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Dale Miller, Editor,
National Hog Farmer
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Market Preview
Canada Launches
Culling Program
The government of Canada announced a Cull Breeding Swine
Program this week that it is hoped will remove 10% of Canada's breeding
herd from production. Here is what we know:
- Can$50 million is the proposed budget;
- The proposed program will pay $225 plus costs of slaughter and
disposal per sow or boar slaughtered;
- Producers must empty at least one complete barn and agree not to
re-stock that barn for three years;
- Sows and boars culled since Nov. 1 will receive $225 less the
actual sale proceeds, provided the farm meets the other requirements of
the program;
- The animals must not enter the human food chain. They may be
rendered for pet food or other purposes or disposed of on-farm in
compliance with regional environmental standards.
The program is to be delivered through the Canadian Pork Council (CPC).
Funding has not yet been approved by Canada's Treasury Board, but a
release from CPC said that approval was expected soon, and then precise
funding and participation details would be announced. No timetables for
program implementation or animal removal were discussed.
Many Program Questions
Many questions remain. Is any barn a "barn" for the "empty the barn"
requirement? Do sows and boars sold since Nov. 1 have to meet the "not
enter the human food chain" requirement? (That seems very doubtful,
doesn't it?) What is the time frame? These are not meant to be
indictments, just recognition that specifics are very important and we
do not have many at this time.
Winners and Losers
As with virtually all things economic and all things government, there
are winners and losers in this idea. The winners in the short run will
be those farms that are planning to exit the business anyway and will
gain a windfall in sales revenue. Of course, the extra payment will
quite likely entice some producers who had a "stick it out" mindset to
liquidate breeding stock and that will be a net gain for the
marketplace. In the long run, all Canadian and U.S. producers should
benefit from the program due to larger and, perhaps, quicker reductions
of hog supplies.
The biggest short-run losers will be sow/boar slaughterers, mainly in
the United States, that will see the available supply of slaughter
sows/boars fall by roughly 150,000 head over some yet unknown time
period. Consumers will also lose as the price of sausage and other
products made from cull breeding animals will be higher. Finally,
Canadian taxpayers lose (depending, of course, on their view of the role
of government) as their tax dollars go to pork producers.
Can It Make a Difference?
Is the program enough to make a difference? A reduction of 10% of
Canada's sow herd will result in about 150,000 fewer sows and roughly
three million fewer market hogs in the second year after the reduction
begins. Some of that reduction would have occurred without the program.
Perhaps all of it would have occurred eventually, but the program will
speed up the process.
The net "gain" in output reduction may be around two million head.
Barrow and gilt slaughter in the two countries totaled 124.551 million
head last year. Will it help? Yes. Will it be sufficient to push hog
prices high enough to cover 25% higher production costs? Definitely
not.
Reviewing U.S. Predictions
Lest anyone think that I am being unduly critical of Statistics Canada
regarding their Jan. 1 hog count, let's review the performance of USDA's
December Hogs and Pigs Report. Figure 1 shows actual 2007 and 2008
weekly slaughter totals and the levels predicted by the Dec. 1
weight-class inventories. December slaughter ended up only 1.8% larger
than was predicted by USDA's 180-lb. and over inventory, thanks in part
to Christmas falling on Tuesday and reducing slaughter the last week of
the year relative to one year earlier.
The real problem is this year, though. Actual slaughter since Jan. 1
has been 7.3% higher than the level predicted by the December report,
and 6.8% higher than the Pred '08 line in Figure 1, which includes a
0.5% allowance for higher Canadian market hog inventories. Those
in-shipments have been even larger than that level, though I believe the
data we have is high due to the problems in the weekly border-crossing
data. Even with the possibly-inflated figures, additional Canadian
market hogs still account for only 160,343 head (13.9%) of the "extra"
1,152,100 head slaughtered thus far in '08.
Numbers Missed the Mark
How was USDA so far off in its Dec. 1 inventory of market hogs? We don't
know the answer to that. Circovirus vaccine may have played a role, but
we need to remember that circovirus vaccine impacts the survival of pigs
to market weight, not the number of pigs born. So it should impact the
number of heavy-weight pigs that were in the market herd at any point in
time, and it doesn't appear that USDA got nearly enough of those counted
in December.
Is there a structural change going on that would cause errors? Nothing
like the big shift of ownership and farm size of the 1990's is occurring
today -- but there are more pigs coming from Canada to be fed in the
United States, and I think a growing proportion of those remain under
Canadian ownership.
USDA ran into big trouble in the '80s and '90s when contract production
started putting pigs on farms not owned by the pig owner. The result
was double-counting. USDA's appropriate response was to quit worrying
about sites so much and be concerned with owners. Are they tracking
down the Canadian owners of these pigs?
Report Production Accurately
But there is something that U.S. producers can do right now to help:
Answer USDA's March Hogs and Pigs survey with the most accurate data you
can muster. USDA's statisticians cannot make a "silk purse" report from
"sow's ear" responses.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Financial Preview
Bad Times Continue
The financial losses are continuing in the swine
industry. This past month feed prices kept going up and hog prices
improved some -- but not near enough. Losses in the open market are
still close to $40 a head, and everyone keeps wondering when it will get
better, and what level prices have to reach before we start getting
profitable.
Well, the first thing we need to do is somehow reduce supply. The last
cold storage report shows that we have an abundant supply of product.
Even though exports have been very good, we need to reduce supply to get
a significant improvement in prices.
Worse in the EU - I am currently in Spain and the pork
industry here has over two million sows. They have had losses for over
12 months, and these losses are consistent throughout the European
Union. The Spanish industry is losing around $20 per head in Euros. This
equates to almost $35 to $40 per head in U.S. dollars. Spanish producers
are also being crippled by higher feed prices. Current cost of
production for the producers in Spain are at $180-$185 a head at a sale
weight of 230 lb.
Attached is a chart on how the United States currently compares with the
rest of the world's pork industry. As you can see, the United States is
very competitive in terms of cost of production. Even with costs rising
here, the United States still has a competitive advantage over the rest
of the swine-producing countries. This will help the United States in
exports for the foreseeable future.
Global Problem - In fact, nearly all swine producers globally
are losing money -- as the prices they are receiving for their hogs
don't match up with costs of production. Feed costs per head have almost
doubled in the last 18 months, and there is a lag effect from the cost
side to what producers are being paid, to what is being charged at the
retail level.
Peer economics (I am not an economist nor claim to be one) will suggest
that supplies of pork will have to come down to get prices to come up to
a profitable level. Just as breakeven costs are higher, we will need to
shrink supplies to get prices to go up. The next question is how much
supply has to go down to get the industry profitable.
Impact of Higher Prices on Demand -- I went to a local, large
supermarket in Spain and looked at boneless pork loin in the meat case.
The cost of this product was $6.95 Euros per kilo, which equates to over
$23 per lb. To convert this, take $6.95 x 2.2 kilos per lb. = $15.29
Euros/lb x $1.51 exchange rate. I did not see people flocking to buy
this product, and the question will be when prices do indeed go up, what
will happen to consumption. I discussed this situation with people in
Europe, and they said that most people buy meat, but in very small
amounts because the prices are so high. Time will tell as to what
happens to overall demand domestically and with our exports when prices
do go up.
Click to view graph.
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com
Ingelvac CircoFLEX® vaccine makes it easier to protect pigs from
PCV2 as early as 3 weeks of age or older . It starts early and stays
late.
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Legislative Preview
Meat Recall Fallout
As more is learned about the Hallmark/Westland recall, a
number of congressional hearings have been called to review the USDA and
FDA recall policies, to investigate the developments, as well as USDA's
response to the recall of 143 million pounds of beef. The House Energy
and Commerce's subcommittee on Oversight and Investigation held a
hearing on "Contaminated Food: Private Sector Accountability," which
focused on FDA and USDA's oversight of the private sector and the
private sector's compliance with their standards. The hearing also
focused on perceived lapses in accountability and regulations for food
producers and processors.
A number of members stated their strong concerns about the number of
recalls and the possibility that the current inspection system may be
failing. Some members stated that they do not believe the current
voluntary recall system is working and that a mandatory recall policy
should be implemented. Others suggested a single food agency.
Witnesses at the hearing included companies that have experienced recent
recalls -- ConAgra Foods, Butterball, Bumble Bee Foods, Dole Food
Company and New Era Canning Company -- as well as the Grocery
Manufacturers Association and the Humane Society of the United States.
Hallmark/Westland was invited to testify, but did not attend.
HSUS Calls for Downer Animal and Animal Welfare Bills -- The
Humane Society of the United States (HSUS), in its testimony before the
House Energy and Commerce's hearing on food recalls, asked Congress to
pass H.R. 661, the "Downed Animal and Food Safety Protection Act," and
H.R. 1726, the "Farm Animal Stewardship Purchasing Act." H.R. 661 would
implement a comprehensive ban on processing "downed" animals and
non-ambulatory animals (cattle, swine, and sheep). The Farm Animal
Stewardship Purchasing Act would set basic animal welfare standards for
producers who sell food to the National School Lunch Program and other
federal programs.
HSUS Sues USDA -- The Humane Society of the United States
(HSUS) sued USDA this week over what the organization says is a loophole
that allows "downer" cattle into the food supply. The lawsuit alleges
that cows that fell down after an initial USDA veterinarian inspection
but "appeared otherwise healthy," are allowed to be slaughtered. HSUS
said, "Unless we want yet another dramatic food scare -- further eroding
consumer confidence in beef and costing the private sector and the
federal government tens of millions of dollars -- we should not hesitate
to close this legal loophole and establish an unambiguous, no-downer
policy that will also help protect crippled animals from egregious
abuse."
A statement from the American Meat Institute said, "Today, the Humane
Society of the United States (HSUS), emboldened by the alarmist and
unfounded food safety concerns that they've generated, is now asking a
federal court to prohibit veterinarians in federally inspected meat
plants from exercising medical judgment to determine whether some
livestock are fit for consumption." The statement went on to say, "No
company benefits by behaving this way. The consequences of disregarding
federal rules and industry best practices are enormous, as we've clearly
witnessed. We reject the notion that this is somehow indicative of a
larger problem. We benefit by handling animals humanely and producing
safe and wholesome products. By contrast, it seems that HSUS believes
it benefits by trying to take an isolated animal welfare problem and
turn it into a food safety scare. Finally, we pose a question: can an
organization that has failed in its mission to protect the well-being of
animals, as shown by their failure to report for months to USDA or to
the plant what they observed in the Hallmark/Westland case, be taken
seriously about food safety?"
Farm Bill -- House Speaker Nancy Pelosi (D-CA) and Senate
Majority Leader Harry Reid (D-NV) met with the chairmen of the Senate
and House Agriculture Committees and with the chairman of the Senate
Finance Committee and the chairman of the House Ways and Means Committee
to indicate their strong desire to get the farm bill completed.
Indications are the funding for the farm bill will be $10 billion above
baseline. The next step is for the leaders of the Senate Finance
Committee and the House Ways and Means Committee to meet to try and
reach an agreement on how the farm bill will be funded (offsets). This
is a critical meeting for the farm bill to be completed.
Record Agricultural Exports -- USDA is estimating that U.S.
agricultural exports will reach a record $101 billion for fiscal year
2008. This is an increase of $10 billion over last November's
projection. Higher wheat, coarse grain and soybean prices account for
over half of the projected increase since November. Secretary of
Agriculture Ed Schafer said, "We also see further increases in
high-value product exports, such as fresh and processed fruits and
vegetables, tree nuts, pork, beef, poultry meat and many grocery
products. Exports of animal and horticultural products are forecast to
increase a combined $3.5 billion in 2008 to record levels.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
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Pork Industry Calendar
March 8-11, 2008: The 39th Annual Meeting of the
American Association of Swine Veterinarians, Sheraton San Diego Hotel &
Marina, San Diego, CA; contact: (515) 465-5255 or aasv@aasv.org.
March 18, 2008: The Ohio Swine Health Symposium, Der Dutchman, Plain
City, Oh; contact: Ohio State University Extension/Putnam County by
phone (419) 523-6294 or fax (419) 523-3192.
Click here to get National Hog Farmer's
complete pork industry calendar.
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