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in the Sand Hills
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Home On a Hog Farm
- Manure
Use Terms Revisited
- Smithfield
Plans to Buy U.S. Hogs Exclusively
- Current Issue:
Maximizing Manure's Value
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Market Preview
Economic Uncertainty Spills Over
All
The uncertainty in credit markets continues to play
havoc with financial and commodity markets as the House of
Representatives takes up a $700 billion stimulus package that seeks to
put a floor under mortgage-backed securities and kick start capital
flows. The uncertainty of whether the U.S. government will actually
step into these markets has likely made the situation worse this week.
Major stock indexes were down sharply again on Thursday and several meat
and poultry companies have taken some significant hits this week. Worst
among them is Pilgrim's Pride, the nation's largest chicken producer,
which has seen its stock price fall from just over $25/share on June 2
to just $3.01 on Thursday - and that's up 25% from its all-time low of
$2.49 on Tuesday. Smithfield Foods and Tyson also saw their stock
prices tumble in recent trading sessions.
Smithfield has been a highly leveraged company for some time and the
prospect of reducing that leverage position was one of the drivers, or
at least one of the benefits, of Smithfield's sale of its beef assets to
JBS Swift last year. The trouble is that the Department of Justice has
still not cleared that deal on anti-trust grounds, so it has not been
closed and Smithfield still does not have the cash in hand. Smithfield
released a statement earlier this week reiterating that its credit
arrangements and financing facilities were sufficient to carry it
through these difficult times. Smithfield's stock closed Thursday at
$16.57, down $1.14 for the day. It traded as high at $31.78 as recently
as May 30.
Tyson's stock has fallen from about $17/share in mid-August to $12.30,
down $0.57/share on Thursday. The stock had reached its 52-week high of
$19.50 on April 21. Its biggest problems are in the chicken business as
both pork and beef packing have realized good margins this summer.
Tyson did get a bit of good news on Thursday when Standard and Poor's
raised its bond ratings back to investment grade. Tyson's bonds had
been downgraded to junk status last month.
Market Vibes Nick Commodities, Too
The more important facet of this situation for hog producers is that the
negative vibes have spilled over to commodities. This is a “half
full” or “half empty” situation, as both costs and revenues have
been hit.
See Figures 1 and 2 for weekly nearby corn and soybean meal futures
prices. These charts, as well as the daily charts, have seen some major
technical damage this week with some long-standing support levels
penetrated.
December corn, at $4.54, is within reach of a support line at the top of
the 2006-07 trading range at $4.37 and a chart gap from last December
that extends to $4.22. I would not be surprised to see that gap
covered, given current market psychology.
December soybean meal has penetrated three separate support lines this
week and is just $16/ton away from another support line established as a
resistance level in July 2007. Should that support be penetrated, the
next objective would be former resistance at $202. I can hardly believe
I am writing these numbers.
And what has the impact been on feed costs? Figure 3 shows my feed
price index has dropped to $169 to $188/ton from now through the end of
2009, fully $100/ton lower than it was on July 1. Those feed prices
mean that breakeven costs for Q4 will be in the $73-$78/cwt., carcass
range, according to the production parameters used by Iowa State in its
Estimated Costs and Returns series. Costs for 2009 would be from $71 to
$74/cwt., carcass, if producers locked in Thursday's futures prices and
bases were at historical levels. That's a far cry from the $94 to $96
we were seeing back in July.
But the market giveth and the market taketh away. Every Chicago
Mercantile Exchange (CME) Group Lean Hogs contract except October made
new life-of-contract lows this week, with most of them $16-$18/cwt.,
carcass, below their July high. And I don't think the sell-off had
anything to do with last Friday's Hogs and Pigs Report. It is virtually
all the result of market psychology and demand concerns fueled by the
financial and credit market situations.
There is some well-founded concern about meat demand in the wake of this
much wealth destruction. Many are also concerned about international
markets, which are feeling some pain from the U.S. crisis as well. I
cannot tell you how this is going to come out, whether Congress acts or
not.
So, we do what seems prudent. With hogs nearing $20 from their contract
highs, I am tempted to take my chances with cash markets, especially for
April and beyond. If your financial position is weak, you may need to
bite the bullet and lock in losses in order to remove the possibility of
larger losses. If your position is stronger, cash market risk may be
worth taking.
Feed-Buying Opportunity
Regardless of your thoughts on hogs, I have to believe this is a feed
buying opportunity, the magnitude of which I never thought we would see
this year. Let these contracts show signs of a bottom and add to your
feed coverage. There will be no more corn made for this crop year and
there will be no more soybeans made until April in South America.
Demand may be suspect, but the Renewable Fuel Standard is still in
effect (10.5 billion gallons of ethanol next year, using at least 3.75
billion bushels of corn – and USDA says 4.1 billion bushels and
ethanol plant usage capacity next year will be more like 4.8 billion
bushels), and the U.S. treasury is still allowing blenders to deduct
$0.46/gal. from their taxes. Demand may slow, but it will not
disappear.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
Swine Health Preview
Watch Mineral Levels with High DDGS
Inclusion Rates
High corn and soybean meal prices have led many
producers to incorporate much higher levels of DDGS (distiller’s dried
grains with solubles) in grow-finish diets than we have seen previously.
The growth performance and carcass characteristics from feeding these
high DDGS inclusion rates (40-60%) have not been investigated through
private and public research, but the effects will be sorted out as we
gain more experience.
One issue that has emerged recently is the need to pay closer attention
to the calcium and phosphorus levels when adding high amounts of DDGS to
replace some of the corn, soybean meal and inorganic phosphate.
Over the past month, we have had several cases sent to our laboratory
involving pigs fed diets that were deficient in calcium. It appears that
part of the explanation has been high inclusion rates of DDGS in
grow-finish rations with subsequent reduction in dicalcium phosphate,
but inadequate increases in limestone or other sources of calcium.
Obviously, limestone is a very inexpensive component of feed, so cost
shouldn’t be the issue. At this point, it’s unclear whether the
errors were in the formulation or mixing of the diets.
A range of clinical signs have been reported in these
cases:- Lameness, including spiral fracture of femur.
- Leg weakness and posterior paresis, including lumbar vertebral
fracture.
- Pigs down and paddling.
- Sudden death.
Other clinical signs of low calcium intake from
published reports include reduced growth rate, feed intake and feed
efficiency in growing pigs, along with reduced conception and farrowing
rates in sows.
The pigs that were affected with leg weakness and paddling behavior were
interesting in that clinically they appeared to be strong candidates for
infectious neurological cases, either bacterial meningitis or viral
encephalomyelitis.
A submission in one case included live, recumbent (lying, resting) pigs.
We administered calcium gluconate to one of the pigs (as you would with
a milk fever cow) and observed an immediate recovery. Serum calcium
levels for the group were below normal limits, with recovery to a normal
level in the treated pig (Table 1).
Table 1. Serum Calcium Levels in Pigs with Clinical
Hypocalcemia
| |
Sample | |
Pig ID | | Serum Calcium (mg/dL | |
| | 1 | |
1 | | 4.8 |
| | 2 | | 2 | | 4.5 |
| | 3 | | 3 | | 5.1 |
| | 4 | | 4 | | 5.5 |
| | 5* | |
5 (pre-treatment) | |
5.4 |
| | 6* | |
5 (post treatment) | |
8.4 |
ref range 7.1 - 11.6
*Pig 5 was treated intramuscularly (IM) with 50cc 20% calcium gluconate
after Sample 5 and before Sample 6 was collected.
Bone ash levels have been low in other cases. On postmortem examination,
bone density can be assessed crudely (but fairly accurately) by removing
a rib and bending it to the point of breaking. With practice using this
technique on ribs from normal pigs, the low- density bones are evident
by the flexibility and lack of “snap” when the bone fractures.
The take home message from these cases is not that DDGS is a problem.
Rather, the lessons are:
- Pork producers and feedmills should work closely with swine
nutritionists to balance diets for all nutrients, including calcium and
phosphorus, especially if they are unfamiliar with using DDGS or other
alternative feed ingredients in swine diets. Jerry Shurson, swine
nutritionist at the University of Minnesota, offers these
recommendations:
- The total calcium-to-total phosphorus ratio in swine diets
should be 1:1 to 1.5:1.
- Ideally, swine diets should be formulated on an available phosphorus
basis to take into account the utilizable portion of phosphorus in feed
ingredients.
- When diets are formulated on an available phosphorus basis, the
total calcium-to-available phosphorus ratio should be 2:1 to 3:1.
- Consult a swine nutritionist when adding phytase to diets to ensure
that proper dietary formulation adjustments are made.
- Veterinarians should include low calcium and phosphorus as a
possible factor in cases of lameness, fractures, and even apparent
neurologic disease in growing pigs.
- Assessing bone density by manually checking the breaking
strength of ribs provides useful information on postmortem examination.
- Assessing response to treatment with exogenous calcium may help in
diagnosing hypocalcemia in clinically affected pigs.
Jerry Torrison, DVM,
University of Minnesota Veterinary Diagnostic Laboratory
torri001@umn.edu
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Legislative Preview
COOL Goes Into Effect
This week mandatory country-of-origin labeling (COOL)
went into effect, but there are a number of issues concerning the
complexity of the rule. Questions remain about the amount of product
that will be labeled as mixed-origin. The American Farm Bureau
Federation (AFBF) in a letter to USDA said, “There is now great
concern that there will not be any exclusively U.S. labeled meat because
many within the industry have said that the only label they will use is
‘Product of the U.S., Canada or Mexico.’ Farmers and ranchers are
being told by some processors that unless they check the multiple-origin
label box (to certify the origin of their animals) on their product
affidavits, they will be audited. This information is completely
discouraging to a producer, not to mention the fact that it is not a
true statement.” AFBF is also asking USDA to conduct a “nationwide
meat labeling survey” to determine how much product, which product and
where exclusively U.S.-labeled meat is being sold. Because of the
complexity of the rule, USDA is initiating a six-month period of
“informed compliance” before enforcing mandatory COOL labeling
requirements. USDA also will be conducting an industry education and
outreach program concerning COOL requirements. This means that during
the first six months enforcement and the $1,000-per-violation fines will
not be executed.
USDA Farm Bill Meetings on Swine and Poultry — USDA’s Grain
Inspection, Packers and Stockyards Administration (GIPSA) will be
holding three town hall meetings to receive public comments and
recommendations on the farm bill as it relates to the swine and poultry
industries. The meetings will focus on the use of arbitration in
poultry and livestock contracts. These meetings will be used to help
GIPSA promulgate regulations. The meetings will be held Oct. 14 in Van
Buren, AR; Oct. 16 in Ames, IA, and Oct. 22 in Gainesville, GA.
Checkoff Should Promote U.S. Beef — Senator Jon Tester (D-MT)
has introduced the “Beef Checkoff Modernization Act” which would
require that at least 30% of the money raised from the Beef Checkoff be
used to promote U.S. beef. Senator Tester said, “The slogan ought to
be ‘American beef, it’s what’s for dinner.’” The bill would
allow cattle producers to hold a referendum every seven years, sooner if
petitioned, to change the Beef Checkoff. Industry organizations not
around at the time the Beef Checkoff was enacted would be allowed to bid
for contracts to promote U.S. beef.
Congress Fixes Small Farms Issue — Congress has passed
legislation to suspend for the 2008 crop year a farm bill provision that
required producers to have a minimum of 10 base acres to receive program
benefits. This legislation was needed, according to the House and
Senate Agriculture Committees, to reverse USDA’s decision to not allow
producers to aggregate small base acreage. Congress Bob Etheridge
(D-NC), chairman of the House Agriculture Subcommittee on Commodities
and Risk, said, “This is good news for thousands of farmers who rent
or lease smaller tracts of land for their farms. It allows farmers to
continue to receive payments for the work they do on small farms and
ensures that our rural economy stays strong.” The bill now goes to
President Bush for his consideration.
Bailout Debate Continues — This week has been a roller coaster
ride for the “bailout” bill with the House of Representatives
defying both Republican and Democratic leaders by voting the bill down
and then the Senate passing the bill by an overwhelming bipartisan vote.
The Senate bill was heavily revised to attract wider support. The
Senate bill extends a number of tax breaks for families and businesses
that either expired last year or expire Dec. 31, 2008. It increases the
limit on federal insurance for bank deposits from $100,000 to $250,000.
The business community sent a letter to Congress stating their
“profound disappointment” in the House vote rejecting the bill and
urging Congress to enact legislation to bring stability to credit
markets. The letter said, “If Congress fails to act and credit
markets tighten further, our associations’ members will find it more
difficult – if not impossible – to secure credit to run their
companies, and our members’ employees will find it harder to get
mortgages, secure auto loans and borrow money to send their children to
college.” The associations signing the letter included the American
Meat Institute, Food Marketing Institute, Independent Community Bankers
of America, International Dairy Foods Association and National
Restaurant Association.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
Pork Industry Calendar
Oct. 8, 2008: Kansas State University
(KSU) Agricultural Lenders Conference, International Grains Program
Conference Center on the KSU Campus at Manhattan; contact: Rich
Llewlyn, KSU Department of Agricultural Economics at rvl@ksu.edu or 785-532-1504 or at http://www.agmanager.info.
Oct. 23-29, 2008: U.S. Animal Health Association Annual
Meeting, Sheraton Greensboro Hotel, Greensboro, NC; contact: usaha@usaha.org or www.usaha.org.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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