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Market Preview
Rewriting Hog
Price History
What a difference two weeks can make! My trip to Brazil
last week and the associated e-mail challenges prevented my column about
record-high hog prices from reaching the North American Preview
editors. Too bad, because it’s not often that one gets to write
about record hog prices. And too bad, since we have now seen the
second-largest one-week decline in hog prices on record! So this
week’s column is a bit about both occurrences.
Arriving at the conclusion that the week of Aug. 16 saw a record for
farm-level hog prices is not an easy exercise since there is no
consistent price series that covers all of history – or even that part
back to 1974-75 when hog prices made their last quantum shift. Figure 1
shows a constructed price series from the Livestock Marketing
Information Center that uses Iowa-Minnesota practical top live weight
prices up to the mid 1990s, and then uses carcass weight quotes to mimic
that practical top series. I am not 100% positive that the $90.43 week
before last is perfectly comparable to the $89.27 of the week of June 2,
1990, but it is as close a comparison as I know of, so I’m going with
it.
“It’s a record high hog price!”
Four such statements could have been made from 1973 to 1991, and now it
has taken 17 years to make it again.
Why so many in the early period and then the long dry spell? The record
prices of 1976 were the aftermath of the Russian grain deal and
significantly higher corn prices in 1974 and 1975. Slaughter dropped
from 81.7 million head in 1974 to just 68.7 million head in 1975 (Figure
2) and only recovered to 73.8 million head by 1976. The 1974 to 1976
supply decline was 10%. A 10% decline over two years in order to drive
hog prices high enough to cover significantly higher feed costs. Does
that sound familiar?
The next record, in 1982, came on the rebound side of the huge herd
buildup in 1978 and 1979 that led to record slaughter in 1980. The 1980
slaughter record (which stood until 1995) drove hog prices into the $30s
for the first time since the 1974 liquidation year and caused another
dramatic reduction in supplies and a new record price.
It was nine years before hog prices would set another record, largely
because of the demand difficulties of the 1980s. Fat phobia,
cholesterol phobia and nitrate phobia were at the top of consumers’
minds and newspapers’ headlines and pork demand suffered. The
University of Missouri’s pork demand index stood at 125.1 in 1979.
Five years later, it stood at 100, meaning that the index had fallen by
just over 5% per year.
By 1991, U.S. hog slaughter had still not recovered to the levels of
1981, but the “Pork: The Other White Meat” campaign and
significantly higher promotional budgets funded by the mandatory
checkoff (initiated in 1987) had stopped the erosion of pork demand.
That combination drove hogs to their last record early in the summer of
1991.
It should be noted, though, that the 10-year period preceding that
record (1980-1990) saw the largest reduction of producer numbers for any
decade in history as 391,110 operations exited the pork industry. And
in those days, each operation was generally an enterprise owned by one
farmer – not just a physical location that is part of a larger
enterprise as many hog operations are today.
Why has it taken 17 years to set another record? Three reasons:
- Technological innovations from buildings to genetics to
nutrition to management to records/analysis systems to economies of
scale and size have allowed producers to consistently improve the
efficiency of their operations. Back when per unit input prices were
stable and relatively low, these efficiency gains resulted in cost
reductions over time that allowed profits to be realized even as hog
prices trended downward.
- Consolidation of production into fewer hands also meant more pigs
in each producer’s hands. This enabled producers to accept lower
per-head margins and still generate enough profit to live comfortably.
- Domestic demand has been stable, but not growing. I don’t mean
to be critical in that point. A stable pork demand at a time when
chicken demand was steadily growing and, at least through 1998, when
beef demand was still falling is not too bad of a result. But output
growth and stable demand will not often allow higher, much less record,
prices.
2008 is Unique
The uniqueness of the 2008 situation should be obvious: It is the only
price record that has not involved some type of output reduction. In
fact, this record has been set on an output increase of nearly 9%,
year-to-date. The driver, of course, is exceptionally strong hog demand
driven by meat exports and record by-product values.
Which brings us to last week and a near-record large drop in hog prices.
The decline of $10.89/cwt. was second only to the $10.93/cwt. decline
for the week of Sept. 8, 1973. Only two other weeks, one in December
1975, another in December 2004, have seen declines of over $10/cwt.
Why the big fall? It’s not a supply issue. Slaughter last week was
still over 5% larger than last year. Since we have concluded that the
upward run was likely driven by export demand, this slowdown is almost
surely driven by declines in export demand. We will not have data for
August until mid-October, so it will be interesting to see whether this
is the case or not, and if it is, to see where the exports have fallen
the most. I have always been a bit concerned about post-Olympics China,
but difficulties in Mexico and Russia will also contribute to the
decline. Aren’t roller coaster rides fun?
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
New to the Team. Veteran of the Game.
Fast-acting Baytril® 100 (enrofloxacin) is approved for treatment
and control of swine respiratory disease. When a proven winner joins an
already great team, the results are phenomenal. So Bayer Animal Health
is proud to offer Baytril 100 for treatment and control of swine
respiratory disease (SRD) in all phases of production. For use by or on
the order of a licensed veterinarian. Swine intended for human
consumption must not be slaughtered within 5 days of receiving a single
injection dose.
Click on the Baytril 100 logo for more information.
Swine Health Preview
Oral Fluids Sampling Deemed
Innovative
Veterinarians submit samples to diagnostic laboratories
to confirm the presence of a new or recurring disease in a herd.
Increasingly, veterinarians rely on laboratory testing for monitoring or
surveillance.
Examples include boar studs (serology or polymerase chain reaction
[PCR]) or some serology or agent detection profile of breeding herds,
weaners, nurseries, growers and/or finishers. The goal is to understand
disease agent interactions with swine populations and add a level of
confidence to statements of disease presence or absence using
statistically valid estimates.
Proper sampling is necessary to assure validity to conclusions and
resulting actions. Errors multiply when too few samples or wrong samples
of questionable quality are submitted. Coupled with the variety of test
types and diverse interpretations that are made, one can quickly make
decisions from inaccurate information.
Quick & Easy
A recent innovation is the concept of surveillance of swine populations
using oral fluids (Zimmerman, Prickett). This is a quick, easy and
inexpensive way to collect the equivalent of pooled serum, plus oral and
respiratory exudates (discharges). Cotton ropes are suspended in a pen
for 20 minutes to allow most of the pigs the chance to chew on the rope.
The saliva (oral fluid) is “milked” from the rope into a bag, then
placed in a specimen tube.
This oral fluid specimen can be submitted to the laboratory for testing
using either serologic methods (detection of antibody) or agent
detection (using PCR or isolation).
Evaluating Results
Serology for porcine reproductive and respiratory syndrome (PRRS) virus,
swine influenza virus (SIV), porcine circovirus type 2 (PCV2) and
Mycoplasmal pneumonia are validated, or nearly so.
The graph below illustrates the serologic response of a group of pigs
using oral fluids and adapted PRRS virus enzyme-linked immunosorbent
assay (ELISA) testing protocol. The results demonstrate seroconversion
to PRRS virus in this group of pigs, with acute infection followed by
decline and perhaps continuing exposure. In fact, antibody can be
detected in oral fluid before it is detected in serum, so this tool
could be quite valuable for monitoring allegedly negative populations.
PCR has been applied to detect organism presence in clinical animals or
shedding in asymptomatic carriers. The graph illustrates results of PCR
testing for detection of SIV, PCV2 and PRRS virus from oral fluids in
finishing pigs. Detection of other agents (mycoplasama, ileitis,
salmonella, actinobacillus organisms) is being investigated.
Kent Schwartz, DVM
Iowa State University Veterinary Diagnostic Laboratory
kschwart@iastate.edu
Introducing the new PIC Camborough® Family
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You asked for more pounds of pork marketed per sow. You asked for a
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what you see--after all, it is just what you asked for.
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Legislative Preview
USDA Rule Bans
Downer Cattle
USDA announced a proposed rule to amend the Federal meat
inspection regulations to initiate a complete ban on the slaughter of
cattle that become non-ambulatory (downer) after initial inspection by
USDA personnel. Under the proposed rule, all cattle that are
non-ambulatory disabled at any time prior to slaughter will be condemned
and properly disposed of. Secretary of Agriculture Ed Schafer said,
“To maintain consumer confidence in the food supply, eliminate further
misunderstanding of the rule and ultimately to make a positive impact on
the humane handling of cattle, I believe it is sound policy to simplify
this matter by initiating a complete ban on the slaughter of downer
cattle.” Earlier this year, the American Meat Institute, National
Meat Association and National Milk Producer Federation petitioned USDA
requesting the “downer” loophole by closed.
Republican Platform – End Ethanol Support — The Republican
platform adopted at the Republican National Convention this week states
the “U.S. government should end mandates for ethanol and let the free
market work.” This is a change in policy for the Republican Party
which supported ethanol in its 2004 party platform.
Record Net Farm Income — USDA’s Economic Research Service
(ERS) has forecast net farm income at a record $95.7 billion for 2008,
which is 10% above the $86.8 billion farmers earned in 2007, and 57%
above its 10-year average of $61.1 billion. Net cash income, at $101.3
billion, is forecast to be $13.9 billion (16%) above 2007, which was the
previous record.
Congress Returns Next Week — The House of Representatives and
Senate will return to Washington, DC, next week after its summer recess.
The major item of business will be fiscal year 2009 appropriations.
None of the appropriations bills, including agriculture, have been
completed. It is expected that Congress will pass a continuing
resolution before it leaves the end of September to keep the government
running until either November/December of this year or until early next
year. A number of tax extenders (biodiesel, research and development,
etc.) expired last December. Efforts will be made to extend these tax
items for another year. Both parties will argue the need to complete a
comprehensive energy bill, but with only three weeks of session, it will
be difficult for Congress to complete action. Remember, this is an
election year so both parties will be using the next three weeks to push
their election-day agendas.
AgNite at Republican Convention — The Republican National
Convention held “AgNite, A Celebration of America’s Food and Ag
Industry.” Convention delegates, members of Congress, news media and
food and agriculture industry leaders attended the event staged in
Minneapolis.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
Pork Industry Calendar
Sept. 11, 2008: Ventilation Systems
Workshop, Champaign County Fairgrounds, Urbana, OH; contact: Dale Ricker
at (419) 523-6294 or ricker.37@osu.edu.
Sept. 16-17, 2008: Minnesota Nutrition Conference, Holiday Inn,
Owatonna, MN; contact: Lee Johnston, West Central Research and Outreach
Center at (320) 589-1711 or Becky Beyers, College of Food, Agricultural
and Natural Resource Sciences at (612) 626-5754.
Click
here to get National Hog Farmer's complete pork
industry calendar.
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