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2007 Swine Research Review
- Special
Report from National Pork Industry Forum
- 44
Practical Ideas to Cut Feed and Production Costs
- Free Gilt
Selection Posters Now Available for Download
- Special Section: Green
Farming Practices
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Market Preview
Of Trends and Such
About three years ago, I noted in some presentations and
articles that the long-term trend for cash hog prices appeared to have
turned. In spite of the recent dip in prices, I still think that trend
is true, so I thought it would be a good idea to revisit the forces that
drive trends and how they might apply to our current situation.
Figure 1 shows weekly Iowa-Minnesota cash hog prices since 1973. The
data do not represent the exact same price quotes for that entire
period, since USDA has changed the way it reports prices on several
occasions. Some adjustments were made to make the series fit together,
but I believe they are reasonable adjustments and certainly do not
change the long-run nature of the price trends shown.
Trends are one of three normal patterns impacting prices, the other two
being seasonal and cyclical patterns. Trends are usually multi-year
shifts in price levels, which when compared to the others, are more
gradual in nature. Where business cycles and decisions drive cycles,
and forces related to seasons (temperature, day length, precipitation,
etc.) drive seasonal variation, far more basic forces drive trends.
The only three forces that can sustain a price trend are inflation,
sustained changes in demand, and costs. Figure 1 shows all of three in
one manner or another.
The rising prices of the late ’70s were driven by growth in meat
demand and inflation. The lessening of inflation and downward pressure
on meat demand caused the flattening of prices in the ’80s and early
’90s. The down trending prices of the late ’90s and early part of
this decade were caused by adoption of new technologies that drove down
the cost of raising hogs and processing them into pork.
Some would argue with the last point, perhaps saying that the real
reason prices fell was packer consolidation, captive hog supplies and a
number of other structural “ills” that conspired against hog
producers. Those things can happen, but the net effect of such price
declines in the absence of cost declines would be a reduction (perhaps a
dramatic one) of hog numbers. We know that was not the case as hog
numbers and pork production trended steadily upward, even during these
years of downward trending prices. Only one thing can allow that result
– falling industry costs.
Why has the trend changed?
Again, it’s a combination of the forces that drive trends. The first
driver was the meat and pork demand improvement of 2004. Low-carb,
high-protein, Atkins-type diets did a world of good for meat demand and
got many Americans back in the habit of being carnivores – or at least
the natural omnivores that we are!
But demand softened dramatically in 2006, driving prices lower and
threatening the newly formed uptrend. The adoption of circovirus
vaccines is the kind of technological advancement that usually means
lower costs and a downtrend of prices. But I think it is clear that the
increase in the prices of production inputs will offset the higher
efficiency we have gained from these effective vaccines.
Higher grain prices are only part of the picture. Fuel, steel, cement,
lumber – you name it – it’s higher today than just a couple of
years ago. These price increases will moderate and perhaps reverse at
some point, but the foreseeable future holds higher costs and, I think,
a continuation of the up trend in hog prices. I believe it is very
likely that we will see record-high prices in 2010 and beyond.
It doesn’t take a math wizard to see that higher costs and higher
prices do not likely add up to any higher profits. Let’s just hope
profits remain as good as they have been in the past.
Lest anyone be celebrating last week’s “relatively small” 4.9%
year-over-year increase for federally inspected hog slaughter, realize
that it is caused by last year’s March surge in slaughter – not a
reduction in this year’s slaughter levels. As can be seen in Figure
1, the second week of March 2007 saw a big increase in slaughter, which
was driven in part by storm-shortened slaughter runs the prior week.
It now appears that it was also the first evidence of the impact the
circovirus vaccines would have. The vaccines were first available for
commercial use during the fall of 2006. While not enough vaccine was
available to meet demand, it did get used on several hundred thousand
pigs (though sometimes at just half the recommended dosage). Those
pigs, by all reports, grew much faster than non-vaccinates and reached
slaughter earlier. That pulled pigs out of April slaughter and into
March and showed up as a surge in March slaughter, then began “tailing
off” in April and May. As more and more vaccine became available,
slaughter runs began to grow during the summer and then exploded in
September – a data commensurate with the full availability of
circovirus vaccines in late June and July.
The moral to that story is that we are now comparing slaughter runs of
vaccinated pigs to runs of “partially-vaccinated” pigs in 2007. The
year-over-year percentages will be smaller, but the actual slaughter
totals will still be record-large for the weeks in question.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Production Preview
Practical
Application of Six Sigma
Previously in this column, Stephanie Rutten, DVM, and
others have discussed the benefits of using “Six Sigma” strategies
in pork production. To briefly recap, Six Sigma involves the steps:
Define, Measure, Analyze, Improve, and Control in a problem
identification and resolution model (DMAIC). While this process is used
by more than 35% of North American businesses, it is still not generally
applied in modern pork production.
At the recent American Association of Swine Veterinarians meeting, a
paper was presented that outlined how Six Sigma methodology was used to
capture pig performance improvements. Aaron Lower, University of
Illinois, conducted the research and he gave special recognition to Jim
Lowe, DVM and Dale Polson, DVM, The Mashhoffs Inc., and Boehringer
Ingelheim Vetmedica for their contributions and support of the project.
Briefly, Lower’s paper described each step of the Six Sigma process in
the study:
Define: For the problem of interest, a project charter was
developed that further defined the problem, its financial impact,
project objectives, and goals and an action plan to resolve the problem.
Measure: Pig group-level production data were analyzed by sow
farm source, flow, season placed and year of production. One specific
flow of pigs was targeted that had high mortality. Diagnostic data for
the past three years was evaluated to assess trends in disease behavior
and a thorough diagnostic investigation in selected sites was completed
for the targeted flow.
Analyze: A list of possible causal factors for the defined
problem was developed and prioritized. Measure phase data was analyzed
and causal hypotheses were developed.
Improve: Proposed solution options targeted the defined problem.
Pilot projects were developed to test one or more of the proposed
problem solutions.
Control: The researchers then developed a control plan to apply
the identified solution for the flow to sustain the improvement observed
in the “improve” phase.
Results of the Six Sigma application: “To determine the site level
prevalence of porcine reproductive and respiratory syndrome (PRRS) virus
and salmonella, serum samples are being collected from the next 30 lots
(sites) of a PRRS naïve and salmonella-negative pig sources,” Lower
writes. “To understand personnel attitudes, a survey is being
administered in the last 30 days of selected pig groups. To measure
biosecurity practices, group-to-group hygiene is being surveyed on 90%
of pig sites for six months. Additionally, those sites will be swabbed
utilizing a culturing tool and standard sampling protocol.
“In-process biosecurity practices will be monitored by veterinarians
visiting each site, twice per turn. Individual site biosecurity risks
are being compiled using the American Association of Swine
Veterinarians’ PRRS risk assessment for grow-finish sites. Lastly, we
will assess area contact and pig density for each mean-to-market
site,” Lower says.
In conclusion, the Lower adds: “Six Sigma is a well-structured process
that supports disciplined and objective decision-making. DMAIC projects
are effectively utilized when there is a definable problem with an, as
yet, unknown and untested solution. Six Sigma holds significant
potential to help veterinarians make legitimate, accurate, cost-saving
decisions to improve profitability in their clients’ operations.”
Undoubtedly, practice of the Six Sigma protocol on a regular basis will
improve pork producers’ comfort level with strategy and, ultimately,
the results will likely speak for themselves.
JoAnn Alumbaugh
Farms.com
joann.alumbaugh@farms.com
For all your agricultural news, markets and commentaries, go to www.farms.com.
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Legislative Preview
Farm Bill Extended
Until April 18
Congress extended the current farm bill until April 18,
giving the House and Senate Agriculture Committees additional time to
try and finalize a new farm bill. This week the leadership of the House
and Senate Agriculture Committees, Senate Finance Committee and the
House Ways and Means Committee continued to work on determining the
additional funding level for the farm bill ($10 billion), offsets to pay
for the additional funding and determining the funding levels for each
title of the bill. The effort was ongoing at press time.
Payment Limitations — During consideration of the fiscal year
2009 budget resolution, the Senate Budget Committee adopted Senators
Wayne Allard (R-CO) and Chuck Grassley’s (R-IA) amendment to limit
farm program payments to $250,000. Senator Grassley said, “The farm
bills that passed the House and Senate have loopholes that make the farm
payment system worse than what we operate under now. So, despite the
fact that we’re in the middle of conference negotiations, I’m
looking for ways to address the problems that weren’t taken care of.
The majority of the Senate gave its support to payment limits during the
farm bill, so it seems only right to keep pushing for passage.” This
will be a major issue for the House-Senate farm bill conference
committee.
EPA Proposes More Options for CAFOs — Environmental Protection
Agency (EPA) is proposing additional options to a 2006 proposal for
concentrated animal feeding operations (CAFOs) under the Clean Water
Act. This supplemental proposal will be published soon in the Federal
Register and open to public comment for 30 days. According to EPA,
“Under current law, if CAFOs do not discharge pollutants to waters of
the United States, they do not need a Clean Water Act permit. Today's
proposal would, for the first time, allow CAFOs to certify that they do
not discharge. EPA is also proposing three different approaches for
nutrient management plans (NMPs) that could be used by permitting
authorities and CAFOs to determine application rates of manure, litter
and wastewater to be incorporated into the permit. An NMP specifies the
amount of manure that can be applied to crops so nutrient runoff to
water bodies is minimized.”
Senators Urge Caution on Argentina Beef and Lamb — Senator John
Tester (D-MT) and seven other U.S. Senators have sent a letter to
Secretary of Agriculture Ed Schafer stating their strong concerns about
USDA relaxing restrictions on beef and lamb imports from Argentina. USDA
has proposed a rule, “Change in Disease Status of the Patagonia South
Region of Argentina with Regard to Rinderpest and Foot-and-Mouth Disease
(FMD),” that would allow for the importation of beef and lamb from
Argentina. The Senators said, “We have serious concerns about the
implementation of such a plan. Questions remain about the effectiveness
of animal disease controls and tracking in Argentina. Weaknesses in
this system could have serious effects on the American livestock
industry. FMD is among the most contagious of livestock diseases and is
spread by air. As you know, FMD continues to be found in cattle in
Argentina and the risk of transmission to United States herds poses an
unacceptable risk to United States producers. The USDA will be unable to
ensure that the disease will not enter FMD-free regions of Argentina and
beyond.” Those joining Senator Tester include Senators John Bassaro
(R-WY), Kent Conrad (D-ND), Pete Domenici (R-NM), Byron Dorgan (D-MT),
Mike Enzi (R-WY), Tim Johnson (D-SD) and Claire McCaskill (D-MO).
Cattlemen’s Reaction to Argentina Rule — The National
Cattlemen’s Beef Association (NCBA) commented: “The risk to U.S.
agriculture and to our cattle producers of introducing foot-and-mouth
disease (FMD) into our country is too great and the economic and animal
health consequences are far too significant to prematurely allow a
change in the disease status of Patagonia South as it relates to FMD and
rinderpest at this time. USDA should keep in mind that their actions
must protect the health of the United States cattle herd as well as
protect the economic livelihood of U.S. cattlemen and other affected
livestock species as trade is resumed with all international
partners.” NCBA is also concerned why the administration is trying to
increase beef imports while U.S. beef exports are still banned in other
countries. Jay Truitt, NCBA Vice President of Government Affairs, said,
“Clearly USDA has its priorities mixed up. It is unconscionable for
USDA to work to expand access for any other beef into our country when
they have yet to fulfill its responsibilities regarding the reopening of
export markets for U.S. beef and breeding stock. Science is always the
primary concern for making these types of decisions, but you just cannot
ignore the financial impacts of these types of decisions – especially
when costs of production are skyrocketing largely based on government
policies. We need relief and we need results that mean beef and cattle
sales to previously strong markets.”
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
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Pork Industry Calendar
March 19, 2008: Northeast Iowa Agricultural
Experimental Association annual meeting, Nashua, IA, featuring
"Livestock and Ethanol Boom" by John Lawrence of Iowa State University.
For more information, contact your local Iowa State University Extension
office.
April 1, 2008: "Exploring Opportunities: A Conference for
Aspiring Pork Producers," Quality Inn and Suites, Ames, IA; contact:
Iowa Pork Industry Center at (800) 808-7675.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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late.
Call Boehringer Ingelheim at 1-800-325-9167.
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