What's new on National Hog Farmer?
- North
Carolina Keeps Swine Lagoons
- World
Pork Expo New Product Tour
- Illinois
Swine Industry Recovers
- Read the full
July issue
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Dale Miller, Editor,
National Hog Farmer
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Financial Preview
Roller Coaster Ride
The swine industry is as dynamic as we have ever seen
it. A month ago, the Hogs and Pigs Report was somewhat bearish, and as a
result, we saw cash hog and futures prices take a dive. Then reports out
of China indicated there have been large losses due to blue-ear pig
disease, and the market has been on the uptick ever since. A release
from China's Ministry of Agriculture said that the disease, also known
as porcine reproductive and respiratory syndrome, has already killed
18,000 pigs in China this year.
In addition to those developments, we have seen cash corn prices drop
below $3.00/bu. in southern Minnesota. Suddenly, profit margins look
very promising for hog producers again. Cash hog prices are at $70/cwt
and all months on the board with the exception of December are above $70
(as of the close on July 26, 2007).
To give you an idea of the volatility in the hog futures market, let's
look at what prices for December hogs did yesterday. Prices started the
day at $69.30, went up to $72.25 and then dropped back down to $67.80,
before closing at $68.85. This is a move of $4.45/cwt or $8.90/pig on a
200-lb. carcass. Those sudden price shifts mean pork producers must not
only deal with production issues, they must now more than ever do a
better job of marketing, have a little luck and possess management
skills during these especially volatile times.
What to Do -- My telephone has been busy over the last couple of
weeks, with producers asking my opinion as to what they should do: lock
up these prices or let it ride, and my answer is generally the same:
Number 1 -- first determine what your current cost of production is,
what it will be going forward with feed costs, and what type of margin
you intend to lock in. Ask yourself where that margin fits in
historically. If it is in the 80% percentile, or in other words, you
have only made this kind of money 20% of the time, then you need to take
into account your own financial situation as to what to do. If for
instance, you have some leverage, then you should lock up some profits
from a downturn. If you are very sound financially, then your decision
becomes less critical. But remember, you never go broke locking in a
profit.
China Factor -- One big fundamental factor that people are
talking about in these markets is the hog crop liquidation in China.
Everyone has heard that blue-ear pig disease has taken off a big portion
of the hog crop in China. But only recently have people been starting to
put pencil to paper and been realizing the sheer size of the numbers we
are talking about. A little background information is called for here.
At the peak of Chinese hog production, there were about 470 million head
of hogs in the country, about 55% of the world's total hog inventory.
That compares to some 60 million head that we have in the United States.
Recent estimates are that the Chinese have lost about 20% of their pig
crop, or something just shy of 100 million head of hogs. Some estimates
are even larger than that. To give you an idea of the size we are
talking about, that's 100 million pigs lost or, more than the combined
total pig crops of the United States and Canada. The problem is that we
do not know what the real facts are in China, and these reports are
truly speculative on what is really happening in that Asian country. So
far, the implications on our hog markets have been very positive, but
remember things can change quickly. Stay tuned and enjoy the ride.
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com
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Production Preview
Proportion of
Sows Bred by Seven Days
There are various indices that can be used for
benchmarking. Some of these are more appropriate for farm-to-farm
benchmarking, while others are more appropriate for internal
benchmarking purposes.
Internal benchmarking data generally are not available to the public,
but the information can be important, nonetheless. An example found in
the PigCHAMP Performance Monitor is "proportion of sows bred by seven
days."
At first glance, this is an odd index because "seven days" sounds
arbitrary. Why not five days or eight days?
The answer can be found by looking back to when all farms weaned on a
weekly basis. Then, it served as a measure of being able to clean out
the breeding pens for the next batch of weaned sows.
Today, many farms wean sows twice a week or more. Therefore, this may
seem like an outmoded index but in truth, it remains an important
measure even on the farms that wean multiple times per week.
The measurement remains important for two reasons. First, there is
something special about a cutoff of seven days. The research is
relatively old at this point, but it appears that sows that are not bred
within seven days, especially sows bred 7-14 days after weaning, appear
to have much lower levels of reproductive performance. It is unclear
why this occurs, but it seems to be repeatable across many farms.
One hypothesis is simply that sows are not monitored as closely after
the first week and those matings are of a lower quality. This seems to
be supported by the fact that the number of single-mated sows in this
group increases as well.
The figure below is from the 2006 PigCHAMP benchmarking data. Note the
strong seasonal trend. This affects the culling rate and the inventory
of open sows. It also has a strong correlation with farrowing rate and
litter size.
This production parameter is an excellent internal monitoring measure.
It is not one that we normally compare from herd to herd, and it is not
included in our quarterly or annual reports. Yet, within the barn, it
is easily seen when the sows accumulate.
In addition, a rapid response can be made to address this problem. The
sows should be considered a specific, monitorable population that can be
benchmarked from week to week within the farm. Factors such as season,
feed intake during lactation, parity and estrous detection can be
identified as contributing factors on any given farm and can be quickly
remedied.
Figure 1: Trend Line of Proportion of Sows Bred for
2006
John Deen, DVM
deenx003@umn.edu
Editor's Note: For all your agricultural news, markets and
commentaries, go to www.farms.com. For more information on benchmarking go
to www.pigchamp.com
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Legislative Preview
Administration
Threatens to Veto the Farm Bill
The administration this week threatened to veto the farm
bill passed by the House Agriculture Committee. The administration
believes the bill does not provide enough reform of the commodities
title and the payment limitations need to be lowered. They also are
calling the revenue measure to fund the additional $4 billion for
nutrition a "tax increase." The House Ways and Means Committee passed
legislation to pay for this additional funding by ending the practice
called "earnings stripping," which allows foreign-owned companies to
shift income to a country with lower tax rates.
The House Republican leadership in a statement said, "The Democrats'
surprise tax hike would raise taxes on 'insourcing' companies operating
inside the United States, potentially driving millions of American jobs
out of the country. Specifically, the Democratic scheme would raise
taxes on insourcing employers that operate throughout the United States
and employ more than 5.1 million Americans."
The Democrats are saying the administration is flip-flopping on this
issue. They are saying this "closes a tax loophole that allows
foreign-based companies located in tax havens to avoid tax on income
earned in the United States by their U.S.-based subsidiaries."
They also point to a 2002 Department of Treasury policy paper that
identified "earnings stripping" as a tax abuse. Congressman Collin
Peterson (D-MN), chairman of the House Agriculture Committee, released a
statement saying, "This is not the first time that the Bush
Administration has turned its back on American agriculture and rural
America. They repeatedly threatened to veto disaster assistance for
agriculture, which the Democratic leadership passed this year. The
administration also vigorously opposed the 2002 Farm Bill, which
Agriculture Secretary Johanns and others now praise as 'the right bill
at the right time.'"
Farm Bill Moves Forward in the House -- The House of
Representatives will consider the House Agriculture Committee's passed
farm bill the end of this week. The budget has been a driving force
during the farm bill debate. The committee was able to move forward
after the House Democratic leadership tapped into the reserve fund to
provide an additional $2.6 billion for the energy title and $4 billion
for the nutrition programs. This farm bill also provides for the first
time substantial support for specialty crops with $1.6 billion for
research, market development and block grants. The bill includes
payment limitations reforms and provides producers with a choice to
either use the existing countercyclical program or a new countercyclical
revenue program. The bill contains the strongest energy title of any
farm bill considered. The major fight during the House of
Representatives debate will be the amendment offered by Congressman Ron
Kind (D-WI) that would shift $12 billion from the commodities title to
nutrition and conservation. It also limits program payments to
producers with an average annual adjusted gross income of less than
$250,000. (Next week's column will reflect the outcome of the floor
debate.)
Key provisions of the House Agriculture Committee passed farm bill
include:
Direct payments: remain the same as the 2002 Farm Bill.
Target prices: (committee passed bill vs. 2002 Farm Bill)
- Corn - $2.63/bu., unchanged
- Wheat - $4.15/bu., +23¢
- Upland cotton -- 70¢/lb., -2.4¢
- Rice - $495/cwt. -- unchanged
- Soybeans -- $6.10/bu., +30¢
Loan rates: (committee passed bill vs. 2002 Farm Bill)
- Corn - $1.95/bu., unchanged
- Wheat - $2.94/bu., +19¢
- Upland cotton -- 52¢/lb., unchanged
- Rice - $6.50/cwt., unchanged
- Soybeans - $5.00/bu., unchanged
Revenue-based CCP: For the first time, farm program participants
will have a one-time option to receive a "Revenue Countercyclical
Program (RCCP)" payment. A producer will decide between the RCCP and
the traditional price-based countercyclical payment. National target
revenue per acre and national payment yields per acre for each commodity
are established.
National target revenue per acre would be set at:
- Wheat - $149.92
- Corn - $344.12
- Upland cotton - $496.93
- Rice - $548.06
- Soybeans-$231.87
National payment yields for the RCCP would be set at:
- Wheat - 36.1 bu./acre
- Corn - 114.4 bu./acre
- Upland cotton - 634 lb./acre
- Rice - 51.28 cwt./acre
- Soybeans - 34.1 bu./acre
Payment limitations: The committee made reforms to payment
limitations. They include:
- Adjusted Gross Income (AGI): Under current law, individuals
with three-year AGI greater than $2.5 million are ineligible for farm
program payments (commodity and conservation) unless 75% of income is
agriculturally related, in which case the $2.5 million limit does not
apply. The committee will forbid the payment of subsidies to anyone
with an AGI of more than $1 million, with no exceptions.
- Percent of income from agriculture: Individuals with $500,000 to $1
million in income would have to have 66.66% of that income from
agriculture to get payments.
- Direct attribution: Would remove the current three-entity rule and
move to direct attribution for farm program and conservation payments.
- Direct payments: Would increase the current cap on direct payments
to $60,000 (currently $40,000).
- Countercyclical Payment (CCP): Would maintain the currentcounter
cyclical payment limit at $65,000.
- Generic certificates: Would remove the use of generic certificates,
but there would be no cap on marketing loan gains/loan deficiency
payments.
- Married couples: Would allow payments to be doubled for a married
couple.
- Conservation payments: Direct attribution would apply to
conservation payments as well as crop subsidies, while increasing the
conservation program payment limitation to $60,000/year for participants
in one program and $125,000/year for participants in more than one
program. This increases the existing payment limitation for both the
Conservation Reserve Program and the Conservation Security Program, and
lowers the current limitation for the Environmental Quality Incentives
Program (EQIP) if participating only in EQIP and raises it by
$50,000/year if participating in more than one program.
Payment limitations will be a major issue in the Senate.
Conservation: The committee provided an additional 35 % increase
in conservation programs. Key conservation provisions include:
- Conservation Reserve Program (CRP) -- CRP is reauthorized at
the current level of 39.2 million acres.
- Wetlands Reserve Program (WRP) - WRP is funded at $1.6 billion with
the maximum enrollment at 3,605,000 acres.
- Conservation Security Program (CSO) -- CSP collapses the
three-tiered system and replaces the structure with an annual
stewardship enhancement payment to compensate producers for new and
ongoing implementation and maintenance of conservation practices and
activities.
- Environmental Quality Incentives Program (EQIP) -- EQIP funding is
increased by $2 billion by 2012.
- Sod Saver -- Provides that native grassland and pasture that the
secretary of agriculture determines has never been used for crop
production shall be ineligible for crop insurance for the first four
years of planting.
Livestock Competitive Issues -- The House Agriculture
Committee's passed farm bill does not include a competition title. No
amendments were offered in committee concerning packer ban, spot market
requirements, contract reform, etc. Senator Tom Harkin (D-IA), chairman
of the Senate Agriculture Committee, plans to have a competition title
in his chairman's mark when the farm bill is considered by the Senate
Agriculture Committee.
COOL Compromise -- Proponents and opponents of mandatory
country-of-origin labeling (COOL) reached a compromise on mandatory
COOL. The compromise, which is in the House Agriculture Committee's
farm bill, would require animals imported for direct slaughter to be
labeled from the country in which they were derived. A U.S. origin
product label would be for meat derived from animals "born, raised, and
slaughtered" in the United States. Meat from animals born in another
country, but raised and slaughtered in the United States, would be
labeled products of the United States and the other country. Processed
products would be labeled with a list of countries from which they were
derived. The compromise will ease recordkeeping requirements for
verifying an animals' country of origin. The compromise will go into
effect Sept. 30, 2008.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
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