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Barriers
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Face Some Tough Losses Before Profits
Return
- Current Issue:
Spotlight on Herd Health
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Market Preview
Corn Prices Finally
Pushed Lower
Good growing conditions and what some feel is an
ambitious yield estimate from Informa Economics pushed corn futures
prices lower last week, providing some much-needed good news for pork
producers. See Figure 1.
Informa’s estimated national corn yield of 152 bu./acre, released on
Monday, was a big driver in the price decline that saw new-crop December
corn futures fall 73¢/bu. or almost 10% through Thursday. Warm, sunny
days and rains in much of the Midwest also helped, even though USDA’s
Monday estimate of crop conditions improved only slightly, with 62% of
acres rated good or excellent, 1% more than last week. That improvement
finally puts this year’s ratings above those of 2002 – the year with
the record-worst, season-long average percentages in the good-excellent
crop categories.
Soybean Concerns
The sell-off extended to soybean and soybean meal futures early in the
week, but both of those markets rallied to recapture much of the lost
ground by Thursday. A major factor at play in soybeans is the value of
the U.S. dollar relative to the Brazilian real. The dollar price of
soybeans must get high enough to offer Brazilian producers enough reals
to make them plant more soybeans this fall. Dr. Robert Wisner of Iowa
State University thinks that this target price is in the $15-$16/bu.
range, so don’t be surprised to see soybeans stay in that range –
and cause meal to remain in the $425-$450/ton range.
Corn Plantings
USDA’s monthly Crop Production and World Agricultural Supply and
Demand Estimates, released Friday morning, showed the estimated national
corn yield at 148.4 bu./acre, 0.5 bu. lower than USDA’s June forecast.
USDA increased the carryout for the 2007-08 (i.e. current) crop year
by decreasing ethanol usage (due to delays in plant openings) and feed
and residual (due to higher-than-expected corn stocks in the June 30
crop inventory report).
The 155-million-bushel increase in ’07-’08 corn carryout stocks
falls straight to the carryout for the ’08-’09 crop year, increasing
it from June’s estimate of 673 million bushels to 833 million bushels
or 6.7% of total projected usage. That is 1.6% higher than USDA’s
June estimated season-ending stocks-to-use ratio, yet USDA increased its
estimated season average farm price by 20¢ to $5.50-$6.50/bu. of corn.
Should that price increase hold, it would mark another positive shift
of the corn demand curve, since June’s 5.1% and $5.80 (mid-point of
June’s $5.30 to $5.60 range) was almost precisely on the demand
relationship that USDA has apparently used since last summer. The new
price range is still far below futures price levels, however, suggesting
that the trade is still expecting stronger corn demand than is USDA.
The net impact of the week’s price changes was a small decline in
projected hog feed costs (see Figure 2).
High Hog Slaughter Continues
Federally inspected hog slaughter continues to trend toward year-ago
levels. That’s the good news. The bad news is that 24 out of 27
weekly slaughter totals this year has set new records for the respective
weeks (see Figure 3). Further, USDA’s June Hogs and Pigs Report says
that the remainder of 2008 will see more of the same. My projections
using the June data say that every week’s slaughter for the remainder
of this year will be record large.
One question these high summertime slaughter runs raise is whether we
will have a packing capacity crunch this fall. Forecasted slaughter
runs will be at or beyond 2.5 million head in December (see Figure 4).
Packer capacity as of last August was 428,335 head/day, meaning that
packers would have to operate in excess of 5.8 days/week to handle the
large fall runs. My packer contacts say capacity will not be an issue
– but I’m afraid operating at those high rates will mean wide packer
margins and, consequently, lower hog prices than would otherwise occur.
Keep Marketings Current
The key for fall slaughter will be to reach the fall with marketings as
current as possible to keep weights from climbing if capacity becomes an
issue. Producers got current, I believe, this past spring when
slaughter surged and weights went below year-ago levels. They need to
remain very current through the summer and into the fall if we are to
keep capacity from becoming a significant issue.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Production Preview
Benchmarking in
Dangerous Times
Benchmarking is a term and a methodology that has been
abused, misused and yet, in spite of our faults, it has survived and
provided useful guidance to the industry. The etymology of benchmarking
is interesting:
A "benchmark" was originally a mark cut into a stone or a wall by
surveyors measuring the altitude and/or level of a tract of land. The
cut was used to secure a bracket called a "bench" upon which they
mounted their measuring equipment. All subsequent measurements were made
in reference to the position and height of that mark. Voila,
"benchmark," which first appeared in English around 1842, had quickly
began to be used figuratively in the "standard of quality" sense we see
today… The surveying term is first recorded in 1842, and the
figurative use arose by 1884.(www.etymologie.info/~e/u_/us-manage.html#Benchmark,
accessed March 29, 2008)
In this application, benchmarks are identified as stable points to
provide reference for further measures. Often benchmarks have provided
that point of comparison, and success in pig farming has been defined
through comparisons to such benchmarks.
The problem with the definition of benchmarking and its application is
where we have major changes in the industry that can, in some ways,
change the basic approach to pig farming and change the expectations of
individual benchmarks.
To a great extent, we are at such a point in the swine industry now. It
is unlikely that we will ever again see the historically low feed prices
and costs of production that we have seen in the past. In response to
this, we will see higher values of pigs as supply adjusts to the new
cost structures.
From a historical perspective, 2008 will be seen as a time of
adjustment. We need to use the benchmarks we have as a real asset in
identifying the strengths and weaknesses of this new market. We may
also need to find new variables for evaluation.
It is unlikely, particularly for sow units, that we will see many
decisions on expansion or major renovation of facilities. Instead, the
aim of benchmarking will be to maximize the profits, or minimize the
losses, of the facilities that we currently have.
In North America, we are working with sow unit systems that utilize
“sunk” costs as the major part of the cost of production. In other
words, the majority of the costs are independent of the number of sows
and the productivity of those sows. Additional output from a sow unit
is going to become more valuable than ever. Marginal or extra pigs are
the "gravy" of sow units, as it is difficult to identify major
extraordinary costs with added productivity.
However, extra pigs also vary in their value. The most valuable pigs
occur when productivity is lowest, and in recent years, the value of a
marginal weaned pig to the enterprise can vary as much as 65% as supply
varies, with most of this variation being due to seasonal infertility
and inventory responses of the sow units.
Secondly, extra pigs can also vary in their value based on the quality
of those pigs and their performance and subsequent stages of production.
Pigs weaned too young due to overproduction or pigs weaned in poor
quality due to inadequate management of birth weight, can both be major
costs to the swine enterprise.
Next week, we will look at industry-level opportunities.
Sukumarannair S. Anil, DVM, and John Deen, DVM
sukum001@umn.edu or deenx003@umn.edu
For PigCHAMP.com
Editor’s Note: For all your agricultural news,
markets and commentaries, go to www.farms.com.
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Legislative Preview
Groups Urge Drug
Act Passage
A coalition of livestock organizations is urging
Congress to pass a “clean” reauthorization of the Animal Drug User
Fee Act (ADUFA) this year. In a letter to Congress, the coalition said
ADUFA authorizes the Food and Drug Administration (FDA) to collect fees
to be “used to review certain animal drug applications. These fees
allow FDA to supplement its rigorous and robust review of animal drugs
by providing additional resources for timely reviews of new animal drug
applications. More timely reviews ensure that livestock, dairy and
poultry producers and their veterinarians have expedited access to new
and innovative products for livestock and poultry without compromising
the quality and integrity of the federal review process, thus ensuring
public and animal health.”
Antibiotics Ban Opposed
The coalition also informed Congress it was opposed to legislative
proposals that would ban the use of certain antibiotics for livestock.
Some proposals would only allow the use of antibiotics when an animal is
sick. The coalition said, “Eliminating a producer’s and
veterinarian’s ability to prevent disease with antibiotics actually
would result in sick and suffering animals and would not improve public
health nor address the real concern of antimicrobial resistance in
humans. Compliance with producer and veterinarian responsible-use
programs will accomplish the goal of protecting public health and animal
health and well-being.” Organizations signing the letter include the
American Farm Bureau Federation, American Sheep Industry Association,
National Cattlemen’s Beef Association, National Chicken Council,
National Milk Producers Federation, National Pork Producers Council,
National Turkey Federation and United Egg Producers.
USDA Issues Advance Direct Payments — USDA has begun
distributing Direct and Counter-cyclical Program (DCP) payments to
producers who elected to receive a 22% advance payment when they
enrolled in DCP. The direct payment for covered commodities for 2008
equals 85% of the farm's base acreage for the crop, times the direct
payment yield for that crop, times the direct payment rate for that
crop. According to USDA, commodities with base acres eligible for
direct payments and their 2008 rates are: barley, 24¢/bu.; corn,
28¢/bu.; grain sorghum, 35¢/bu.; oats, 24¢/bu.; soybeans, 44¢/bu.;
other oilseeds (canola, crambe, flaxseed, mustard seed, rapeseed,
safflower, sesame seed, sunflower seed), 80¢/hundredweight; peanuts,
$36/ton; long grain and medium grain rice, $2.35/hundredweight; upland
cotton, 67¢/lb.; and wheat, 52¢/ bu. Final direct payments will be
issued after Oct. 1, 2008.
CRP Haying and Grazing on Hold — USDA’s May announcement to
allow for the haying and grazing on Conservation Reserve Program (CRP)
acres after nesting season is now on hold. The National Wildlife
Federation was able to obtain a temporary restraining order from the
U.S. District Court in Seattle for USDA’s failure to do an
environmental impact statement prior to the May announcement. A hearing
is scheduled next week on this issue.
Grazing CRP Land in Flood Region — USDA is releasing
Conservation Reserve Program (CRP) acres for livestock grazing in
counties designated as disaster areas because of flooding. The release
will only apply to counties designated as primary and contiguous
disaster areas as the result of flooding. Secretary of Agriculture Ed
Schaefer said, “We have a crisis situation in the Midwest and other
parts of the country that calls for drastic action.” CRP participants
must write their county Farm Service Agency (FSA) office, obtain a
modified conservation plan and receive county office approval before
beginning to graze. There will be a 25% reduction in CRP rental
payments. States with counties under this announcement are Colorado,
Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Minnesota,
Missouri, Nebraska, Ohio, Pennsylvania, South Dakota, Virginia, West
Virginia and Wisconsin.
Urge Suspension of Ethanol Import Tariff — Thirty-five
companies and organizations are urging President George W. Bush to
suspend the duties and quotas on imported ethanol used for motor fuel.
The letter to the President said, “The suspension of the
54¢-per-gallon duty on ethanol will benefit Americans by introducing
market competition for a product that is mandated and by fostering
downward pressure for ethanol and its feedstock.” It also said,
“The introduction of market competition will alleviate a portion of
the unnecessary feed and food price inflationary pressures that are
adversely affecting our economic well-being and American consumers.”
Those signing the letter included the American Bakers Association,
American Beverage Association, American Meat Institute, Dean Foods
Company, Grocery Manufacturers Association, National Cattlemen’s Beef
Association, National Chicken Council, National Milk Producers
Federation, National Pork Producers Council, National Turkey Federation
and The Snack Food Association.
Eller Named Head of NCBA Washington Office — J. Burton Eller
has been named head of the National Cattlemen’s Beef Association’s
(NCBA) Washington, D.C. office. Eller currently serves as USDA Under
Secretary of Agriculture for marketing and regulatory affairs. Earlier
in his career, Eller was senior vice president of government affairs for
the former National Cattlemen’s Association (NCA) and also served as
executive vice president of NCA.
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
July 15-16, 2008: Transportation Biosecurity
Summit, Embassy Suites Hotel, Kansas City Airport, Kansas City, MO;
contacts: Lisa Becton, DVM, National Pork Board, lbecton@pork.org; Butch Baker, DVM,
Iowa State University, rbbaker@iastate.edu; Jim McKean,
DVM, Iowa State University, x2mckean@iastate.edu and Patrick
Webb, DVM, National Pork Board, pwebb@pork.org.
July 17, 2008: Understanding the Pork Industry Profitability
Challenge – Lenders Education, Minnesota Soybean Office, Mankato, MN;
contact: National Pork Board by phone (800) 456-7675, fax (515) 223-2646
or e-mail Sharlotte Peterson at speterson@pork.org
Click
here to get National Hog Farmer's complete pork
industry calendar.
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