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Dale Miller, Editor,
National Hog Farmer
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Market Preview
Demand-Driven Rally Tied to
Exports
The hog price rally that I wrote about two weeks ago has
now carried U.S. farm-level hog prices to near-record highs (see Figure
1). This week will almost surely best last week’s $82.04 national
negotiated net price for the high for 2008. Thursday’s price was
$84.04. The only prices between these and a clear-cut all-time record
are those of the summer of 1990 when live prices reached a level just
over $89 on a carcass weight basis.
At a meeting this week, a woman asked a very good question – one you
will likely hear fairly often if these prices remain high. She asked:
“How can we argue that higher corn prices due to ethanol are causing
these higher hog prices?” The answer is: “We can’t.” And, I
would add: “We shouldn’t even try!”
I firmly believe that we are headed for higher hog and pork prices in
2009 and beyond because our costs will be higher. Part of that increase
is feed costs, but some of it is also higher costs for buildings and
capital costs. The latter of those is not due to interest rates, but
rather due to the dramatically higher amount of capital that will be
required to raise pigs.
Ethanol is primarily responsible for the higher feed costs we see today
and will continue to see in the future. Prices must rise to cover those
costs. They simply have to.
But this price rally is not being driven by costs. Cost-driven price
rallies are caused by lower production. Slaughter is still running 6%
higher than last year with year-to-date slaughter still 10% higher than
in 2007 (Figure 2).
This rally is being driven by demand, pure and simple. Further, it is
being driven by export demand. University of Missouri professor Glenn
Grimes’ index of domestic consumer-level demand was down again in
June, falling to -2.3% from the 2007 level. (You might recall that
May’s index was down 1.9%). This only leaves exports and by-products
as possible sources of strength for live hog demand; by-product values
are highly dependent on export trade.
We will get a more quantified read on this situation when June export
data and July retail price data are released on Aug. 13 and 14,
respectively. But I think wholesale pork prices clearly tell the story.
Notice in Figure 3 that prices for the more “American” wholesale
cuts (loins, butts, spareribs and bellies) have moved sideways or
downward since hitting their seasonal peaks in mid-May.
On the other hand, the more “export-oriented” cuts, at least for
this time of year, have kept rising steadily since that time. In fact,
prices of these export cuts began a steady climb at the beginning of
this year and the climb shows little sign of slowing. I do not recall
ever seeing the prices of all of the major wholesale pork cuts falling
within this tight of a price range. One of the benefits of trade is the
ability to sell less-preferred cuts in markets that value them more.
The beauty of the deal is that, in doing so, we offer consumers in those
markets something they want and need. If not, they would not be buying.
RFS Waiver Request Nixed
Those are the good news items for this week and they are indeed good.
The bad news item is yesterday’s announcement by the Environmental
Protection Agency (EPA) that it has denied Texas Governor Rick Parry’s
petition for a partial waiver of the renewable fuel standard (RFS)
mandate for biofuels. In making the announcement, EPA Administrator
Stephen Johnson said that the evidence did not support the claim that
the RFS would cause “severe harm” to the economy or the environment.
He did point out that EPA concluded that biofuels had been a cause of
higher corn prices, but he also concluded that the RFS mandate,
specifically, had not been a factor in those higher prices.
Technically, he is correct. The RFS has not actually caused fuel
blenders to use more ethanol than they would otherwise have used. In
economic-speak, “the constraint has not been binding.” Ethanol
output has stayed ahead of the mandated level – sort of. This
year’s production may actually be just short of the mandated
9-billion-gallon level, but blenders can apparently use credits (called
RINs) they have received for above-mandate blending in past years to
satisfy the shortfall this year. We may hear more about these RINs in
the future.
Regardless, the RFS has contributed to the growth of the ethanol
industry and, therefore, higher corn prices by guaranteeing a
government-enforced growing market for ethanol. The RFS says that
blenders will be required to use (translated: BUY) 10.5 billion gallons
of ethanol in 2009, 12 billion in 2010, and then 0.6 billion gallons
more each year until 2015, when the requirement levels out at 15 billion
gallons.
What would pork producers and packers do if the government said that
retailers and restaurants would be required by law to use 5% more pork
each year for the next six years? Do you think that might spur a
building boom for hog farms and processing plants? A guaranteed growing
market is the stuff of business managers’ dreams. But government fiat
does not necessarily make good economic sense. Let’s hope those
dreams do not turn to nightmares.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
New to the Team. Veteran of the Game.
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injection dose.
Click on the Baytril 100 logo for more information.
Production Preview
Year-End Summary
Reveals Productivity Differences
The 2007 PigCHAMP year-end summary of benchmarking data
can be segmented in various ways, but a common comparison is between the
United States and Canada. Click below to view graphs.
As in previous years, Canada has many areas of higher productivity. The
most probable reason is higher financial pressures have forced Canadian
producers to be more efficient.
Secondly, a larger proportion of Canadian herds sell weaned pigs, with
their income directly tied to sow productivity.
Finally, there may be lower likelihood of infectious disease outbreaks,
particularly in Western Canada, where the distance between farms is
quite large.
We continue to see some general trends across the industry as well. Sow
productivity continues to increase, particularly through litter size.
Mortality rates have reached a prior plateau, though the last quarter
rates of Canadian herds are significantly higher, suggesting that
slaughter alternatives may be limited.
Wide Range of Performance
The problem really is not where you live, however. The summary indices
of most interest are the range of performance estimates. Whether in
Canada or the United States, there is a wide range of performance that
is not explained by location. Moreover, the capability to reach high
levels of productivity appears to be similar across both industries.
Recognizing that the capabilities to excel are similar and the design of
sow units does not vary greatly, it is mostly a function of the
management on the farms. It may be useful to start looking at
availability of skilled labor for estrous detection and breeding, the
frequency of inspection and treatment of sick sows, and the general
effects of genotype and housing methods.
As we look at future changes in the industry, it is probable that
poor-performing herds will not survive in any market. It may very well
be that the higher financial pressures on Canadian herds will create an
even greater difference in performance in the future. However, all farms
should recognize their opportunities to improve within the ranges shown
by the 2007 PigCHAMP database.
Click to view graphs.
John Deen, DVM, PhD
deenx003@umn.edu
Introducing the new PIC Camborough® Family
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You asked for more pounds of pork marketed per sow. You asked for a
higher percentage of market pigs in the full-value pay box.
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what you see--after all, it is just what you asked for.
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Legislative Preview
ADUFA Passes Congress
Before leaving town for the August recess, the Senate
joined the House of Representatives in passing H.R. 6432, the Animal
Drug User Fee Act (ADUFA) and the Animal Generic Drug User Fee Act
(AGDUFA). This legislation allows the Food and Drug Administration
(FDA) to collect fees from the animal health industry for the review and
approval of animal health products. Under this legislation, animal
health companies will be required to report to FDA certain data related
to the distribution and export of animal health products. Individual
company information will be kept confidential. Some members had
proposed restricting the use of antibiotics for animals, but were not
successful. The legislation now goes to President George W. Bush for
his signature.
RFS Waiver Request Denied — Environmental Protection Agency
(EPA) Administrator Stephen Johnson announced that the request by Texas
Governor Rick Perry for a waiver of 50% of the Renewable Fuel Standard
(RFS) in 2008 was denied. Johnson said, “After reviewing the facts,
it was clear this request did not meet the criteria of the law. The RFS
remains an important tool in our ongoing efforts to reduce America’s
greenhouse gas emissions and lessen our dependence on foreign oil, in
aggressive, yet practical, ways.” EPA recognized that high commodity
prices were having economic impacts, but its’ extensive analysis of
Texas’ request found “no compelling evidence that the RFS mandate is
causing severe economic harm during the time period specified by
Texas.” With this decision, the RFS mandate will remain at 9 billion
gallons in 2008 and 11.1 billion gallons in 2009.
Imported Ethanol Parity Act — Senator Dianne Feinstein (D-CA)
has introduced S. 3080, the “Imported Ethanol Parity Act.” The
purpose of the legislation is to provide parity between the tariff on
imported ethanol and the blender’s tax credit. The 2008 farm bill
renewed the import tariff (54¢/gallon) for two years and lowered the
blender’s tax credit to 45¢/gallon. In a letter of support to
Senator Feinstein, a number of agricultural groups said, “Your measure
paves the way to introduce ethanol produced from highly productive,
non-feed grain inputs, thereby easing domestic feed and food price
inflation concerns.” The groups also said, “By reducing or
eliminating the tax on imported ethanol, this legislation could ease the
economic strain that is heavily impacting the agriculture, food and
beverage industries. At a time when animal agriculture is facing
pressures on many fronts, this slight modification could produce
positive relief on record corn prices.” Those signing the letter
included the American Meat Institute, International Dairy Foods
Association, National Cattlemen’s Beef Association, National Chicken
Council, National Meat Association, National Milk Producers Association,
National Pork Producers Council, National Turkey Federation and United
Egg Producers.
E-Verify Passes House — The House of Representatives has
passed legislation to reauthorize the E-Verify program. This voluntary
program, also known as Basic Pilot Program, allows employers to verify
I-9 data to check the employment eligibility of workers. The Senate is
expected to consider the legislation in September. This program expires
this year and is very important to the meat packing industry.
Congress Gone until September — Congress is now in recess
until Sept. 8. When Congress returns, a number of issues will be on the
table for consideration, including fiscal year 2009 appropriations,
Department of Defense reauthorization, energy, stimulus package and tax
extenders. Congress is expected to recess the end of September for the
fall elections.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
Swine Disease Control Made Easy. Introducing Ingelvac MycoFLEX®.
Call Boehringer Ingelheim at 1-800-325-9167
Pork Industry Calendar
August 13 to 15, 2008: Brazilian Pork: Southern Brazil
Pork Industry Symposium will present technological advances in
reproduction, handling, nutrition and sanitation.
The first technical event in the sector will be held from August 13 to
15, 2008, in Chapecó (SC), a city with the largest number of federally
inspected slaughterhouses in Brazil.
For further information see www.nucleovet.com.br
More information:
Eliana Panty Schwarz
panty@pantyassessoria.com.br
Aug.14, 2008: George Young Swine Health & Management Conference,
Marina Inn, South Sioux City, NE; contact: Sharon Clowser, University of
Nebraska, at (402) 472-8550 or sclowser2@unl.edu.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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