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Dale Miller, Editor,
National Hog Farmer
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Market Preview
Poultry Testing
Uncharted Territory
When my eldest son was 5 years old, we saw a giraffe
being born at the St. Louis zoo. His response was something along the
lines of: “Eeewww! That’s yucky! It has really long legs. Can we
find the arcade now?”
His response was, of course, completely unacceptable to me as I tried to
convince him of the rarity of this occurrence, especially its being
witnessed by a kid who at the time lived in central Missouri. He might
grasp that concept now, at 25, but I’m not certain he would even
today.
We may be witnessing something about as rare as the birth of that long-
and wobbly-legged spotted baby 20 years ago – that being the equally
rare and dramatic reductions in chicken output. Figures 1, 2 and 3 show
three perspectives on this noteworthy occurrence.
Figure 1 shows actual egg set numbers for 2007, 2008 and the average for
2002-2006. Broiler egg sets dropped below year ago levels in late March
and have been lower, year-over-year, in every week but one since. The
magnitude of the reductions grew in early July and then exploded in
early September.
Figure 2 shows the year-over-year percentage changes for broiler egg
sets. Note that much of 2006 saw small reductions in egg sets before
higher broiler and chicken parts prices encouraged a resumption of
growth for much of 2007 in spite of higher feed costs. Growth rates of
roughly 4% for Q4 ’08 and Q1 ’09 finally came home to roost this
past spring and summer when steady chicken prices ran head-long into
record-high feed costs.
Those factors have done monumental damage to Pilgrim’s Pride, the
nation’s largest broiler producer and have hurt Tyson Foods, Sanderson
and others as well. The economic pain has finally driven some producers
to reduce output even though Dick Bond of Tyson stated over and over
last week that Tyson views the supply-demand balance position in the
broiler industry as about right. I think that is code for “We did the
cutting back in 2006. It’s y’all’s turn now.”
Figure 3 puts this in the proper historical perspective, which is:
“The U.S. broiler industry has never seen anything like this!” In
fact, the industry had hardly ever (at least since 1987 when my data set
begins) seen any weeks below one year earlier until late 1999. It had
never seen a 5% year-over-year reduction until October 2002, when it
finally responded to Russia’s chicken embargoes – and then there was
a whole two weeks of draconian cutbacks.
This appears to be the “real deal” and it will have some major
impacts on U.S. chicken prices. The lower sets since March have
already driven slaughter reductions this year and the summer cutbacks
have caused slaughter to be 3% lower since Sept. 1. Part of that
reduction has been offset by an increase in bird weights, but even
production is lower by 2.6% over that period. And the slaughter and
production reductions will get larger any day now as the birds from
those lower September egg set weeks reach market age.
Propping Up Pork
What does this mean for pork? I think it means some much-needed help in
the meat case. Checkoff-funded research conducted by Texas A&M
University in 2005 showed that the substitute relationship between pork
and chicken has increased over time. That relationship is a big reason
that the Russian embargo on chicken imports in 2002 had such a huge
impact on pork and hog prices. This situation should be the opposite
– higher chicken prices will cause some consumers to switch to pork,
thus driving up prices. The big question is whether that positive
impact will outweigh slowing exports as the U.S. dollar increases in
value.
Then There’s Ethanol
What is going to happen to the ethanol industry? That’s a widespread
and important question at the moment. Falling oil prices beget falling
gasoline prices which beget falling ethanol values. And, ethanol plants
are getting caught between falling output prices and nasty corn prices.
Figure 4 illustrates a point that I think we are going to see repeated
often. It contains a simple computation of the profitability of
converting a bushel of corn into ethanol. The parameters come from a
spreadsheet developed by Iowa State University’s Agricultural
Marketing Resource Center (www.agmrc.org/), although I was unable
to find the spreadsheets on the site Thursday night. The conspiracy
theorist in me wonders why they are no longer there. But alas! I had
saved a copy a few weeks ago and plugged in corn, ethanol, DDGS and
natural gas prices for last week.
Isn’t it curious that the price of corn last week was such that the
net profit from turning corn into ethanol was practically ZERO? That is
exactly what a competitive economic model would suggest. Ethanol makers
should bid enough for corn that their “economic profits” (i.e.
profits above “normal” returns on invested assets) are zero.
Economic returns in this instance are actually slightly negative since
this model does not include a payment (i.e. normal return) to the 50% of
investment that is assumed to be debt capital.
The result may not happen every week, but efficient markets should
result in corn being priced off its highest valued use and that is still
ethanol. Neither $50/cwt. carcass hogs, nor $80 broilers, nor, for
sure, $90 and lower fed cattle would support $3.75/bu. corn. But even a
struggling ethanol business will. Don’t expect corn to go much lower
unless oil and gasoline do so. That could happen, but the point is that
ethanol is still driving the corn price train!
CORRECTION: In the Nov. 14, 2008 North American Preview, I
incorrectly listed JBS-Swift as a company that plans to use the
multi-country label for pork and thus would buy Canadian-born market
hogs. They have not done so since mandatory country-of-origin commenced
and do not plan to do so. I apologize for any inconvenience the error
may have caused.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
Production Preview
Testing the
Merits of Subtherapeutic Antibiotics
The use of subtherapeutic antibiotics in nursery pig
diets is a common practice in the United States, although such use has
been limited in other countries.
Researchers at Iowa State University designed a study to determine
whether subtherapeutic antibiotics can be removed from the nursery diet
without detrimentally affecting the behavior, performance and physiology
of the pigs.
In the study, 224 crossbred nursery pigs between 17 and 20 days of age
were assigned to pens (four pigs/pen) in a completely randomized design
arrangement of dietary treatments. The diets consisted of a control
group (with carbadox and tiamulin/CTC at approved levels), and a
treatment group (without antibiotics in the diet, but with additional
dietary fat supplemented in the form of choice white grease at a level
50% higher than the control diet).
Pigs were provided ad libitum access to feed in plastic feeders and
water from a nipple waterer during three dietary phases. Behavior
information was collected on 60% of all pens, which was recorded
continuously for a 24-hour period once feed was placed in the feeders on
the first day, then again at each dietary phase change. The time(s)
required for all pigs in a pen to initially visit the feeder was
recorded.
Blood samples were collected from each pig twice during the six-week
trial to evaluate health. A porcine reproductive and respiratory
syndrome (PRRS) enzyme-linked immunosorbent assay (ELISA) was conducted
on 40% of the blood samples.
Individual pig weights were collected on day of arrival, on each day the
diets changed, and at the end of the trial. Respiration rates and rectal
temperatures were recorded weekly on one barrow and gilt per pen.
Researchers observed that treatment pigs visited the feeder more quickly
than control pigs. They also grew faster and had an improved
feed-to-gain ratio compared to the control pigs. There were no treatment
differences for total nursery feed intake, nor were there differences in
respiration rates or rectal temperatures.
In conclusion, increasing fat content by 50% in nursery pig diets may
allow removal of feed grade subtherapeutic antibiotics without adversely
affecting behavior, physiology or performance when fed to pigs whose
health status is not compromised
The key component of the study may be the health status of the pigs. If
a herd has a high health status, then omitting subtherapeutic
antibiotics from pig diets may be an option. It is certainly worth
considering, not only from a cost standpoint, but also from a public
perception and a government policy standpoint.
Editor’s Note: The information for this article was compiled from a
research study performed at Iowa State University, entitled “Removal
of Subtherapeutic Antibiotics from Nursery Pigs Diets: Influence on
Behavior, Performance and Physiology.” The study was performed by
Ciara Jackson, Anna Johnson, Ken Stalder, Mark Honeyman and Locke
Karriker, DVM.
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Legislative Preview
Group Urges the
Phase-Out of Ethanol Support
A coalition of livestock, meat, environmental and
taxpayer organizations this week called on the Obama administration and
the new Congress to repeal ethanol “subsidy” programs. The
coalition sited a national survey by Ipsos Public Affairs that indicated
that 89% of Americans are concerned by the high price of food. The
survey was commissioned by the members of the Food Before Fuel campaign.
The National Turkey Federation said, “Ethanol has been on the
government payroll for 30 years. After three decades of government
policies subsidizing and supporting the ethanol industry, we find
ourselves at the end of 2008 with more questions than ever before about
the wisdom of this course.” Members of the coalition include the
American Meat Institute, Environmental Working Group, National
Cattlemen’s Beef Association, National Chicken Council, National
Restaurant Association and the National Retail Federation.
Ethanol Tax Credit – Success Story — As the coalition was
calling for the repeal of ethanol support programs, a new report
released by LECG, LLC indicated that for every dollar invested in
America’s ethanol industry in the form of the federal excise tax
credit, there was nearly $5 returned to federal, state and local
government and the economy as a whole. According to the study, the
ethanol industry has “generated an estimated $33.4 billion (2008$) in
tax revenue for the federal government and nearly $17 billion (2008$) of
additional tax revenue for state and local governments since 1978,
reduced American’s tab for imported oil by $97.5 billion, helped
reduce farm program payments by more than $3 billion annually since
2006, and put some $66 billion more into the pockets of Americans in the
form of increased household income since its inception in 1978.” The
report was sponsored by the Renewable Fuels Association.
Advanced Biorefinery Guaranteed Loans — USDA announced that
applications are being accepted for loan guarantees under the
Biorefinery Assistance Program that was authorized by the 2008 farm
bill. The program is designed to promote the development of new and
emerging technologies for the production of advanced biofuels. This
program provides loan guarantees for the development, construction and
retrofitting of viable commercial-scale biorefineries producing advanced
biofuels. The program provides $75 million in fiscal year 2009 and $245
million in fiscal year 2010. The loan guarantees are not to exceed $250
million per project.
Pork Checkoff Vote — USDA’s Agricultural Marketing Service
(AMS) will conduct a Request for Referendum on Dec. 8, 2008 through Jan.
2, 2009, to determine if producers want a referendum on the pork
checkoff program. If a minimum of 15% of eligible producers request a
referendum, then AMS will hold a referendum.
Chilton & Jett to Lead Obama USDA Transition — Bart Chilton
and Carole Jett will lead the Obama transition team at USDA. Chilton
currently is a member of the Commodity Futures Trading Corporation
(CFTC) and served as deputy chief of staff to Secretary of Agriculture
Dan Glickman. Jett retired this spring from USDA’s Natural Resources
Conservation Service. She had been a career employee.
Congressional Leadership for the 111th Congress — The
Democratic and Republican caucuses this week selected their leadership
teams for the 111th Congress. The Senate leadership will remain
Senators Harry Reid (D-NV), Majority Leader; Dick Durbin (D-IL),
Majority Whip; Mitch McConnell (R-KY), Minority Leader; and John Kyle
(R-AZ), Minority Whip. In the House of Representatives, Nancy Pelosi
(D-CA) will continue as Speaker with Congressman Steny Hoyer (D-MD) as
Majority Leader. Congressman John Boehner (R-OH) will remain as
Minority Leader with Congressman Eric Cantor (R-VA) serving as the new
Minority Whip. In a very tough vote, Congressman Henry Waxman (D-CA)
ousted Congressman John Dingell (D-MI) as Chairman of the House Energy
and Commerce Committee. This could cause a major change in direction on
environmental and food safety issues that come before this committee.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
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Pork Industry Calendar
Dec. 4-5, 2008: National Swine Improvement
Federation Annual Conference, Embassy Suites Hotel, St. Louis, MO;
contact: Glenn Conatser at gconatse@utk.edu or go to www.nsif.com.
Dec. 5-6, 2008: International PRRS Symposium, "PRRSV Reverse
Genetics: From the Laboratory to the Field," Downtown Marriott
Hotel, Chicago, IL; contact: http://www.prrssymposium.org.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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