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Market Preview
Crop Forecasts
Rattle the Market
What a week for U.S. agriculture, in general, and the
hog business in particular! Consider:
- USDA issues its latest “Don’t Worry, Be Happy!” crop
reports amid what is developing as the greatest flood in history.
- Corn prices respond to both pieces of news with record highs.
Omaha cash corn, which went above $6/bu. for the first time last week,
was quoted at $6.70-$6.80 on Thursday. Chicago Mercantile Exchange
(CME) Group corn futures for December gained $0.62/bu. from last Friday
to stand at a record high of $7.395/bu. at Thursday’s close.
- U.S. pork exports for April were nearly twice as large as they
were one year ago, leaving year-to-date exports 52% larger than last
year.
- April pork exports accounted for over 21% of April U.S. pork
production.
Let’s begin with the USDA’s May Crop Production report and World
Supply and Demand Estimates. Table 1 shows USDA’s corn balance sheet
based on these reports, which were released Tuesday. To their credit,
USDA did lower their forecasted corn yield by 5 bu./acre in this report.
It is very unusual for them to do that as early as June, since they
have no information about actual plant populations, ear numbers, etc.
The lateness of this planting season, though, dictated an early
reduction in the forecast.
My criticism of the report is that USDA continues to forecast corn usage
at levels that I believe are too low at their forecasted prices. USDA
again reduced projected feed usage, this time to 5.150 billion bushels.
Allowing for the DDGS from 1 billion more bushels used for ethanol, this
feed usage level still amounts to a feed use reduction of 8.9%. To get
that kind of reduction in feed usage, we will have to have prices much
higher than USDA’s $5.30 - $6.30. This week’s futures market is
making that point in spades.
Ethanol plants will operate full as long as they can cover variable
costs. There will be enough capacity to use far more than 4 billion
bushels of corn next year. Crude oil futures at $137/barrel imply
higher gasoline prices and higher values for ethanol in the future, but
last week’s drop in ethanol prices (to $2.33/gal. in Iowa) and the
increase in corn prices are likely to put some plants near the point
where they are not covering variable costs.
If that is a lasting situation, USDA may be okay with their 4 billion
bushel usage for ethanol in the ’08-’09 crop year. If ethanol
prices follow gasoline and oil upward, however, I fear that the ethanol
number in Figure 1 is too low as well.
That brings us to exports. USDA reduced projected exports again this
month, to just 2 billion bushels, 18% lower than last year. Higher
world feed grain and, especially, wheat production is the main
supporting factors for that change. The low dollar and the fact that
U.S. corn is still a very good buy for many export customers argue
against the decline. Given our customers’ proven record of “buying
early” to secure supplies, I fear this number is too low as well.
Breakevens Ascend
And the only way to get these numbers lower is to drive corn prices
higher. As I pointed out above, CME Group corn futures started that
process this week, and I know of no one who really wants to venture
where the process will end. With new-crop futures at $7.39 on Thursday,
$8 is not at all out of the question, depending on how crop conditions
develop over the next few weeks.
And what of hog feed costs? Figure 2 shows that my index of feed costs
rose by about $40/ton from June 2 to June 12. I had to add $50 to the
vertical axis just to fit in the most recent observations. These feed
prices have driven my breakeven cost estimates for next summer to
roughly $95/cwt. carcass. Who would have ever thought that June 2009
Lean Hogs futures at $91 would not be profitable?
The big factor in the grain markets is still weather. The flood (and
perhaps more importantly, the cool, wet conditions that caused it) has
certainly taken the shine off of this year’s crop prospects. USDA did
not change its acreage forecasts in this week’s report, but virtually
everyone thinks that corn acres will be 2 million or so lower than the
intended 86 million acres and that bean acres will be below intended
levels as well.
A Drought? Really?
In what could be one of the greatest ironies ever, some climatologists
and meteorologists still believe we could see a drier than normal
summer. Elwyn Taylor of Iowa State University declared that to an
audience at World Pork Expo last week and Drew Lerner of World Weather,
Inc. repeated it in a CME Group outlook webinar yesterday. Their
concerns are based on longer-term cycles and the fact that the Southeast
was very dry last year. Taylor points out that 16 of the past 17
midwestern droughts have been preceded by droughts in the Southeast the
year before, and only twice has one in the Midwest not followed a
southeastern drought.
We saw this pattern in 1983. Though not nearly as wet as this year, the
spring of ’83 saw ample rainfall before heat and drought scorched
crops throughout the Midwest. A repeat of that pattern would add insult
to injury.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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.
Production Preview
Pros and Cons of
On-Farm Trials
Pork producers are constantly presented with a variety
of new products claiming to improve production performance. While the
value of some products seems readily apparent, others may merit a
“trial” to determine if they add value to your operation’s
performance. So, let’s take a look at some merits and limitations of
on-farm trials.
The on-farm trial is commonly employed for two reasons. First, it may
serve as a method to establish functionality and potential applicability
of a product within a unit. Second, the trial can be used to determine
the economic viability of product application within a production
system.
For any product trial, there are four possible outcomes. First, you
could perceive a difference because the product actually had an effect.
Second, you may not perceive a difference because the product didn’t
actually have an effect. In both cases, your conclusion would be
correct.
However, it is also possible that you could perceive a difference even
though the product had no measurable effect. Or, alternatively, you may
not perceive a difference even though the product really did have an
effect. Statisticians describe these two scenarios as Type I and Type
II errors, respectively. In either case, your conclusions would have
been wrong.
The likelihood of reaching the wrong conclusion can be significantly
reduced with a good trial design and disciplined implementation. Simply
alternating products between rooms in a farrowing house or nursery –
or weeks of production, for that matter – would capture both the
differences in the treatments and the room-to-room or week-to-week
variation. However, the normal variation in pig production may be
enough to overwhelm the effect of the product or to generate the
perception of an effect when the product had none.
Next week we’ll discuss a few methods to improve the reliability of
conclusions derived from on-farm trials.
Stephanie Rutten-Ramos, DVM
University of Minnesota
rutt0011@umn.edu
Editor’s Note: For all your agricultural news, markets and
commentaries, go to www.farms.com.
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You asked for more pounds of pork marketed per sow. You asked for a
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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.
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Legislative Preview
Food Before Fuel
The Food Before Fuel Campaign was announced this week
with the goal of urging Congress to revisit the nation’s renewable
fuels policy. The principles for the campaign is to encourage
policymakers to “revisit and restructure policies that have increased
our reliance on food as an energy source, and to carefully address how
to develop alternative fuels that do not pit our energy needs against
affordable food and environmental sustainability.” A major leader in
this effort is the Grocery Manufacturers Association that stated, “It
is past time to acknowledge the reality of this problem and begin a
serious, bipartisan effort to fix it. Our current policy is driving
higher food prices around the globe and here at home, and while it’s
not the only factor at play, it is one we can do something about.”
The membership includes American Bakers Association, American Beverage
Association, American Frozen Food Institute, American Meat Institute,
Earth Policy Institute, Environmental Working Group, Grocery
Manufacturers Association, National Cattlemen’s Beef Association,
National Chicken Council, National Retail Federation and Snack Food
Association.
Midwest Governors Support RFS — The Midwestern Governors
Association (MGA) is asking the U.S. Environmental Protection Agency
(EPA) to uphold the Renewable Fuels Standard (RFS) passed by Congress
last December. In a letter to EPA Administrator Stephen Johnson, MGA
said, “(the) blame placed on ethanol for higher food prices is
misguided. Higher food prices are the result of many factors, including
rising transportation and production costs due to record oil prices,
increased demand for grains and meat from developing countries,
increased speculator investment and influence in all commodities markets
and extended global drought. As a result, all food commodity prices are
high, not just the price of corn. In short, granting any waiver to the
RFS will not reduce current food commodity prices.” The letter also
said that the RFS would help move the ethanol industry toward use of
cellulosic materials by “encouraging investment and technological
innovations.” Governors Mike Rounds (R-SD) and Jennifer Granholm
(D-MI) signed the letter.
House Members Urge No Change in RFS — Over 30 congressional
members led by Congresswoman Stephanie Herseth Sandlin (D-SD) and
Congressman John Shimkus (R-IL) sent a letter to U.S. Environmental
Protection Agency Administrator Stephen Johnson urging him to preserve
the Renewable Fuels Standard (RFS) in last year’s energy bill and to
refuse granting any waiver to the RFS requirement. The letter stated,
“A careful look at the facts reveals that American agricultural
producers can and will meet our domestic and international commitments
for food and feed and still make a significant and growing contribution
to lessening our dependence on imported oil with homegrown,
American-made renewable fuels. The harsh criticism biofuels have
received recently in connection with the rise in food prices is
unwarranted. If we look at the facts, several other factors are central
to higher food prices: record oil prices, soaring global demand for
commodities from oil to grains, poor weather conditions, a weak U.S.
dollar, and restrictive agricultural policies around the world. A
recent study by Texas A&M University noted, “The underlying force
driving changes in the agriculture industry, along with the economy as a
whole, is overall higher energy costs, evidenced by $100 per barrel
oil.”
Record Pork Exports — The U.S. Meat Export Federation (USMEF)
announced that U.S. pork exports in April reached 175,460 metric tons
(387.2 million pounds) ($391.5 million) in April, beating the previous
one-month record of 156,959 metric tons (346 million pounds) for this
past February. According to USMEF, when comparing the first four months
of 2008 to the same period in 2007, total pork exports for 2008 are up
52%. USMEF said, “U.S. pork has set export records for 16 consecutive
years, and there’s no sign that the world’s appetite for U.S. pork
is slackening one bit.”
Trade Support for Livestock — Senator Chuck Grassley (R-IA)
is urging USDA to increase funding for the promotion of pork and beef
export markets. He is asking USDA to look at various programs that will
help livestock producers “through this rough patch.” In a letter to
Secretary of Agriculture Ed Schaefer, Senator Grassley wrote, “I would
ask that the department give serious consideration to increasing funding
for pork and beef promotion in the Market Access Program (MAP) and the
Foreign Market Development Program (FMD). These programs can encourage
the development, maintenance, and expansion of commercial export markets
for our meat products.”
President to Veto Second Farm Bill — The White House expects
to receive the second farm bill early next week when President George W.
Bush returns from Europe. The president will veto the bill and return
it to Congress for consideration. Congress is expected to override the
president’s veto by the end of next week. This will mean that all 15
titles, including trade, will become law.
FSA County Committee Nominations — USDA announced farmer and
rancher candidate nominations for local Farm Service Agency (FSA) county
committees begin June 15 and continue through Aug. 1, 2008. To be
eligible to serve, a person must participate or cooperate in a program
administered by FSA, be eligible to vote in a county committee election
and reside in the local administrative area in which the person is a
candidate. Nomination forms for the 2008 election must be postmarked or
received in the local USDA Service Center by close of business on Aug.
1. Ballots will be mailed to producers beginning Nov. 3 and must be
returned by Dec.1.
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
June 24, 2008: Managing People in Pork Production
Conference, Best Western Hotel & Conference Center, North Mankato, MN;
contact: Minnesota Pork Board at (800) 537-7675.
July 2, 2008: SowBridge
“Feeding Management in Lactation” 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.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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