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Kerns: Swine markets looking good

By Staff | Apr 1, 2014

JOE?KERNS, an economist with Kerns and Associates, in?Ames, said rising futures prices is due to the heavy death toll porcine epidemic diarrhea virus that has killed 5 million pigs in the U.S. since April 2013, 1.2 million in January alone.

OKOBOJI – Northwest Iowa swine producers heard Joe Kerns, economist from Kerns and Associates in Ames, tell them futures markets are looking promising in the swine, comfortable for corn and stuck for soybeans.

His comments came at a gathering in Okoboji on March 13.

Kerns showed them up-to-date trading tables, indicating that all systems are “go,” he said, for pork producers.

There is no reason not to raise pigs and not to be aggressive in this swine market.

Kerns said lack of liquidity in some markets is not always a producer’s friend, but that it’s a problem that is benefiting producers in the swine industry. He warned them that it will swing back in the other direction at some point.

“We are accelerating at an accelerating rate,” Kerns said, “and this is all in anticipation of PED. Where’s the top on this one? We don’t know, but we’re trading $127 and $128 June hogs today.

“We could come back to $120 (per hundredweight) and not really violate any of the major uptrend.”

$100 profit per head?

Kerns said indications show “the sky really could be the limit” in the swine industry, at least for now. He speculated that, at the very top, they could go up to $148 per cwt.

“I’m not saying it’s getting there,” he said, “but when I look at these charts I don’t see any stop signs – we are in an unprecedented era.”

With feed prices lower, he sees summertime profits hovering around $100 per head.

“Have we ever done this before?” he asked. “Not even close.”

He said U.S. Department of Agriculture 2014 production numbers show significant increases, but added those numbers do not account for pork supply losses from porcine epidemic diarrhea virus, so producers need to be careful when using those numbers for trading purposes.

He said the revenue side of pork production looks “incredibly promising, at least for the short term.”

“North American pork production is uniquely positioned to compete with anybody in the world,” Kerns said.

Kerns said revenues and costs for production “look good,” and that producers should protect that revenue by paying off operating notes and buying equipment.

“If prices stay high enough long enough we could see enough expansion where (those high prices) start to fall down, but we are not anywhere near that,” Kerns said.

He advised producers not get carried away in trading fall pigs.

If the pig isn’t “on the ground yet,” he would shy away from selling it directly, opting to buy puts to limit losses if the price falls.

Kerns said smaller producers have the ability to grow pigs more efficiently than producers running, for example, 100,000-head operations. He said in mega-operations, the institutionalization of those pigs means that if they are sick, it takes too long to turn them around, and that often leads them to be euthanized.

He said that’s not so with smaller producers.

“The productivity component is the most important thing we have going for us,” Kerns said, “and your scope and scale is well positioned to take advantage of that.”

Corn and beans

Kerns said corn balance sheets look “comfortable,” and 2015 futures looks more so.

But, Kerns said, from the soybean standpoint, the market is stuck.

“The summer of 2014 will not be a cakewalk,” he said, adding that 2013’s soybean ending stocks were lower than expected, making the price skyrocket.

“We’re going to be tight during the summer,” he said, “but if you can hold on until fall, we should be in good shape.

“We’re going to have more soybeans across the globe than we know what to do with.”

Kerns said the break-even price for Brazilian farmers producing soybeans is roughly $8.15, and that break-even production prices for U.S. farmers is closer to $10.

“The Brazilian farmer can kick our hineys in soybean production, and I think we’ll continue to ship them, but the good news is that as long as their break-even stays around that mark, we’re going to keep soy prices under control on a world-wide basis.”

He said U.S. farmers can produce soybeans 25 percent cheaper than Chinese farmers, and that figure includes getting U.S. soybeans to a Chinese port.

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