What's new on National Hog Farmer?
- World Pork Expo 2008 New Product Tour
- 8 Tips for Tough Times
- Comparing Circovirus Vaccine Efficacy
- USDA Grant Advances Illinois PRRS Research
- Current Issue:
World Pork Expo Product Tour
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Market Preview
Hog Market
Trifecta Welcomed News
Continued high hog slaughter, a major rally in the pork
cutout value and gross packer margins at their highest level since
February 1999 – and all of this is happening in July, no less! Graphs
of all three appear in Figures 1 through 3 and they explain the recent
rally in cash hog prices.
We saw the beginnings of the rally last week when weekly average cash
hog prices rose $4 to $6 to get back near $75 on a carcass weight basis.
Thursday’s Prior Day National Negotiated Net Price (for hogs
slaughtered on Wednesday) was $0.46 higher at $79.84. But the National
Negotiated Base purchase price on Thursday afternoon was $1.11 higher at
$80.49. The latter is a better measure of the current market since it
represents hogs bought Thursday for slaughter over the next few days.
The prior-day slaughter data applies to hogs slaughtered Wednesday and
purchased in the past few days. So, the forward-looking purchase data
always “leads” the backward-looking slaughter data.
Higher quantity and higher wholesale level prices spell higher wholesale
demand. But that is apparently not being driven by U.S. consumer demand
at present. In fact, the very favorable U.S. consumer-level demand news
that we had through April turned quite sour in May. The University of
Missouri’s year-to-date demand index went from +3.5 to -1.9 in that
one-month period. The reason? Much lower domestic availability, which
equals domestic consumption and nominal retail prices, that did not rise
fast enough to keep up with inflation. Lower consumption and lower
price equals lower demand any way you cut it.
But there is a good side to this story. The reason for lower domestic
availability, of course, was robust exports and those helped wholesale
pork and hog values. In addition, retail prices tend to lag changes in
availability/consumption as retailers try to “hold the line” on
prices to avoid angry customers when prices are rising and maintain
profit margins when prices are falling. It is very likely that retail
prices will increase and make this domestic demand picture better, but
it may take a month or two.
The last observation in Figure 3 is for the week of July 12. The spike
in gross packer margins is the result of higher cutout values and
record-high by-product values. Those values reached $23.14/head that
week compared to $17.51/head last year and $13.01/head the same week in
2006. The margin spike provided the fuel for the ongoing cash hog
price rally and underscores the propensity of packers to bid away
margins in the pursuit of more hogs. That action also suggests a pretty
efficient market system.
So what lies ahead? It’s possible that this rally will take out the
May highs on most cash hog price charts. Wednesday’s national net
price of $79.84 is within $0.50 of those highs and this rally does not
appear over. The strength of that May rally led me to believe that our
seasonal highs were already in for 2008, but this crazy market will
probably prove me wrong again. Can it hold up well enough in the long
run to make those futures prices correct? Perhaps, but they still look
attractive enough to warrant pricing a good portion of your output
through December or February.
Good Feed Cost News – Finally!
And the news gets better. Chicago Mercantile Exchange (CME) Group
December corn futures closed Thursday at $5.92/bu. compared to $6.50
last Thursday. December soybean meal closed at $359.80/ton on Thursday
vs. $389.90 one week early. My feed cost index has declined nearly
$50/ton in just over three weeks. It’s hard to fathom being excited
about buying corn and soybean meal at these levels, but this decline in
the grain complex may be as good a chance as we will get to keep costs
in the $80s on a carcass weight basis for the coming year. The rate of
decline is slowing, so be ready to act when it appears a bottom has been
reached.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
Swine Disease Control Made Easy. Introducing Ingelvac MycoFLEX®.
Call Boehringer Ingelheim at 1-800-325-9167
Financial Preview
Talk About a Roller
Coaster Ride
Anyone who is involved in the swine industry can
understand this feeling. Never in my 25 years in the swine industry have
I seen such swings in economics. Last month, I wrote about corn prices
at over $7/bu. and projected breakevens at $185-190/head. Today, we are
seeing corn below $5.50/bu. in the Midwest with a breakeven price at
$160/head. That’s a swing of $25-$30/head in a span of less than a
month! Hog prices have also surged to almost $80/carcass cwt. While pork
producers are still losing some money, we are hemorrhaging much less
than a month ago.
Opportunities on the Horizon – In examining current feed
costs and future prices for hogs on the board, there is an opportunity
to minimize losses and probably make money during the second quarter of
2009. This window of opportunity can reduce some losses anticipated in
the fourth quarter this year and provide an opportunity to lock-in some
profits in 2009. I have stated many times that you must implement sound
risk management practices for your business to be viable.
Going Public on a Message to the Swine Industry – I spoke at
the National Pork Industry (NPI) Conference earlier this week. I’d
like to thank Graham-Shields Strategic Forums for the opportunity to
present my message. Though it may not be popular, it is something I
believe this industry must consider if we are to be profitable again.
Following are the key points I stressed:
- The U.S. pork industry needs to reduce sow numbers by at least
10%.
- The industry needs to reduce market weights and keep marketing as
current as possible to avoid lower prices this fall.
- Large systems must lead the way, with the top 30 producers
publicly sharing their intentions.
- A viable, long-term model will emerge. Most likely, it will be a
farrow-to-finish model.
In my presentation, I used the egg industry for comparison. The egg
industry was also suffering from low prices and low earnings. But after
egg producers cut production back by 1-2%, earnings increased. I spent
some time researching Cal Maine Foods, the largest egg producer in the
United States to further demonstrate my point. I compared their March
2007 earnings to March 2008 earnings, then also compared their stock
price from August 2007 against today’s price. Below is a snapshot of
how their financial performance improved after the industry decreased
egg production:
- March 2007 year-to-date (YTD) income: $18 million
- March 2008 YTD income: $115 million
- August 2007 stock price: $15.69
- July 22, 2008 stock price: $39.35 (I wish I would have
invested!)
During a Q&A session at the NPI conference, I could sense that this
solution will not be favorably received or even considered by most
producers. But the decision remains in the producers’ hands.
Unfortunately, if a downturn occurs, liquidation will most likely
follow. Most producers see themselves as survivors; I hope for
everyone’s sake that we can find the solution to get us there.
In closing, we have seen a tremendous drop in feed prices in the last
month. Producers use risk management strategies to take advantage of
these opportunities can reduce or minimize losses and, in fact, can see
profits on the horizon. As I have said in previous columns, risk
management will separate the best from the rest in the future.
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com
Control ileitis in as little as 10
days?
Denagard® (tiamulin) 10 is approved to control ileitis in as little
as 10 days. The small dosage and less medication time make it the most
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Click
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Legislative Preview
Public Supports
Ethanol
According to a recent poll by Greenberg Quinlan Rosner
Research and Public Opinion Strategies, registered voters favor, by a
margin of two-to-one, increased use of ethanol. Fifty-nine percent
favor increased use of ethanol in the nation’s fuel supply, compared
to 30% who oppose increasing the use. The poll also asked the voters
whom they blame the most for rising food costs in the United States and
the world. The results were:
- 49% blame higher gasoline prices;
- 11% blame increased commodities speculation;
- 8% cite increased use of grain for ethanol;
- 8% blame corporate takeover of feed production;
- 7% think the increased demand in China and India is to blame;
- 7% blame severe weather, and
- 2% blamed none of the above choices, 5% blamed all of the choices,
and
- 3% said they don’t know or refused to assign blame.
Senate Agricultural Appropriations — The Senate
Appropriations Committee passed the 2009 agriculture appropriations bill
that provides $20.435 billion in discretionary spending, which is 11%
more than in fiscal year 2008 and approximately $1.8 billion more than
the administration’s request. The bill also provides $76.8 billion in
mandatory spending for farm payments, food stamps and other nutrition
programs. The bill includes:
- The Food Safety and Inspection Service (FSIS) will receive
$972.6 million, which is $43.4 million above last year.
- Agricultural Research Service will receive $1.134 billion, an
increase of $13.043 million over last year and $97.1 million above the
administration’s request.
- The Foreign Market Development program is fully funded at $34.5
million and the Market Access Program is fully funded at $200 million.
- The bill does not contain the administration’s proposed user
fees for meat and poultry inspection.
- USDA’s Farm Service Agency and Rural Development was given
$67.650 million to upgrade the “failing” information systems and to
help implement the farm bill programs.
Tougher Border Animal Inspection Needed — A USDA’s
Inspector General’s report stated that horses and animals intended for
meat inspection have entered the United States without inspection by
USDA’s Animal and Plant Health Inspection Service (APHIS). According
to the report, APHIS does not have an effective and adequate system for
approving animals and making certain they go to their proper
destinations. Also, APHIS needs better control over the USDA seals that
go on shipments of approved animals.
EPA Delays Texas Waiver Decision — Environmental Protection
Agency (EPA) Administrator Stephen Johnson announced that the agency is
delaying the decision on the State of Texas' waiver request on the
Renewable Fuels Standard. Johnson said, “Additional time is needed to
allow staff to adequately respond to the public comments and develop a
decision document that explains the technical, economic and legal
rationale for our decision.” There are a number of Senators
questioning the delay and asking for information regarding a meeting
that Johnson had with Texas Governor Rick Perry earlier this month. EPA
was to make a decision by July 24.
No Livestock from Argentina — The Senate Agriculture
Appropriations bill prevents the importation of livestock from Argentina
until USDA can certify that Argentina is free of Foot and Mouth Disease
(FMD). The provision is taken from Senators Tim Johnson (D-SD) and Mike
Enzi’s (R-WY) legislation, the “Foot-and-Mouth Disease Prevention
Act of 2008.” The bill was introduced earlier this month. Senator
Johnson said, “Foot-and-Mouth Disease is a highly contagious and
destructive disease and we cannot risk the health of our livestock herds
for questionable imports from Argentina.”
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
Aug. 7, 2008:
PorkBridge “Properly Walking Pens and Observing Pigs” remote program
via phone and computer, noon and 7 p.m. CST; contact Mark Whitney, (507)
389-5541, whitn007@umn.edu or
click on www.extension.umn.edu/swine.
Aug. 7-8, 2008: Midwest Boar
Stud Managers Conference, Doubletree Inn, St. Louis, MO; contact:
conference Web site at http://bsmc.Missouri.edu or University of
Missouri Extension swine specialist Tim Safranski at (573) 884-7994 or
SafranskiT@missouri.edu.
Click
here to get National Hog Farmer's complete pork
industry calendar.
Introducing the new PIC Camborough® Family
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what you see--after all, it is just what you asked for.
www.pic.com/usa
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