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Dale Miller, Editor,
National Hog Farmer
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Market Preview
Chicken
Integrator Struggles to Survive
Pilgrim’s Pride’s Monday filing for protection from
creditors under Chapter 11 of the bankruptcy code came as no real
surprise. The company had lost huge sums of money each of the past two
years as it struggled beneath the load of debt it took on when it bought
Goldkist in 2006. Add in high-priced feed and breast meat prices near
their lowest ever and the situation finally became untenable.
Pilgrim’s stock had reached penny status several weeks ago, and two
extensions of debt on facilities did not provide enough time for the
company to make any substantial progress.
This in no way means Pilgrim’s will disappear or that its chickens,
which represent 24% of the U.S. market, will disappear. The company
will sell some assets, close some operations, downsize others, etc. as
it devises a plan to continue in a smaller, leaner form. Its equity
holders have lost virtually all of their investment, and now the
creditors will line up to list what is owed, and get a place at the
table for new financing arrangements. But the company will go on.
The cutbacks, however, will be important. It is not clear how much of
the recent reductions in egg sets and chick placements have occurred at
Pilgrim’s operations. Industry sources tell me they comprised a good
portion of the reductions but not near all of them. Other chicken
companies have reduced sets and placements, too, and those cuts are
beginning to show up in higher chicken prices (see Figure 1). The
problem remains leg quarters, which were down 19% last week, and are
still over 40% lower than one year ago. These price reductions are
caused primarily by a slowdown in exports.
Chicken Downturn Will Boost Pork Prices
Any reduction in chicken output will be supportive of pork and hog
prices – but you couldn’t have guessed it by looking at Lean Hogs
futures the past two days. As of Tuesday, I was ready to declare that a
major reversal had occurred in Lean Hogs futures, since prices moved
above the 50-day average late last week and then the 10-day average
crossed the 50-day average. See the April Lean Hogs chart in Figure 2.
The charts for the rest of 2009 looked much like the April chart.
The sell-off of Wednesday and Thursday has to call this “reversal”
into serious question, though, and futures prices dropped back below
what I expect in cash markets next year. I still do not think it is
time to sell hogs for next year as November and December are hardly ever
advisable times for forward pricing. But I would feel better about that
if the market would indicate that it is indeed turning.
Plotting Profits in 2009
USDA’s December hog inventory survey went out on Monday amidst much
more encouraging futures price relationships for U.S. hog producers.
My computations using Tuesday’s future prices showed that producers
with production parameters similar to those used by Iowa State
University in its Estimated Costs and Returns series could have locked
in profits averaging $13/head for 2009, assuming historical Iowa basis
relationships held for hogs, corn and soybean meal. That figure has
fallen a bit since Tuesday, due to the drop in Lean Hogs futures, but
concurrent reductions in both corn and soybean meal have offset part of
the hog revenue decline.
Sow Slaughter
Regardless of the precise number, the fact that it is positive and
reasonably large suggests the incentives to reduce sow numbers may be
gone. And weekly sow slaughter (Figure 3) reflects that conclusion.
The slaughter of U.S. sows had run far above year-ago levels for much of
this year. In fact, slaughter of U.S. sows had been below year-earlier
levels for only three weeks in 2008 prior to Oct. 25. Three of the past
four weeks have seen a year-over-year shortfall of the slaughter of U.S.
sows.
Slaughter of Canadian sows in U.S. plants had been lower than one year
ago for all of the summer months, due primarily to Canada’s sow buyout
program. The number of Canadian sows in U.S. plants has moved closer
to year-ago levels since the program has ended.
It is unlikely that the U.S. herd can go from -2.6%, year-over-year, on
Sept. 1 to anything positive by Dec. 1. But a number closer to zero is
clearly a possibility, especially given the profit prospects for next
year.
The Canadian herd is another question. Going from -8.6%,
year-over-year, on Oct. 1 to any number near zero, will take awhile.
While economic conditions have improved north of the border (see the hog
price percentage changes in the data table!), there has still been some
substantial sow liquidation this fall as Canadian producers deal with
the uncertainty of the mandatory country-of-origin labeling’s impact
on their customers and their operations.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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.
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
Swine Health Preview
Respiratory Agents
Vary in Seasonality
Respiratory disease in pigs is fairly seasonal.
Commodity prices have been quite volatile. Those two statements are hard
to beat for pointing out the obvious.
However, relatively speaking, swine respiratory disease has been the
more predictable, and there is some comfort in predictability.
There is also value in understanding the seasonality of some of the
major pathogens contributing to respiratory disease in pigs so that
intervention programs can be tailored appropriately. We can get a better
understanding of how some of these diseases track over the course of a
year by looking at charts that summarize diagnostic results from the
University of Minnesota Veterinary Diagnostic Laboratory (MVDL).
A chart summarizing the respiratory pathogens detected in tissues
submitted as respiratory cases to the MVDL during 2006-2008 is shown in
Figure 1. The details of this busy chart are easier to evaluate in
charts that will be discussed later. The value of the graph is that it
lists six respiratory disease agents on one scale to make it easier to
compare the relative frequency of detection.
The six agents listed are porcine circovirus type 2 (PCV2), porcine
reproductive and respiratory syndrome (PRRS) virus, Mycoplasmal
pneumonia, swine influenza virus (SIV), Streptococcus suis and
Haemophilus parasuis. The lines represent the percentage of the cases
from which the disease agents were detected, either by polymerase chain
reaction (for PCV2, PRRS, SIV and mycoplasma) or culture (for
Streptococcus suis and Haemophilus parasuis).
Detection of an organism doesn’t necessarily confirm that it was a
factor in the individual case, but it provides useful information in the
aggregate. For PCV2 and PRRS virus, the sample tested is a pool of
tissues that includes lung along with spleen, lymph nodes and kidneys.
Hence, these will pick up virus from systemic in addition to respiratory
disease.
The data is listed as a percentage rather than an absolute number
because we have a seasonal drop in the number of respiratory case
submissions during the summer months. Typically, there are 25-30% fewer
respiratory disease tissue case submissions during the middle quarters
compared to the first and fourth quarters. Data include case submissions
from 40 states and provinces, arguably providing a broad indication of
trends.
Disease Trends
A couple of features stand out in Figure 1. First, there is a pronounced
and sustained drop in the detection of PCV2 in July 2007. This, of
course, coincides with the widespread availability and application of
PCV2 vaccines during that time period. This makes sense, but a 50% drop
is still impressive. Second, in addition to PCV2, PRRS stands above the
rest as a consistent finding in respiratory cases. Seasonal trends for
individual disease agents can be seen more readily in charts where they
are listed singly.
Six graphs are shown in Figure 2, depicting the detection of the six
respiratory pathogens individually. The graphs for viruses are lined up
in the left column. The first graph illustrates the familiar seasonal
pattern for swine influenza, with peaks in the spring and fall. The
percentage of positive disease cases by polymerase chain reaction (PCR)
appears to increase in the fall of 2008 above the levels detected in
past years. There has been plenty of flu this fall, certainly. However,
we also implemented a new PCR test for SIV in September, with greater
sensitivity. This means we will pick up more positive cases than we had
previously.
The lack of seasonality in the PRRS virus detection rate, as shown in
the second graph on the left, may be surprising. We are accustomed to
reports of an increase in severe PRRS virus outbreaks in the fall and
spring, but the virus is found in respiratory cases consistently
throughout the year.
The seasonality of Mycoplasmal pneumonia detection is evident from the
graph on the top right. The pattern for 2007 is particularly interesting
with a steep increase in detection in August. This coincides with the
dramatic drop in PCV2 detection the previous month shown in the graph on
the bottom left. This prompts questions regarding likely causes: vaccine
switch from mycoplasma to PCV2? This trend has not continued this year.
Finally, the seasonality of detecting two bacteria, Streptococcus suis
and Haemophilus parasuis, is illustrated in the last two graphs. As
shown, the rates of isolation track consistently, with a pattern similar
to the influenza trend.
This information gives you a sense of disease patterns we see for a
large number of cases over time. Given the movement of pigs, and the
capacity of several of the disease agents to be transmitted by aerosol,
these trends are likely to be reflected in farms located in pig-dense
areas and, thus, factor into regional disease control planning.
Click to view graphs.
Jerry Torrison, DVM
University of Minnesota Veterinary Diagnostic Laboratory
torri001@umn.edu
Legislative Preview
Canada Seeks
WTO Consultations on COOL
The Canadian government announced that it is seeking
formal consultations with the U.S. government regarding mandatory
country-of-origin labeling (COOL) under the World Trade Organization
(WTO) dispute settlement process. The Canadian minister of trade said,
“…we believe that the country-of-origin legislation is creating
undue trade restrictions to the detriment of Canadian exporters. Under
these circumstances, Canada has no choice but to assert its WTO rights
in the defense of our exporters.” Canadian producers have indicated
that COOL is having a negative impact on meat and livestock exports to
the United States.
In response to Canada’s announcement, National Farmers Union President
Tom Buis said, “U.S. consumers have consistently demanded information
concerning the source of the food products they purchase. COOL provides
this information in a way that is truthful without distorting or
creating barriers to trade. I believe Canada is ‘jumping the gun’
in this complaint about mandatory country-of-origin labeling.”
USDA Makes Payments to Ineligible Producers — The Government
Accountability Office (GAO) reports that out of the 1.8 million
individuals receiving farm payments from 2003-2006, 2,702 had an
“average adjusted gross income (AGI) that exceeded $2.5 billion and
derived less than 75% of their income from farming, ranching or forestry
operations, thereby making them potentially ineligible for farm
payments.” According to GAO, the 2008 farm bill will increase the
number of individuals likely to exceed the income eligibility caps. If
the new farm bill had been in effect in 2006, “as many as 23,506
individuals who received farm program payments would likely have been
ineligible for crop subsidy and disaster assistance payments totaling as
much as $90 million.”
USDA indicated that resource constraints and its lack of authority to
obtain and use IRS tax filer data contributed to USDA’s inability to
verify individuals who receive farm program payments that comply with
income eligibility requirements other than income. The GAO report was
requested by Sen. Chuck Grassley (R-IA).
FY 2009 Exports Estimated to Decline — USDA’s latest
estimates indicate that fiscal year 2009 agricultural exports will
decline to $98.5 billion, down $14.5 billion from the August estimate
and $17 billion below the record sales of 2008. The reasons for the
lower estimates are the global recession, weaker global demand, falling
prices and an appreciating dollar. Fiscal year 2009 agricultural
imports are now estimated to reach a record $81 billion.
2008 Election Almost Over — Senate: Sen. Saxby Chambliss
(R-GA), ranking member of the Senate Agriculture Committee, won his
run-off election race this week. This leaves only the Minnesota Senate
race still undecided. Sen. Norm Coleman (R-MN) leads Al Franken by less
than 300 votes as the state continues the recount. As the 2008 races
are coming to a close, the 2010 election already is beginning with Sen.
Mel Martinez (R-FL) announcing he will not seek reelection. House:
Louisiana will hold its run-off elections this Saturday for two House
seats. These will be the last House races to be decided.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
Make ileitis disappear?
Denagard® (tiamulin) 10 is approved to control ileitis in as little
as 10 days. And with its small dosage – 35 grams tiamulin/ton – and
less medication time, no other feed medication is as cost-effective for
controlling ileitis.
Click
on the Denagard logo to learn more.
Pork Industry Calendar
Dec. 11, 2008: Understanding the Pork
Industry
Profitability Challenge, Stoney Creek Inn, St. Joseph, MO; contact: the
National Pork Board by phone, 800-456-7675 or fax, 515-223-2646.
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.
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.
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