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Market Preview
Corn Crop Poised to
Be Second Largest
Tuesday’s Crop Production and World Agricultural
Supply and Demand Estimates (WASDE) reports from the U.S. Department of
Agriculture (USDA) were welcome news for grain users. USDA increased
its estimates of both harvested acres and yields to levels that, should
they be realized, would result in the second-largest corn crop on
record. Data from both of the USDA reports appear in Figure 1.
USDA increased estimated harvested acres from 78.9 million to 79.3
million after “resurveying” many areas in the aftermath of June’s
flooding across the Corn Belt. Recall that the survey for the June 30
Acreage Report was conducted in the midst of those floods, and the
survey’s timing led USDA to revisit those producers in order to
ascertain the impact. USDA also raised its estimate of harvested
soybean acres from 72.1 to 73.3 million.
The larger factor, though, for the higher projected corn crop is an
estimated yield of 155 bushels, up from 148.4 bushels in the July report
and above the long-term trend yield of 153.2. That yield would be the
second-highest ever and reflects crop conditions that have steadily
improved during July.
The combination of higher harvest acres and yield now pegs the 2008 corn
crop at 12.288 billion bushels – 6% lower than last year’s record.
Even with increases in forecasted ethanol and feed/residual usage (by
150 million and 100 million bushels, respectively), this estimated crop
would increase 2009 carryout stocks to 1.133 billion bushels or just
over 8% of total use. When combined with the mid-point of USDA’s
forecast price range ($4.90 to $5.90/bu.), this stocks-to-use ratio
indicates that USDA is working off the same corn demand curve they used
in June – but a significantly higher one than was used for forecasts
for the 2007 crop (see Figure 2).
Unease Remains over Corn Crop Maturity
Higher acres and higher yields mean more supply and lower prices, right?
That’s what economic theory says, but the action of futures prices
since Tuesday tells us something else is at work here. December corn
futures have gained $0.56/bu. (over 10%) since Monday’s close. Why?
Technical buying is one explanation, but another is widespread unease
with that yield forecast relative to the maturity level of this crop.
Only 17% of the acres were shown in the dough stage as of last Sunday
compared to a five-year average of 32%. Immature crops, even if they
look good, have proven to frequently produce a final yield that is lower
than USDA’s August estimate. I think this week’s corn trade
confirms those fears.
Pork Exports Stupendous
The good news this week was something that virtually everyone already
knew – pork exports have been stupendous! June pork exports were 111%
larger than one year ago, and brought year-to-date (YTD) total pork
exports to just over 1.8 billion pounds, 67% larger than last year (See
Figure 3).
The star market was once again China/Hong Kong with June shipments there
totaling just over 96 million pounds, product weight, 552% larger than
last year. June’s shipments put YTD pork trade with China at 427
million pounds, 483% larger than in 2007. Japan was the second-largest
market again in June but remains our largest market, YTD, at 469 million
pounds, 18% larger than last year.
U.S. exports to other markets have also performed well this year.
Year-to-date shipments to Russia are up 138%, while trade with Mexico
and Canada has grown by 29% and 25%, respectively.
The value of U.S pork exports through June has grown by 57%. China/Hong
Kong also leads in this category with shipments there growing by 681%
this year. The value of shipments to Russia has grown by 157% so far in
2008. Note that Russia’s percentage growth for value is larger than
its volume percentage growth, indicating that this historically
hyper-price-sensitive market is demonstrating a willingness and ability
to pay more for pork products.
Pork Variety Meat Sales Also Rise
Year-to-date pork variety meat exports finished June at 69.1% higher in
volume and 72.8% higher in value (see Figure 4). This growth has been a
major driver of record by-product values, which have contributed roughly
$25/head to hog values in recent weeks.
China/Hong Kong is also the leading growth market for U.S. variety meats
and has, as of June, surpassed Mexico as the largest customer for pork
variety meats. Mexico maintains a slim lead as the highest-value market
for variety meats. Variety meat exports to Japan, South Korea and
Russia have grown substantially this year as well, increasing by 198%,
162% and 135%, respectively.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Production Preview
Monitoring Sows
Bred by Seven Days
As we review various production indices, it has become
evident that there are two main methods of summarizing them. The first
is a classical method – providing an average. The second is what we
call a “proportion” or “management by specification.”
For example, in the case of measuring wean-to-service interval, PigCHAMP
provides two alternatives – the average interval or the proportion of
sows bred by seven days. Many producers analyze both. They recognize the
utility of the latter, but there is a place to consider the use of
proportions in more detail and in more applications.
Less Emphasis on Averages
The use of proportions can be considered part of management by
specifications. For management purposes, I believe we should stop
monitoring averages and instead monitor specifications.
The question at each stage of production, whether it is reproductive
performance or transfer of pigs from farrowing room to the nursery, is
not a measure of the average performance, but rather the proportion of
pigs that meet the specifications for ease of production. In other
words, what proportions of sows with poor performance are acceptable?
Management by specifications, rather than by averages, is driven by a
number of factors:
- Distributions of performance are often not bell-shaped
distributions. This is especially true for wean-to-service interval.
Averages can be driven by a small population of sows that are at extreme
distances from the mean. In the case of this variable, they always
exist on one side of the main and therefore, create what we call a
skewed distribution.
- Measurement that focuses on good and bad sows also is relatively
easy. Classification of sows may allow us to focus on the correct
population. Not only is the proportion a useful number, but the
classification of sows that exceed the specification can allow us to
identify the correct animals to manage.
- It's a good business practice. Production that is out of
specification is simply a bad business practice. Such production has
extraordinary costs that need to be identified in more detail. In the
case of sows coming into estrus beyond seven days, there can be costs in
management of the breeding space and extra costs of continued
monitoring. There can also be a fatigue in that monitoring so that the
likelihood of estrous detection goes down.
An Industrial Model
Most industrial monitoring systems focus on specifications. Performance
is viewed in terms of value, and out-of-specification product is viewed
as being detrimental to the production flow and the time required for
management of the sow. Quality manufacturing guidelines always focus on
meeting specifications derived by the next stage of production.
Figure 1 shows the cumulative sum of weeks with the proportion of sows
bred by seven days. This figure exemplifies a great deal of opportunity
for improvement, and also emphasizes that until this variable is under
control, producers must make specific plans for its management.
Saying that, it should be emphasized that this is not a perfect
variable. The main problem is actually in the denominator. In other
words, which sows are included in this analysis? If a sow is culled
because of a lack of estrus, it is not included in this analysis.
Moreover, the pressures upon the burden may result in variation from
week to week and season to season, and the decision to retain sows for
breeding may also vary.
Nonetheless, consider this as an important management variable in
improving the success and manageability of the sow herd. Through such
management by specifications, producers will see real changes.
Click to view graph.
Sukumarannair S. Anil, DVM, and John Deen, DVM
sukum001@umn.edu or deenx003@umn.edu
Editor’s Note: John Deen, DVM, PhD, is an associate professor at
the University of Minnesota, and Sukumaran Anil, DVM, PhD, is a research
asssociate at the University of Minnesota. For more information on
benchmarking, go to www.farms.com.
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Legislative Preview
Good News in the Crop
Report
USDA released its much-anticipated Crop Report that
indicated that the United States could have the second-largest corn crop
in history. USDA projects that this year’s corn crop will reach 12.3
billion bushels with yields at 155 bu./acre. Corn growers are expected
to harvest 79.3 million acres, which is down 8% compared to last year.
Soybean production is expected to reach 2.97 billion bushels, up 15%
over last year. USDA forecasts soybean yields to average 40.5 bu./acre,
which is down 0.7 bushels from 2007. This would be the fourth-largest
soybean crop in history.
National Milk Says Close Canadian Border — The National Milk
Producers Federation (NMPF) has asked USDA to consider closing the
Canadian border to animals to be used for breeding purposes. In a
letter to Secretary of Agriculture Ed Schafer, NMPF said, “The BSE
(bovine spongiform encephalopathy or mad cow disease) situation in
Canada is such that an animal could be imported into the United States
and, if allowed to reside amongst the U.S. dairy herd, introduce or
disseminate BSE. This is evident by the number of cases of BSE from
animals born after the USDA's determined date of effective enforcement
of their feed ban. We request that USDA close the Canadian border to
the importation of cattle for breeding or herd replacement purposes
until such time that USDA can sufficiently ensure the health of imported
cattle and your ability to track these cattle.” Earlier this year,
USDA’s Office of Inspector General faulted USDA’s ability to track
imported Canadian cattle and ensure the health of cattle imported from
Canada.
Record Farm Production Expenditures — According to USDA, the
rising cost of fuel and other products helped drive U.S. farm production
expenditures to a record $260 billion in 2007. Total U.S. farm
production expenditures rose 9.3% from 2006 and nearly 30% from five
years ago. USDA’s report indicates that the average production
expenditures per farm increased 10% from $114,186 in 2006 to $125,648 in
2007. On average, U.S. farm expenditures for fertilizer, lime and soil
jumped 26%; feed costs increased 22%; fuel costs rose 15% and,
agricultural chemicals climbed 12%.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
Pork Industry Calendar
Aug. 20, 2008: Hog Margin Maker Risk
Management Workshop, Buchanan County Extension Office at Independence,
IA; contact: (319) 334-7161.
Aug. 22, 2008: Hog Margin Maker Risk Management
Workshop, Sioux County Extension Office at Orange City, IA; contact:
(712) 737-2014.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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