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Dale Miller, Editor,
National Hog Farmer
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Market Preview
Hog Futures React to High Feed
Prices
“If it weren’t for bad luck, we’d have no luck at
all.” That line from the old Hee Haw song skit “Gloom, Despair and
Agony on Me” kept coming to mind this week. It may not have come to
you less culturally indoctrinated readers, but it came to mine.
Deferred Chicago Mercantile Exchange (CME) Group Lean Hogs futures
reached record highs with June 2009 approaching $96/cwt., carcass.
Figure 1 shows the chart of weekly prices on the nearby contract and it
is plain to see that we have never been in this rarified air before.
The futures are reacting to higher corn and soybean meal prices, of
course, and are being more logical in that reaction than in past months.
Several times over the past year, nearby lean hogs futures would rise
when corn prices rose. Perhaps that was the separate markets competing
for speculative fund money, but it doesn’t make a lick of economic
sense since there are such time lags in pork production.
This week’s rise was different, with the deferred contracts impacted
significantly more than the nearby contracts. Someone is figuring out
that it takes awhile for these costs to have an impact and that has
brought a bit more economic logic to the equation.
Still, the record-high prices for next summer may not be profitable.
Figure 2 shows my cost forecasts based on corn and soybean meal prices
on Tuesday, June 17. July 2009 stands at a record $96.79/cwt., carcass,
higher than the corresponding lean hogs futures price even without a
basis. Those futures prices may not be right, but they have to be at
least respected in your current planning.
And the reaction has been swift. I have had reports of a large number
of entire sow herds being sold for slaughter in the past two weeks. One
Midwestern buyer reportedly bought over 14,000 sows last week and the
smallest operation was 1,200 sows. I had a report today that sows are
booked for at least a week and more likely a week and a half out.
Perhaps most important is the news that more and more of these sows are
still pregnant at the time they are sold. There is a major difference
between selling dry sows and selling “piggy” sows, and we usually
see major shifts in the breeding herd the quarter after we hear reports
of piggy sows in slaughter plants.
New Pig Crop Report Next Friday
USDA’s June Hogs and Pigs Report will be released next Friday
afternoon. I expect the U.S. breeding herd to be 2% lower than last
year and the market herd to still be 5-7% larger, given the size of
lightweight inventories in March and March-May farrowing intentions.
Those numbers would not change my supply or price forecasts through June
2009.
I still do not expect cash hog prices to reach the levels that futures
are now offering, at least through April 2009. October and December
futures reached new contract life highs on Friday morning, and I think
producers should be watching those contracts for signs that the rally
has run out of steam – thus signaling a selling opportunity.
February and April Lean Hog (LH) futures are also at contract life highs
and I would be watching for pricing opportunities there as well. Some
coverage before the report next Friday would be prudent – perhaps out
of the money puts to protect against a bearish surprise.
Grain Situation Looks Bleak
The grain situation is bad and far from safe. The condition of the corn
crop last week was below the corresponding week’s value in 2002, the
year with the worst-ever average full-season corn crop condition.
USDA’s Acreage report will be released on June 30 (I should have
analysts’ pre-report estimates in next week’s NAP) and the trade is
talking about 1-2 million fewer corn acres and 2-3 million fewer soybean
acres than the April 30 Planting Intentions report indicated. It will
take a major miracle for either of these crops to reach their long-term
trend yield, so lower-than-expected supplies are a given, I believe.
Ethanol Flinching at Corn Prices, Too
Finally, hog producers are not the only ones hurting with $7-plus corn.
There were several rumors of ethanol plant cutbacks last week as gross
margins have plunged since June 1. Corn costs are part of that, but a
sharp drop of the ethanol price (from $2.46 to $2.33/gal. in Iowa) two
weeks ago was the biggest contributor. That price recovered to
$2.55/gal. last week, but expect to hear this more often as corn and
natural gas prices continue to rise.
This factor underscores another issue that will be important: The
“off” switch is much more effective and timely for ethanol, food and
export uses of corn. If short-term rationing is needed, prices have to
go high enough to cause these users to back off and that will mean
prices will be very high indeed.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Production Preview
Designing Effective
Field Trials
Last week, we discussed a few of the challenges of using
field trials to determine the best products or processes for a
production system. This week, we will expand that discussion with a few
considerations to improve the reliability of field trial results.
It is common to observe wide variation in pig production numbers. And
we know that there are several potential factors contributing to
variation at any point in time. In addition to differences in pig
health, piglet weaning age, pen density and growth rates, wean-to-finish
survivability can be affected by the dam’s parity (i.e., piglets from
Parity 1 litters are at increased mortality risk).
In the sow unit, within-week parity structure (the ages of sows in the
farrowing or breed groups), season of the year, within-stage feed
consumption and farm technicians all have the potential to influence
litter size and piglet survivability.
If we are seeking to compare the differences between products or
procedures, we need to recognize the possibility that any differences
measured could be just a function of normal variation.
In light of all of the challenges to reliably observe a difference
between treatments, some considerations should be made in both the
stages of design and the analysis that will improve the value of the
trial’s results.
Design Considerations
For any trial design, the first critical consideration is the
experimental unit (i.e., pig, litter, pen, room, barn). In other words,
ask yourself: At what level will I assign treatment?
The next critical consideration is the sample size. How many
replications of each treatment would we need to have to detect a true
difference? The simple answer is – that depends. Small differences
between treatments and normally large variability in the measured
outcome increase the number of replications needed to reliably observe a
difference. Remember, even if a barn has 1,000 pigs in 40 pens and you
administer the treatment to the entire barn, the sample size (number of
replications) is only one.
The third critical consideration for the design phase pertains to
randomization. Each treatment has an equal likelihood of being assigned
to each experimental unit. True randomization is important as it has
the ability to distribute the sources of variation evenly across
treatments. However, we can also make trials more efficient if we
randomly assign treatments within known sources of variation. For
example, if I want to compare treatments on litters in farrowing, I
could additionally randomly allocate treatments within parities so that
I have equal numbers of Parity 1, Parity 2 and and Parity 3 litters on
each treatment.
Finally, for those sources of variation we were unable to eliminate
through study design, we have the option to adjust for them in the
analysis phase. For example, we can compare treatment outcome while
holding another variable constant (i.e., adjusting for sex, pigs on
treatment A had a higher average daily gain than pigs on treatment B).
For all of the efforts and resources that field trials require, as well
as their potential implications, a little statistical consulting in the
planning stage can make a world of difference. In the end, the quality
of your results will be proportional to the quality of your planning,
implementation and analysis.
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Legislative Preview
Food Prices Investigation
Requested
A number of agricultural groups have called on Congress
to investigate “all the reasons for rising food prices, saying that
critics have wrongly blamed record high food prices on farmers and
biofuels.” The letter said, “Lately, a series of reports in various
media have attributed higher commodity prices paid to farmers as the
cause of the higher costs passed on to consumers. Such a perspective is
a great disservice to the general public because it ignores the facts
behind higher prices.” National Farmers Union President Tom Buis
said, “With 80% of the consumer retail food dollar occurring off the
farm, I believe congressional hearings will find rising food prices are
the result of numerous factors. Food companies are trying to pass the
blame on to farmers, while many are enjoying record profits.” The
National Farmers Union, American Farm Bureau Federation, National Corn
Growers Association, American Soybean Association, National Sorghum
Growers Association and National Association of Wheat Growers signed the
letter.
Calls for Early Out of CRP Contracts — With the growing
concerns of crop conditions, high commodity prices and flooding in the
Midwest, the administration is being asked to allow producers to opt out
of their Conservation Reserve Program (CRP) contracts early and without
penalty. In a letter to Secretary of Agriculture Ed Schafer, Senator
Chuck Grassley (R-IA) wrote, “I respectfully ask that the department
do so, penalty free, so that these acres can be planted to milo, grain
sorghum, soybeans or hay. We continue to have growing global demands
for feedstocks, and current flooding issues make it a certainty that
Iowa will not meet the production goals set forth earlier this year.”
Senator Grassley also asked that USDA protect the most environmentally
sensitive lands.
Farm Bill Finally Done — The House of Representatives and the
Senate on Wednesday easily overrode President George W. Bush’s veto of
the second farm bill. The House voted 317-109 and the Senate voted
80-14. Congressman Collin Peterson (D-MN), chairman of the House
Agriculture Committee, said, “Today’s vote will ensure that all
parts of the Food, Conservation and Energy Act are enacted into law.
Particularly considering the serious concerns about rising food prices
and severe flooding affecting crops in the Midwest, the farm bill
provides a critical safety net for families and farmers.” When
vetoing the bill, President Bush said, “In passing H.R. 6124, the
Congress had an opportunity to improve on H.R. 2419 by modifying certain
objectionable, onerous and fiscally imprudent provisions.
Unfortunately, the Congress chose to send me the same unacceptable farm
bill (by adding the trade title).” The second farm bill was necessary
because of the clerical error of dropping the trade title from the
original bill.
USDA Announces Crop Loan, LDP Provisions and Loan Rates — USDA
announced that it is implementing marketing assistance loan and loan
deficiency payment (LDP) provisions of the 2008 farm bill. With
enactment of the Food, Conservation and Energy Act of 2008, (the 2008
farm bill) national loan rates for the 2008 crops of wheat, feed-grains,
oilseeds, rice and pulses are at the following levels:
| National Loan Rates for 2008 |
| Wheat | $2.75
| per bushel |
| Corn | $1.95
| per bushel |
| Grain Sorghum | $1.95 | per bushel |
| Barley | $1.85
| per bushel |
| Oats | $1.33
| per bushel |
| Soybeans | $5.00 | per bushel |
| Other Oilseeds | $9.30 | per cwt. for each "other"
oilseed |
| Rice, long grain | $6.50 | per cwt. |
| Rice, medium grain | $6.50 | per cwt. |
| Small chickpeas | $7.43 | per cwt. |
| Dry peas | $6.22 | per cwt. |
| Lentils | $11.72 | per cwt. |
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
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Pork Industry Calendar
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.
July 9 2008: Great Lakes Manure
Handling Expo, Molly Caren Agricultural Center, London, OH; contact:
http://ohio-environmental.org, Tami Combs at (614) 292-6625 or combs.155@osu.edu, or Jon Rausch at
(614) 292-4504 or Mary Wicks at (330) 202-3533.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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