These aren’t my words, but that was the question posed recently by the president of a North American pig-breeding company.
In one of his company’s recent Pork Commentaries, headlined Hog market train wreck continues, Jim Long of Genesus Genetics argues that the cut in supply that PED produced had probably been worth £53 per head more revenue to US pig producers and had resulted in their best profits ever!
“Sure the heck made a lot of producers a lot of money,” he adds.
US pig prices have collapsed spectacularly in the past year as the US pig supply has recovered. In mid-November, the bacon price was about 84p/kg, 123p/kg less than 12 months earlier.
“We don’t believe any producer can make a profit at 84p/kg lean,” Mr Long says. “It’s not about if you’re making money or not, it’s how much you’re losing.
“It’s a train wreck, with the added problem that it seems the price could go lower yet before it recovers.”
Mr Long points out that the prices have dropped as a result of a 7% increase in the number of hogs going for slaughter. That’s about 160,000 more pigs being processed every week than 12 months ago – which is pretty close to the entire weekly kill here in the UK. This, he says, is indicative of the inelastic relationship between supply and demand in the US pork market.
Mr Long is also reminded of a speech that the chief executive of Smithfield Foods (one of the largest US pig producers, that’s now owned by the Chinese), Larry Pope, gave at the National Pork Industry Conference a few years ago.
“Basically, he said that an elimination of PRRS and the subsequent increase in production would lead to so much pork that it would create large financial losses,” Mr Long says. “PED and now its disappearance is a case study of this premise.
“Eliminate PRRS in North America and do we add five to 10 million more market hogs immediately? That certainly would be a supply and price shock.”
It really comes to something when the return-on-investment calculations for treating a condition as costly to our industry as PRRS should have to factor in the effect that increased production would have on prices. But without extra demand, that’s exactly the situation pig producers find themselves in.
Logic dictates that the sensible course of action in that situation is to maintain the level of output, but take advantage of the efficiencies by scaling back the breeding side of the operation. As long as prices remain constant, money saved by efficiencies will go straight to the bottom line.
But that’s rarely how our industry works – as the cyclical nature of prices through the years demonstrates. There’s something about the idea that higher output must equal higher profits that just proves too difficult for most pig producers to ignore.