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Housing Debated
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Focus on Animal Welfare
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Market Preview
Volatile Packer
Margins Stabilize
The roller coaster ride of pork packer margins abated a
bit last week as my weekly calculated gross margin of $22.43/head was
only $0.63/head lower than one week earlier. As you can see from Figure
1, that change represents unusual stability compared to the recent
history of this important number.
Pork packers have fallen into the "get some margin and bid it away"
syndrome since June. That is usually good for hog producers as it
results in some very high hog bids relative to cutout values. It also
provides a lot of volatility for hog prices and that, depending on one's
ability to deal with rapid changes, can be the source of considerable
heartburn.
This year's gross packer margins have been pretty good though. Only one
week since February have gross margins been below the five-year average.
And, while the ride has been wild, the average margin for this year is
actually about $1/head higher than that of last year.
The volatility of margins has resulted in some weeks in which cutout
values and carcass weight hog prices have been inverted. That doesn't
happen often these days but it is certainly not unprecedented. Figure 2
shows the components of my gross margin calculations, and you can see
that prior to 1997, negative meat margins were fairly common.
Packers Adjust Costs to Maintain Positive Margins
Did the rationalization of packing capacity of the early '90s, and the
increase in packer leverage that contributed to the 1998-99 price
debacle, cause this change? Perhaps. But we have seen sufficient
slaughter capacity since then and have not seen any regular return to
negative meat margins.
The better explanation, in my opinion, is that packer costs changed in
the mid-1990s due to HAACCP (Hazard Analysis and Critical Control Point)
systems and other food safety measures. Margins must cover costs in the
long run, and it looks to me that the fairly discreet change in gross
packer meat margins from an average of around zero to today's level of
roughly $8 is more consistent with a cost increase.
Byproduct Values Surge
What is interesting is the composition of the total packer margin in
recent weeks. As you can see in Figure 2, byproduct values are record
high. They have stabilized somewhat since late July at between $17 and
$18/head, but those levels are considerably higher than we have grown
accustomed to over the past few years.
The increase in byproduct values started earlier this year as fat prices
rose in response to corn and other high-energy feed ingredient prices.
Recent increases have been more attributable to price increases for
stomachs, snouts and other variety meat cuts. Those increases certainly
suggest interest in export markets and would fit the idea that Chinese
buyers have been quite active even before the rumors of large purchases
drove futures markets higher. I don't have specific data to support
this, but the improvement could also be the result of more shipments to
Mexico, our largest pork variety meat customer.
Regardless, this is all good for U.S. producers and consumers. Adding
value to byproducts adds value to pigs without forcing meat values
higher. Export customers get the low-cost products they want. U.S.
consumers do not have to pay more for the chops, roasts, and bacon they
prefer. U.S. and Canadian producers get more for the hogs they sell.
About the only downside is the increase in prices for domestic consumers
of these byproducts and variety meats. I guess you can't win them all -
but this seems to get close.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
Introducing the new PIC Camborough® Family
You asked for greater lifetime reproductive performance and longevity.
You asked for more pounds of pork marketed per sow. You asked for a
higher percentage of market pigs in the full-value pay box.
Take another look at our new Camborough family, we think you will like
what you see--after all, it is just what you asked for.
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Production Preview
Regional
Performance Levels Have Standardized
To follow up on our earlier comparison between Canada
and the United States, this week's column will review PigChamp data
differences in U.S. regions.
We have split the United States into three regions:
- The Corn Belt includes Iowa, Illinois, Indiana, Kansas,
Minnesota, Missouri, Nebraska, Wisconsin, Ohio, South Dakota and North
Dakota.
- The East region, consists of Kentucky, Michigan, North Carolina,
Pennsylvania, Tennessee and Arkansas, and
- The West region includes Colorado, Montana and California (see
attached table).
All in all, the results show that the differences are relatively small
across the industry. However, we see some evidence that there are
different kinds of sow herds in the different regions, with larger herds
in the Midwest.
The lack of differences should not be surprising. For the most part,
technologies and approaches are common across the industry. Genotypes
are available throughout the United States, and we have a good basis of
skilled workers in each area. Moreover, the opportunity to transport
weaned pigs easily results in a relatively common demand for high
productivity across the industry.
This lack of diversity is a change from 10-20 years ago when we saw real
differences in sow breeding operations across regions. As
breeding-gestation methods have intensified, and these units have become
a supplier to off-site nurseries, we have seen improvements across the
board. Conversely, we see a decrease in the number of breeding herds
that can survive with low productivity.
Click to view table.
by Sukumarannair S. Anil, DVM, and John Deen, DVM
University of Minnesota
sukum001@umn.edu or deenx003@umn.edu
Editor's Note: For all your agricultural news, markets and
commentaries, go to www.farms.com.
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Animal Health Preview
Circovirus Epidemic
Makes News
The recent epidemic of porcine circovirus-associated
disease (PCVAD) has been newsworthy. Morbidity and mortality associated
with the presence of porcine circovirus type 2 (PCV2) has impacted pork
producers throughout North America and around the globe.
Positive News from the Lab
The two accompanying graphs from the Iowa State University Veterinary
Diagnostic Laboratory may be telling a similar, perhaps positive story.
The first illustrates the number of immunohistochemistry (IHC) tests
(chemical analysis of living cells and tissues) by month over the last
four-plus years. This test is used by diagnostic laboratories to detect
PCV2 in the presence of typical lesions and is very important in the
accurate diagnosis of PCVAD. The number of positive tests is decreasing,
while the number of negative tests is increasing.
The second graph represents a summary of the number of cases by month in
which PCVAD was a primary finding over the past four-plus years as
judged by veterinary diagnosticians. These data confirm the increased
frequency of PCVAD during 2006 and suggest a decrease in frequency in
recent months. The reason for the decline is not clear. But certainly
increasing national herd immunity through vaccine and herd stability
could be contributing factors.
Accurate Diagnosis Critical
Since PCV2 is present in nearly all pigs, accurate diagnosis by
demonstration of lesions and the agent within formalin-fixed tissues by
IHC remains the preferred method for diagnosis of the disease, PCVAD,
associated with this virus.
Other testing methods, such as PCR (polymerase chain reaction) or
serology, do not predict disease status, but may be helpful for defining
infection status or placement of interventions.
Click to view graphs.
Kent Schwartz, DVM
Iowa State University Veterinary Diagnostic Laboratory
kschwart@iastate.edu
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Legislative Preview
Record Farm Income
USDA's Economic Research Service (ERS) is forecasting a
record net farm income for fiscal year 2007 of $87.1 billion. This is
an increase of $28.1 billion over 2006 and $29.7 billion above the
10-year average of $57.4 billion. The past record for net farm income
was $85.9 billion in 2004. According to ERS, the average farm household
income is greater than the U.S. average household income. The ERS report
indicates the value of the sector's production is expected to rise $47.7
billion to $323 billion in 2007, with production forecast to be up $23.5
billion for crops and up $20.4 billion for livestock. ERS states, "The
rise in prices of grains and oilseeds due to the demand from the rapid
expansion of ethanol production could result in a record corn crop and
record cash receipts for crops. Rising prices for milk and poultry have
led to a surprisingly large jump in projected cash receipts for
livestock and animal products, likely setting a new record level, also."
Record Agricultural Exports - USDA announced that U.S.
agricultural exports will reach a record of $79 billion for fiscal year
2007. Projections for fiscal year 2008 are $83.5 billion. The previous
record was $68.6 billion that was reached last year. The major growth
areas for U.S. agricultural exports are Asia and the Western Hemisphere.
China, Canada, and Mexico are key growth markets for FY '08. China is
now the fourth-largest market for U.S. agriculture. Secretary of
Agriculture Mike Johanns said, "These export numbers, once again,
demonstrate that U.S. agricultural products are in high demand around
the world. They also reflect tight world markets for grains and
oilseeds. U.S. farmers are hard at work to supply these markets, both at
home and abroad. In short, the world wants what we produce and at USDA
we will continue to work aggressively to maintain and open markets for
our farmers and ranchers." USDA expects there will be record sales in
FY '08 for bulk grains, oilseeds, cotton and high-value horticultural
and livestock products. Imports for FY '08 are estimated at $75
billion, which is up $4.5 billion over FY '07. According to USDA, the
largest import gains are expected for fresh and processed fruits, coffee
beans and other tropical products, bulk grains, wine and beer.
Peru FTA -- The Agriculture Coalition for Latin American Trade
is contacting Congress to urge the passage of the U.S.-Peru Trade
Promotion Agreement (PTPA) and relay its importance to U.S. agriculture.
The American Farm Bureau Federation (AFBF) estimates that the agreement
will increase U.S. agricultural exports by nearly $1.4 billion. The
agreement will provide U.S. agriculture with the same duty-free access
to the Peruvian market as Peru has to the U.S. market under the Andean
Trade Preference Act.
Nearly 70% of current U.S. agricultural exports to Peru will immediately
become duty- free. Current tariffs are between 12 and 52%. U.S.
products expected to see improved prospects include wheat, feedgrains,
cotton, oilseeds and products, rice, dairy products, meats, poultry,
processed foods, pet foods, apples and other fruits, juices, distilled
spirits and wine.
Currently, Peru has duties as high as 25% on U.S. pork exports. The
PTPA will immediately reduce tariffs on all pork products. Some will
receive unlimited duty-free access on implementation of the agreement
and other items will be phased out within five years. Congress is
expected to vote on the trade agreement this year. Members of the
coalition include: American Feed Industry Association, American Meat
Institute, American Seed Trade Association, American Soybean
Association, National Association of Wheat Growers, National Cattlemen's
Beef Association, National Chicken Council, National Corn Growers
Association, National Cotton Council, National Milk Producers
Federation, National Oilseed Processors Association, National Pork
Producers Council, U.S. Apple Association, United Egg Producers and USA
Rice Federation.
Congress is Back - Congress returned this week from its summer
recess. Senate Majority Leader Harry Reid (D-NV) indicated that
appropriations will be a priority for the Senate this month. The Senate
has only passed one of the 12 annual appropriations bills. The House
has completed action on all 12 bills. The new fiscal year begins Sept.
30. Other key issues will be Iraq, Children's Health Insurance Program,
higher education legislation, patent law overhaul and defense
authorization bill. The question remains when the Senate Agriculture
Committee will consider the 2007 farm bill this year.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
 Hermitage NGT
Hermitage NGT offers their North American clients:
- Breeding Stock (GGP/GP/Parent stock)
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Talk with our team of specialists in genetics, reproductive physiology,
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 Cargill Meat Solutions is looking for a Pork Field
Manager. This position will work directly with a designated group of
contract pork producers to assist them in trouble shooting problem
areas, provide solutions for improving production, help manage customer
relationships as well as provide documentation of on farm reports. This
position is responsible for working with the Production Manager to
arrive at solutions and make decisions that will impact their area and
business units profitability. Through farm visits, producer meetings and
information sharing, the successful candidate will aid the producers in
finding the most successful ways of maximizing production on their farm.
The successful candidate should have a BS/BA degree and a minimum of 5
years experience in pork production.
Interested candidates should apply online at www.ichoosecargill.com
referencing job #MIS00010. EOE
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