NHF_North American Preview_: U.S.-Canadian Exchange Rate More Balanced

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November 7, 2008	A Penton Media Property

Table Of Contents

-	U.S.-Canadian Exchange Rate More Balanced
-	Execution is Critical to Diagnostic Outcome
-	Obama Wins

What's new on National Hog Farmer?

- Seeking More Full-Value Pigs
- 12 Risk Factors Worth Checking
- California’s Proposition 2 Passes by Wide Majority
- COOL Causes Trade Friction Between U.S.-Canada Producers
- Blueprint Issue: Sow & Pig Care – Birth to Weaning
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Market Preview
U.S.-Canadian Exchange Rate More Balanced
“It was the best of times. It was the worst of times.” So began Dickens’ “A Tale of Two Cities.”

While today doesn’t actually represent either the best or worst times for Canadian pork producers, it certainly presents two very opposite, but simultaneous, occurrences – a weaker Canadian dollar and mandatory country-of-origin labeling (COOL). I’ll address the exchange rate this week and gladly put off the mandatory COOL discussion until next.

The weaker Canadian dollar has provided a virtually instantaneous increase in prices received by Canadian hog producers relative to their U.S. counterparts. That is not to say that prices are good in Canada. They just have not fallen nearly as much as they have in the States. The simple reason is that a weaker Canadian dollar (i.e. more $Can needed to make one $US) translates a given U.S. price into more Canadian bucks.

Figure 1 shows historic weekly hog prices for the United States and Canada (restated to $US/kg). I use Ontario prices simply because all Canadian prices are highly correlated and the Ontario prices were usually within the range of the other provincial prices. I could use any Canadian price series and make my point because in recent weeks, Canadian prices have stayed constant while U.S. prices have fallen sharply.

This is no panacea, however. The weaker Canadian dollar also increases the cost of any inputs whose prices are determined by the U.S. market. Therefore, most feed costs have increased relative to those of U.S. producers. However, only about 60% of Canadian production costs are tied to U.S. prices, so Canadian producers win as virtually all of their income grows and only a portion of their costs grow. That is the flip side of the forces that have hammered Canadian producers since the loonie (a nickname for the Canadian dollar; the coin has a loon on it) began gaining value back in early 2003.

A further benefit of a weaker loonie is just now being felt as Canadian product is more competitive in world markets. The cheap U.S dollar has provided a pricing advantage to U.S. exporters for some time. The rising dollar and, especially, the falling loonie, make Canada’s products relatively better buys. I understand that Canadian sellers are making substantial gains in Japan and China where currencies have gained more relative to the Canadian dollar than to the U.S. dollar.

I have also divided Figure 1 into three pretty distinct periods. The first, 2002 through most of 2004, was characterized by relatively high prices in Canada that were trending back toward U.S. prices as the Canadian dollar gained about 25% in relative value. Canadian breeding herd growth peaked at 7.6%, year-over-year, in January 2002. The first year-over-year decline in nine years occurred in April 2005 – shortly past the end of the red-boxed period.

The third period (blue box) runs from the beginning of 2006 through the third quarter of this year. It is characterized by low Canadian prices relative to U.S prices and a huge (12.9%) reduction in Canada’s breeding herd.

The other period (green box) is the one I find most interesting. From Q4-’04 through 2005, the exchange rate averaged $Can1.21/$US (or $US 0.82/$Can, if you prefer). During that period, Canada’s year-over-year breeding herd changes were +1.6, +1.0, -0.03, -0.7 and -0.3%. The year-over-year breeding herd change in the United States was less than 1% in either direction in all five of those quarters. I know there were many other factors at play, but it certainly appears that the U.S-Canadian pork industries might be more compatible at a ratio of about $1.20:$1.00, doesn’t it?

And look where we are now: Roughly $1.20:$1.00. That doesn’t mean things will be stable, since everyone is losing money at current feed and hog prices. But it does suggest that the signals may be more even-handed than they have been, thus allowing the two countries’ producers to move in tandem, perhaps, rather than in opposition.

So do you think we can get Ben Bernanke and Mark Carney (for U.S. readers, Carney’s the Governor of The Bank of Canada) to cooperate a little based on this evidence? Probably not, especially with the number of alligators both of them are fighting during the current financial swamp draining. But at least we have a bit of context in which to place our exchange rate and what has happened in the past to the U.S. and Canadian hog herds.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com

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Swine Health Preview
Execution is Critical to Diagnostic Outcome
It seems that diagnostic testing, at least in some situations, adds confusion rather than clarity to a situation. The numbers and types of tests are increasing. The performance – sensitivity and specificity – of test types vary. What tests actually measure can be confusing. A very brief summary is provided in Table 1.

Is there another reason diagnostic testing seemingly adds to confusion rather than clarity? The answer is woven into the very nature of biology. A very common answer to questions that deal with biological systems is “it depends!” All too often we choose to use diagnostic testing to confirm a bias; that is, we tend to use the diagnostic results that are convenient to us or provide the answer we want.

The results of diagnostic testing should be an unbiased aid in a decision. These questions should be asked and answered before submitting specimens to a diagnostic laboratory:

What is it you want to know?
What information do you need to better understand?
What test(s) will provide useful information?
And most importantly, what will you do differently, based on the outcome of a diagnostic test?

The diagnostic questions will then determine the tests and testing strategy chosen and how you will interpret the results. The unique features of a production system and interactions of various risk factors will strongly influence the diagnostic questions and decisions that are impacted. Each case is different. Each test is different. Science is usually much more complicated than we can fully appreciate.

It is risky to indiscriminately use “thumb rules” without an appreciation for the variation and the uncertainties that are inherent in production systems, in disease risk factors, in diagnostic tests, and in the models we use. Still, we value additional, useful information in a decision process. Diagnostic test results can be useful if the diagnostic process is thoughtfully executed.

Diagnosis of Mycoplasma hyopneumoniae (Mh) infection by serology is a good example where tests, testing strategies and test results interpretation can be confusing. The IDEXX ELISA, Tween 20 ELISA and DAKO/Oxoid ELISA are all good tests. One (Oxoid) may detect antibody a bit sooner after infection in reality, but all perform well. The problem is lack of cooperation by Mycoplasma itself. It is unique in several ways:

Usually, an agent produces a detectable immune (antibody) response within a couple of weeks after infection. Mh has the ability to colonize piglets yet remain undetectable by serology for extended periods of time. Figure 1 demonstrates this effect. There is delayed seroconversion (weeks to months) with Mh compared to other swine pathogens.
In some situations, Mh may transmit slowly through a group of pigs. Not all pigs will seroconvert.
Infection may be subclinical. Neither the pigs nor the producer know that the pigs are infected. They may perform well.
A serum sample may test positive with one test and negative with another test. This appears to be normal variation in test performance. Generally, results should be interpreted on a herd basis. A single “positive” suggests additional testing is warranted. Cross-reactions have been suggested, but not effectively proven on a herd test basis.
The results of testing must be interpreted in the context of the herd, clinical signs, and your specific diagnostic question. There is no single right answer/testing procedure that will fit all situations.

An example of coupling the steps recommended for diagnostic testing with Mh serology application follows.

Formulate a diagnostic question: What testing outcome will influence a decision?
Formulate a testing strategy, understanding that no test is infallible.
Formulate a sampling strategy:
Interpretation of results: Is infection confirmed? How many positives are there? Is it clinically relevant?

CAUTION: sampling between 3 weeks and 16 weeks of age has strong tendency to result in false negative status.

It may be useful to classify Mh status in populations similar to the scheme used for porcine reproductive and respiratory syndrome (PRRS), as seen in Table 2.

Click to view graphs.

Kent Schwartz, DVM
Iowa State University Veterinary Diagnostic Laboratory
kschwart@iastate.edu

Legislative Preview
Obama Wins
Senator Barack Obama (D-IL) was elected the 44th President of the United States in a decisive victory on Nov. 4. Obama carried a number of key swing states including Colorado, Florida, Indiana, Nevada, New Mexico, Ohio and Virginia. This is the first time since 1964 that a Democratic candidate for president has carried Indiana and Virginia. Key voting blocks for Obama were voters between ages 18-29 (66%), African Americans (96%) and Hispanics (65%). He made inroads into Catholic, single female and male voters. Obama also made inroads into rural areas either by carrying rural counties or narrowing the margin compared to 2004. We can expect the president-elect to move quickly with his transition, economic and national security teams.

Democrats Make Congressional Gains — The Democrats increased their hold on Congress by picking up five Senate seats and nearly 20 House seats. In the Senate, the seats gained were from Colorado, New Hampshire, North Carolina, New Mexico and Virginia. Three races that may go to recounts include Alaska, Minnesota and Oregon. If Senator Ted Stevens (R-AK) survives the election, he will likely face a vote to remove him from the Senate since he was found guilty in his recent ethics trial. In the House of Representatives, with Democrats gaining seats in the last two elections, there could be challenges to the House Republican leadership. Already, Congressman Adam Putnam (R-FL) has announced he will resign as chairman of the House Republican conference.

Agriculture Committees — At press time, all members of the Senate Agriculture Committee were re-elected or leading. Senator Norm Coleman (R-MN) was leading by only 600 votes, which becomes an automatic recount in Minnesota. Senator Saxby Chambliss (R-GA), ranking member of the Senate Agriculture Committee, was leading and close to securing 50% of the votes, which under Georgia law is required to avoid a run-off election. In the House of Representatives, seven members of the Agriculture Committee were defeated: Congressmen Nancy Boyda (D-KS), Robin Hayes (R-NC), John Kuhl (R-NY), Nick Lampson (D-TX), Tim Mahoney (D-FL), Marilyn Musgrave (R-CO) and Tim Walberg (R-MI). Hayes served as ranking member of the House Agriculture Livestock Subcommittee and was a good friend of the meat and livestock industries.

Voters Approve Animal Welfare Initiative — California voters approved by over 60% the referendum that would ban modern confinement housing for egg-laying hens, pregnant sows and veal calves by 2015. Arizona, Colorado, Florida and Oregon have passed similar legislation for swine and veal. This vote will have a major influence on animal welfare issues in the 111th Congress.

CAFO Rules for Manure Management — The Environmental Protection Agency (EPA) announced final rules concerning concentrated animal feeding operations (CAFOs). According to EPA, the “new regulation of animal feedlots sets a strong national standard for pollution prevention and environmental protection, while maintaining our country’s economic and agricultural competitiveness. This clean water rule strengthens environmental safeguards by embracing a zero discharge standard and requiring site-specific management plans to prevent runoff of excess nutrients into our nation’s waters.” Under the new rule, a CAFO operator will be required to use a nutrient management plan (NMP) for manure and it must be submitted as part of a CAFO’s Clean Water Act permit application. The National Pork Producers Council (NPPC) said the new CAFO regulation is a “tough but fair rule and sets a standard that the U.S. pork industry has been and will continue living up to. Pork producers are ready to comply with the new regulations.” The National Cattlemen’s Beef Association (NCBA) said the rule “contains substantial improvements in water quality protection and may improve water quality as a result. We are encouraged that the rule includes a number of incentives for livestock farms to operate at high levels of environmental compliance. A positive aspect is that livestock farmers will have flexibility to evaluate their farm and determine whether or not to secure a permit.”

Van Dorn Named GIPSA Administrator — Terry Van Doren has been named USDA Administrator of the Grain Inspection, Packers and Stockyards Administration (GIPSA). Van Doren currently serves as a senior advisor to Bruce Knight, USDA under secretary for marketing and regulatory programs. He earlier served as the agricultural advisor to Senators Mitch McConnell (R-KY) and Peter Fitzgerald (R-IL). Van Doren is a native of Illinois.

P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.

Pork Industry Calendar
Nov. 16-19, 2008: American Bankers Association Annual Conference, Des Moines Marriott Downtown, Des Moines, IA; contact: call 800-BANKERS or visit www.aba.com.

Nov. 20, 2008: Kansas State University Swine Day, Alumni Center, Manhattan, KS; contact: www.ksuswine.org

Click here to get National Hog Farmer's complete pork industry calendar.

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