting a ventilation workshop. Probably the most common topic of conversation at the meeting was – when will prices improve?
I received a phone call from a client this morning asking the same question. Here are my current thoughts on this topic.
Who is selling sows? Not enough people is the short answer.
Many of the small (small is anything under 1000 sows today) producers who would normally be looked to as most likely to reduce female inventory are in fact in the drivers seat in this downturn. Most of them grow all or at least a majority of their corn so their input costs last year were at cost of production for corn, not $6-8/bu if you bought it last summer like Smithfield did. This past fall, their hog manure on their ground had a value as high at $20/pig space in fertilizer replacement value. Put this together and the ones I talk with say last year wasn’t a bad year in farming. These producers have joked that in a normal year, pigs paid for their cropping habit. This past year, crops paid for their pig habit. The net effect is that this group isn’t likely to quit unless quitting is their exit plan from the industry as they approach retirement age.
Producers with large sow units don’t want to close the doors. If they close a sow unit, most likely there is debt associated with the unit, so the lender will pressure owners to sell empty units to service that debt. However, empty sow units don’t sell very well. People who are looking to buy sow units want them to be in production as cash flow from the unit begins on the day of sale if the sale includes animal inventory. Empty sow units are not an attractive property to potential buyers. Thus, even those with plans to get rid of a sow unit have an economic incentive to keep the units in production pending sale of the unit. The net effect – pigs continue to be produced from the unit in spite of very bad economics.
Many US producers are waiting for Canadians to sell sows. However, the direct cash payment in Saskatchewan last week for all hogs sold to slaughter and all weaned pig sales has made all Canadian producers pause. While the payment was by the provincial government of Saskatchewan, producers in other provinces can’t help but speculate about their odds for government support.
We are hearing reports of empty pig spaces. However, as I wrote on this site a few weeks ago, we are no where near the 4 million+ empty spaces we need to alter slaughter 200,000 per week. Also, other than sites with PRRS problems, everyone is reporting very good to outstanding pig performance this winter in the upper Midwest. Mark Greenwood from AgStar Financial Services here in Mankato has worked the numbers to demonstrate that many of the empty spaces in the industry are associated with improved performance (less days to market) so this makes the 4 million spaces due to less pig numbers even more distant.
On the other hand, Canadian market pig exports to US slaughter plants has really dropped. Last year at this time we were importing 50-60,000 slaughter barrows and gilts per week from Canada. This year we are importing only 8-10,000. This is 50,000 less slaughter barrows and gilts per week going into US plants. What the impact of MCOOL will be in the next few months remains to be seen.