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Market Preview
(Editor's note: This column was written before Senate
and House farm bill conference leaders agreed on a final draft of the
2008 farm bill. See Legislative Update, below, for current details.)
Pork’s Part in the Farm Bill
The 2008 farm bill continues to slog through Congress.
The bill is still in conference committee where conferees from both
houses are trying to work out the differences between their two
versions. If and when those differences get ironed out, the conference
report will go back to both houses for an up-or-down vote with no
amendments allowed.
There are still some substantial differences in the two versions,
primarily revolving around funding and what many view as “juggling the
books” to make the costs and revenues work. It does not appear that
the Bush administration is buying much of that. A veto threat still
hangs over the entire proceedings.
The farm bill contains several features directly related to hog and pork
markets and marketing. They include:- Changes in mandatory
country-of-origin labeling (MCOOL).
- Provision for a multi-country label that would cover animals
that originate in Canada and are slaughtered in the United States.
Product from any animals born in Canada, whether they were fed in Canada
or in the United States would be labeled “Product of Canada and the
United States.” There is some flexibility in how the rules (i.e. the
actual operating instructions of the law) will be written, so it is not
completely clear what the labels will say or just how much flexibility
will be provided for packers, processors and retailers.
- Provisions for a “May contain product from ____“ label on ground
meat, where all of the countries from which product may reasonably come
are listed. This is a big deal for ground beef.
- MCOOL verification records limited to those kept in the “normal
conduct of business.”
- A hard date to establish animals from which product may be labeled
“Product of the United States.” The trouble is that this currently
reads Jan. 1, 2008. It is very likely that conferees will change this
date – probably to July – due to the delays in getting the bill
through.
- A provision to fund a study of mandatory reporting for wholesale
pork cuts. The small percentage of pigs (around 10%) for which prices
are negotiated each day has driven interest in improving the quality of
USDA hog cutout value – which is based on wholesale pork cut prices.
The problem is that the voluntary system for wholesale pork reporting
has resulted in low reporting of an already thinly traded market. The
Secretary of Agriculture has the authority to do this. The Farm Bill
just calls for a study. Many in the industry think this should be used
to lay the groundwork for a system similar to that being used for
beef.
There were also a couple of items that were omitted in the Senate
version of the bill. Most notable is the deletion of the ban on packer
ownership, which has long been championed by Senator Charles Grassley
(R-IA). Producers have differing opinions on this topic, but I believe
a large majority opposed it due to the very real possibility that the
provision would have been used to outlaw marketing contracts. This is
the second time that Senator Grassley and his colleagues in the Senate
have put the provision in a Farm Bill and the second time that it has
been taken out in conference.
The second item deleted was a change to the mandatory price reporting
system that would have delayed the afternoon reports. The idea was
promoted as a way to capture a larger proportion of the hogs priced on a
given day in order to reduce the possibility of manipulating prices,
especially on formula-priced pigs. No one knows just how much the delay
might have accomplished, but I believe the gain would have been small.
Rules to enact the mandatory price reporting system changes made in 2006
will apparently finally be published – maybe. The system was
reauthorized in October 2006 for a 5-year period, so by the time the
rule is published, the effective period will be down to less that 2.5
years. The deadline for packers to report prior-day slaughter data will
be changed from 7 a.m. to 9 a.m. No change will be made for prior-day
purchase data since those data are more critical for knowing the current
market situation. In addition, the definition of a pork packer will be
changed to expand the coverage of those that slaughter sows and boars.
John Reddington, vice president of the American Meat Institute (the meat
packers’ trade association) told attendees at the National Pork
Board’s Pork Management Conference that the export situation with
Russia might get worse. Russia delisted four U.S. plants the week
before last for allegedly excess residues of tetracycline. The
announcement came the day before Russian officials left on Easter
holiday. They will return on Monday and there are rumors that up to 12
more plants will be delisted.
One problem is that U.S. officials do not know the levels of
tetracycline actually found by Russian inspectors as no one has been in
Moscow to tell them. Russia’s tolerance level for tetracycline is
very near zero. All we currently know is that some greater level was
apparently detected.
I commented last week that I wasn’t worried about this situation
unless it spread to more plants. Delisting four plants leaves plenty of
opportunities to ship pork to Russia. Delisting 16 plants will be much
more problematic. We need exports to keep humming along!
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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Production Preview
Antibiotic Use on the Docket
To date, a ban on subtherapeutic antibiotic use has not
been implemented due to financial consequences it would cause to the
livestock industry. However, political and social pressures are gaining
leverage.
An example of such leverage is apparent in the Preservation of
Antibiotics for Medical Treatments Act, sponsored by Senators Edward
Kennedy and Olympia Snowe and Representative Louise Slaughter. This bill
would ban subtherapeutic use of seven classes of medically important
antibiotics in livestock and poultry, including penicillin,
tetracycline, macrolides, lincosamides, streptogramins, aminoglycosides,
and sulfonamides.
Such a ban on antibiotics would have a severe impact on animal health
and welfare. Non-therapeutic usage of antibiotics to control and prevent
disease would be much more restrictive and would result in increased
animal morbidity. The ban would obviously limit the supply of necessary
antibiotics and decrease the number of antibiotic classes available for
use in treatment. As a result, more pressure would be placed on the
remaining, unrestricted antibiotics for disease treatment in animals,
which would increase their use and likely lower their efficacy in
minimizing health problems over time.
On the other hand, public perception is important in the marketing of
meat products. As a result, producers, agribusiness managers and pork
industry leaders may need to reevaluate the way subtherapeutic
antibiotics are used. Steve Henry, DVM, with the Abilene Animal Clinic
in Abilene, KS, suggests that controlled antibiotic prescriptions may be
the best way to monitor the use of subtherapeutics. “We need to
preserve therapies for animal health, well-being, and prevention of
disease and distress, not overuse them to increase growth,” he states.
With government intervention, more control over the use of antibiotics
at the subtherapeutic level may be seen. However, controlled use is a
far more appropriate step to reducing antibiotic levels than a ban.
Currently, a thorough surveillance system for measuring and evaluating
the use of antibiotics is lacking. The implementation of such a system
would provide producers and veterinarians with more consistent, in-depth
data and a higher degree of traceability.
By JoAnn Alumbaugh
Farms.com
Editor’s Note: To learn more about benchmarking, go to www.pigchamp.com. For all your
agricultural news, markets and commentaries, go to www.farms.com
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Legislative Preview
Farm Bill Agreement
A final agreement was reached by the Senate and House
farm bill conference leaders. The final bill is expected to be released
late this week or next Monday, with Congress voting on the bill next
week. Nutrition spending will account for nearly 73% of the bill,
commodity programs account for approximately 16%, and conservation
spending will represent about 7% of the total farm bill expenditures.
Following are some of the key provisions of the agreement:- Crop
Revenue Election Program (ACRE) – Producers will have the option,
beginning with the 2009 crop year, to participate in a state-level
revenue protection system.
- Rebalances Target Prices and Loan Rates – The bill adjusts loan
rates and target prices of existing commodities beginning with the 2010
crop year.
- Adjusted Gross Income Eligibility Test – To receive farm program
benefits, an individual’s non-farm income may not exceed $500,000. If
farm income exceeds $750,000, an individual will no longer be eligible
to receive direct payments.
- Disaster Assistance – Establishes a permanent disaster assistance
program.
- Environmental Quality Incentive Program (EQIP) – Provides an
additional $3.4 billion for EQIP.
- Conservation Stewardship Program (CSP) – CSP is focused on
incentivizing new conservation, while simultaneously rewarding producers
for achieving high levels of stewardship and addressing priority
resource concerns in their area. The program will enroll nearly 115
million acres by 2017. This was formerly called the Conservation
Security Program.
- FMD & MAP – The Foreign Market Development Program (FMD) and the
Market Access Program (MAP) continue funding at $34.5 million and $200
million, respectively.
- Biomass Loan Guarantees – The bill provides $320 million in
funding for loan guarantees for commercial scale biorefineries for
advanced biofuels. This program is to help commercialize cellulosic
ethanol.
- Ethanol Credit Modification – The 51 cents/gallon credit for
ethanol is reduced by 6 cents in the year after which the 7.5
billion-gallon threshold established in the 2005 Energy Policy Act is
reached.
- Cellulosic Biofuels – A new temporary production tax credit for up
to $1.01/gal. is established for cellulosic biofuels.
More details
on the farm bill will appear in next week’s North American
Preview.
Farm Bill Veto Expected — Secretary of Agriculture Ed Schaefer,
in a statement, declared: “For a year and a half, the Administration
has been consistently clear that Congress needs to move forward with a
good farm bill that the president can sign. They have failed to do so.
This legislation lacks meaningful farm program reform and expands the
size and scope of government. I have visited face to face with our
president and he was direct and plain. The President will veto this
bill."
Dueling Senator Letters — There were dueling Senate letters
sent to Environmental Protection Agency (EPA) concerning the Renewable
Fuels Standard (RFS). Senators Kay Bailey Hutchison (R-TX) and John
McCain (R-AZ), along with 22 other Republican Senators, sent a letter to
EPA regarding the state applications for a waiver of the RFS. The
Senators asked EPA to take into account the food inflation concerns when
considering the requests for a waiver of the RFS. The letter stated,
“American families are feeling the financial strain of these
food-to-fuel mandates in the grocery aisle and are growing concerned
about the emerging environmental concerns of growing corn-based ethanol.
It is essential for the EPA to respond quickly to the consequences of
these mandates.” In a letter to EPA Administrator Stephen Johnson,
Senators Chuck Grassley (R-IA) and Tim Johnson (D-SD) and a number of
other Senators expressed strong opposition to any request to partially
or completely waive the RFS. The letter stated, “We strongly disagree
with the assumption that the renewable fuels mandate is harming the U.S.
economy or that it’s primarily responsible for the global escalation
of food costs.”
USDA Buys $50 Million of Pork — USDA plans to purchase up to
$50 million of pork products that will be donated to child nutrition and
other domestic food assistance programs. USDA’s Food and Nutrition
Service (FNS) will survey potential recipients to determine how much
product will be accepted for shipping. Then USDA’s Agricultural
Marketing Service will seek the lowest overall cost bids to supply the
products.
Downer Cattle Video — The Humane Society of the United States
(HSUS) released another video showing downer cattle being ignored or
mistreated at livestock auctions and stockyards in Maryland, New Mexico,
Pennsylvania and Texas. In a letter to Secretary of Agriculture Ed
Schafer earlier this month, HSUS asked that USDA take the following
steps:- Require immediate and humane euthanasia of all
nonambulatory livestock, regardless of the reason(s) an animal went
down, including nonambulatory livestock at stockyards, market agencies,
at dealer facilities and on livestock trucks.
- Except in cases where euthanasia is impossible in situ,
nonambulatory animals may not be moved or transported.
- In cases where movement is required, a nonambulatory animal must
first be rendered unconscious and must remain unconscious until death.
- Euthanasia must be performed by a competent and trained individual.
- Clinical death must be confirmed prior to disposal.
Rail Transport Issues in Rural Areas — The House Committee on
Small Business held a hearing to examine the impact of rail transport
issues on rural small businesses and farms. According to the committee,
rail transit has increased considerably and various railroad companies
have consolidated with shipping rates going up by as much as 80%.
Congresswoman Nydia Velazquez, chairwoman of the committee, said, “The
nation’s rail system may be overstretched, but that does not give
massive transport companies license for unreliable service or price
gouging. When Congress passed the Staggers Act, it did not intend for
rail monopolies to develop. Clearly, it’s time we revisit how the law
is being enforced by the STB (Surface Transportation Board).”
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Pork Industry Calendar
May 19-21, 2008:
"Mitigating Air Emissions from Animal-Feeding
Operations," Hotel Fort Des Moines, Des Moines, IA; contact: Robert
Burns at Iowa State University, (515) 294-4203 or rburns@iastate.edu or click on http://www.abe.iastate.edu/wastemgmt/mitigation
May 29, 2008: PorkBridge
"Large Group Pens and AutoSort Technology" 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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