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Dale Miller, Editor,
National Hog Farmer
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Market Preview
USDA Adjusts
Corn Usage Forecast
USDA made some significant changes in its forecasted
“usage” numbers for corn in this week’s monthly World Agricultural
Supply and Demand Estimates. The adjustments reflect the significant
changes that have occurred in oil and ethanol prices over the past two
months as the world economy has slowed.
If there is one lesson from this, it is that the old admonition
popularized by Milton Friedman that “there is no such thing as a free
lunch” applies to all things – even those that are “can’t
miss” opportunities on the wave of the future! Ethanol comes to mind.
Table 1 shows the changes in the USDA numbers, including:
-
A reduction in projected corn usage for ethanol from 4 billion bushels
to 3.7 billion bushels. Don’t expect any further reductions as we
move forward, since this is about the minimum given the 2009 renewable
fuel standard (RFS) requirement of 10.5 billion gallons of ethanol. The
3.7 billion is, in fact, a bit low for next year’s requirement, but is
easily justified by the mismatch between the crop year USDA is using and
the calendar year to which the RFS applies. The projected 2008-09 usage
is still 22% larger than this past year.
- A reduction of projected exports by 100 million bushels to 1.8
billion. A major driver of this reduction is undoubtedly the slow
progress of exports thus far this crop year and the increase in the
value of the U.S. dollar. In addition, USDA expects stiff competition
from feed wheat from the European Union (EU) and former Soviet Union
(FSU) countries. South American corn exports are expected to fall and
China is forecast to export only 20 million bushels this year.
- A significant (31%) increase in projected 2009 carryout – to 1.431
billion bushels. That number is beyond the range of any of the
pre-report estimates and pushed the forecast year-end stocks-to-usage
ratio from 9% to 12.1%, nearly as large as this year’s 12.7%. This
increase in stocks led Robert Wisner at Iowa State University to
conclude that supplies would be “fully adequate to accommodate demand
through late summer.” It also led USDA to reduce its forecasted
season-average farm price range by about 40¢/bushel. The midpoint is
now $4.
- Some rearranging of soybean usage but no change to projected 2009
year-end carryout stocks, which remain equal to this year’s 205
million bushels. USDA did lower its forecast prices for beans, oil and
meal with the mid-point on meal now at $270/ton, down from $285/ton last
month. That price is still higher than all of the Chicago Mercantile
Exchange (CME) Group soybean meal futures contracts for the coming crop
year as of Friday at noon.
So, no change in soybean usage or stocks and a significant reduction in
corn usage and concurrent increase in corn carryout. Soybeans should be
neutral to up and corn down, right? Wrong, at least partially!
Soybeans have indeed rallied with March up about $0.30/bu. March
soybean meal is higher by nearly $9/ton. March corn futures, instead of
falling on the lower usage numbers, are $0.30/bu. higher than
Wednesday’s close as of Friday noon.
Have Grain Markets Bottomed Out?
It still appears to me that the grain markets are trying to make a
bottom. The markets’ reaction to the USDA numbers is in line with
that and there is still one significant supply risk remaining – 11% of
the corn acres are still unharvested. Wisner estimates that would
account for 1.32 billion bushels. The longer this delay lasts, the
higher the percentage of corn will be lost in the field and the lower
USDA’s January estimate will be, suggesting higher prices in the
months to come.
The opposing point of view will argue that cash corn is higher than it
should be at present because cash corn sellers are holding their crop
expecting higher prices and trying to avoid taxes on 2008 income. No
doubt, that is true. Price movements in early January will be the
telling sign on how big this factor really is.
Brace Yourself
Livestock producers should get ready to be painted as the “bad guys”
next year when meat prices rise. Retail beef and pork prices are
already record high and, while both may decline some this winter, they
will very likely set new records in 2009. Chicken prices are heading up
as well as the broiler industry copes with huge losses. The World
Agricultural Supply and Demand Estimates (WASDE) indicates that output
levels for each of the four major protein sources will fall next year
from this year’s levels – the first time that has happened since
1973.
Corn and ethanol groups have correctly claimed this past year that they
should not be blamed for higher food prices. Neither corn nor soybeans
directly account for much of the actual food we eat. Bread prices were
driven by two short world wheat crops and dairy prices were generally
driven by export demand.
But higher corn (and closely related higher soybean prices) in 2007-2008
will indeed be the key drivers of higher meat prices in 2009 and beyond.
I fully expect to hear this from many ethanol apologists: “It’s not
our fault that meat prices are higher – see how much lower corn prices
are this year!”
I hope no one buys that line because it is not true and the biggest
reason we are seeing any respite from higher grain prices is, of course,
lower oil and gasoline prices. But feed costs are still about twice
their historic levels and meat and poultry producers will have to keep
output levels lower to realize profitable prices.
For the record again: I have no problem with making corn into ethanol,
but I don’t think we should subsidize or require it, especially if
corn supplies are tight and prices are high. A “counter-cyclical”
ethanol subsidy designed to put a floor under corn prices, but not add
to them when corn is scarce, seems to me to be a good idea. Let’s get
to work on it.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
Production Preview
Better Handling,
Better Pork
Any number of factors can impact behavioral and
physiological responses of the pig during handling and transport. These
include genetics, slaughter weight, environmental conditions
(temperature, humidity), health status, marketing strategy, time off
feed, pre-transport experiences, facility design, handling method, among
others.
Even the best handling and transportation conditions will cause
significant changes in the pigs’ physiology, and can have a negative
impact on pig performance and the quality of the pork delivered to the
consumer.
U.S. pork industry statistics report an average dead-on-arrival (DOA) at
processing plants of 0.23% of pigs marketed in 2004. However, the actual
losses vary significantly by producer, ranging from less than 0.10% to
over 2%. In addition, for each head marketed, problems with meat color
have been estimated to cost $0.43/carcass, for bruising, $0.08, and for
pale, soft and exudative (PSE) meat, $0.90. The total lost opportunity
averages $2.44/market hog/year. Still, these direct financial costs
represent only a small fraction of the true cost of marketing and pig
transportation stress.
Fatigued and dead pigs disrupt the standard animal flow, thereby
reducing processing plant and transportation efficiencies. Therefore,
many processors charge the cost of a DOA animal, as well as the cost for
an animal received in a compromised state, back to the producer,
regardless of whether the animal is processed for consumption or
rendered as a byproduct. Many also charge a handling fee to offset the
extra labor costs and liability associated with handling a compromised
animal.
These costs and losses in efficiencies, although significant, are
secondary to the ethical obligations and moral responsibilities we have
to the animals under our care and to the consumers trusting the pork
industry to produce, transport and process animals in a humane and
compassionate manner.
To provide a safe and efficient system to market pigs, producers need a
thorough understanding of their composition and physical attributes,
since the way a pig behaves is dictated by the cues received from its
environment, utilizing its basic sensory capabilities.
The goal of successful animal movement is making the target location or
the route to it, more attractive than the starting location. Pigs are
motivated by many factors including natural curiosity, pig odors, pig
sounds, food and fear. Good animal handlers who understand animal
behavior, the production system and their impact on pork quality can
minimize the impact of poor design. The best facility design can be
rendered inadequate by poor animal handling.
Production, transportation and processing facilities must be designed
based on the behavioral and physiological attributes of the pig. The
goal of any handling and loading system should be to provide a
continuous unidirectional flow of pigs from the pen to the trailer and
from the trailer into the plant, with minimal stress on the animal. Due
to the inherent variation in production facilities, management styles,
transportation systems and processor requirements, there will never be a
single ideal marketing system design or handling procedure.
To maintain a high level of success requires constant vigilance and
evaluation of the system to identify areas for improvement. This
requires a collaborative effort of the producer, the transport company
and processing facility. At a minimum, the factors that should be
continuously monitored are average live weight, load time (on a per pig
basis), death loss (in transit and at the plant), non-ambulatory pigs
and an identified reason (lame, fatigued, etc.).
Additional information including loading personnel, driver, trailer
identification, prod usage, slips/falls percentage and chute integrity
can be useful for continually improving the loading system. For
additional information about loading and transporting pigs, see the
Transport Quality Assurance program on the Pork Checkoff Web site, www.pork.org.
Editor’s Note: The information for this column was condensed from a
paper presented by Jeff Hill at the 2008 Banff Pork Seminar, entitled,
“Better Handling, Better Pork.” Hill is a Provincial Livestock
Welfare Specialist for Alberta Agriculture and Food, Red Deer, Alberta.
Legislative Preview
Obama’s
Agricultural Priorities
President-elect Barack Obama’s website, www.change.gov, gives an
indication of what some of the agricultural priorities will be for the
new administration. The items listed are targeted to “help family
famers and rural small businesses find profitability in the marketplace
and success in the global economy.” Activities will focus on:
-
A Strong Safety Net for Family Farmers: Fight for farm programs
that provide family farmers with stability and predictability. Implement
a $250,000 payment limitation so we help family farmers – not large
corporate agribusiness. Close the loopholes that allow megafarms to get
around payment limits.
- Preventing Anticompetitive Behavior Against Family Farms:
Pass a packer ban. When meatpackers own livestock, they can manipulate
prices and discriminate against independent farmers. Strengthen
anti-monopoly laws and strengthen producer protections to ensure
independent farmers have fair access to markets, control over their
production decisions and transparency in prices.
- Regulating CAFOs: Strictly regulate pollution from large
factory livestock farms, with fines for those who violate tough
standards. Support meaningful local control.
- Establishing Country-of-Origin-Labeling: Implement
Country-of-origin labeling so that American producers can distinguish
their products from imported products.
- Encouraging Organic and Local Agriculture: Help organic
farmers afford to certify their crops. Reform crop insurance to not
penalize organic farmers. Promote regional food systems.
- Encouraging Young People to Become Farmers: Establish a new
program to identify and train the next generation of farmers. Provide
tax incentives to make it easier for new farmers to afford their first
farm.
- Partnering with Landowners to Conserve Private Lands:
Increase incentives for farmers and private landowners to conduct
sustainable agriculture and protect wetlands, grasslands and forests.
The website also discusses the need to improve health care and education
in rural America and the importance of upgrading rural infrastructure.
Senators Raise Concerns Regarding WTO Negotiations — Senators
Tom Harkin (D-IA), chairman of the Senate Agriculture Committee, and
Saxby Chambliss (R-GA), ranking member of the committee, were joined by
20 senators in writing President George W. Bush to express their serious
concerns about the direction of the WTO agricultural trade negotiations.
The senators indicated they continue to support a successful completion
of the Doha round, but only if it achieves substantial improvements in
market access, reduction and eventual phasing out of export subsidies,
and substantial reductions in trade-distorting domestic support. The
senators said the latest proposed agricultural modalities language would
“severely limit promised access to foreign markets for key U.S.
products.” The letter points out that unless the agreement benefits
U.S. agriculture, the senators will not support the agreement.
Credit Derivatives in the U.S. Economy — The House Agriculture
Committee is continuing its series of hearings examining the role of
credit derivatives in the U.S. economy. The latest hearing examined
recent events in the credit default swaps market, the possible
establishment of over-the-counter clearing of such contracts and the
role of existing regulatory agencies in overseeing the central clearing
of swap trades.
New House Agricultural Committee Ranking Member — Congressman
Frank Lucas (R-OK) has been selected as the new ranking member of the
House Agriculture Committee. Lucas said farm bill implementation and
controversies surrounding the Commodity Futures Trading Corporation will
be his initial priorities.
Johnson Steps Down at USDA Food Safety — Beth Johnson, acting
USDA under secretary for food safety resigned, effective Dec. 5, to
become executive vice president of public affairs for the National
Restaurant Association.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
New to the Team. Veteran of the Game.
Fast-acting Baytril® 100 (enrofloxacin) is approved for treatment
and control of swine respiratory disease. When a proven winner joins an
already great team, the results are phenomenal. So Bayer Animal Health
is proud to offer Baytril 100 for treatment and control of swine
respiratory disease (SRD) in all phases of production. For use by or on
the order of a licensed veterinarian. Swine intended for human
consumption must not be slaughtered within 5 days of receiving a single
injection dose.
Click on the Baytril 100 logo for more information.
Pork Industry Calendar
Jan. 20-23, 2009: Banff Pork Seminar,
The Banff
Centre, Banff, Alberta, Canada; contact: Conference Coordinator Ruth
Ball by phone, 780-492-3651; fax, 780-492-5771; e-mail, ruth.ball@ualberta.com or visit
www.banffpork.ca.
Jan. 21-22, 2009: Minnesota Pork Congress,
Minneapolis Convention Center, Minneapolis, MN; contact: Minnesota Pork
Producers Association by phone, 507-345-8814 or fax, 507-345-8681 or
e-mail, mnpork@mnpork.com.
Introducing the new PIC Camborough® Family
You asked for greater lifetime reproductive performance and longevity.
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.
Take another look at our new Camborough family, we think you will like
what you see--after all, it is just what you asked for.
www.pic.com/usa
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