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WASDE Report Suggests 2014 Could be a Banner Year for Pork Producers

WASDE Report Suggests 2014 Could be a Banner Year for Pork Producers

Friday’s World Agricultural Supply and Demand Estimates (WASDE) Report from USDA surprised the trade a bit with a reduction of the estimated U.S. average yield.  Analysts had expected USDA to raise the yield to 163.3 bushels per acre from December’s figure of 160.4 bu./acre but USDA dropped the yield to 158.8 bu./acre (See Table 1).  That decline was partially offset by a 500,000-acre increase in harvested acres, leaving the 2013 crop estimated at a still record-large 13.925 billion bushels.  That is nearly 30% larger than last year.

USDA also increased total usage by 100 million bushels by adding 100 million to feed/residual and 50 million to ethanol, while dropping non-ethanol food, seed and industrial usage by 50 million bushels.  The curious one there is the increase to the feed/residual usage which, now at 5.3 billion bushels, is over 22% larger than last year.  This latest 100-million bushel increase for corn feed/residual use is accompanied by a 60-million bushel reduction in wheat feeding.  That explains some of the number.  But the net increase in feed/residual usage for all feedgrains (corn, sorghum, barley and oats) and wheat now stands at 852 million bushels or 17%. 

Table 1:

Chicken numbers will grow this year by 3-5%.  Cattle numbers will be down sharply but lower-cost corn could play a bigger role in finishing rations.   Hog numbers were expected to grow, but porcine epidemic diarrhea virus (PEDV) losses have put a big dent in those plans, even though the 100 million or so pigs that will come to market will likely be 2-3% heavier than they would have been without the PEDV losses. 

How does that small increase in livestock numbers amount to a 17% increase in feed usage?  We don’t think it does, and we are somewhat concerned about the computations if a number that large is attributed to “residual.” As one of our friends pointed out, “residual” appears to be a euphemism for “I don’t know.”  We understand USDA can’t be too precise on this number, but lumping it with feed causes some difficulties when one is trying to gauge feed usage against livestock and poultry numbers.

 

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The bottom line is that corn will be a bit more expensive, but not much.  The mid-point of USDA’s forecast price range remained $4.45/bu.  CME Group futures rallied by $0.15-$0.20 /bushel on Friday, were steady over the weekend and have seen small gains today.

USDA’s forecasts of soybean supply and demand were about as expected.  They increased the yield and harvested acres slightly, but increased crush and exports to offset the changes, leaving forecast year-end stocks at 150 million bushels, 4.5% of total usage (See Table 2).  That is the same stocks/use ratio as last year (and 2009 and 2010) and the second- lowest on record.  USDA increased the South American crop slightly, but suffice it to say that soybean supplies will still be tight when U.S. planting season rolls around. 

Table 2:

The really bad news for hog producers is that USDA thinks soybean meal will be forced to carry even more of the soybean value proposition.  They lowered their forecast price for soybean oil by $2.50/cwt. to $35.50 - $39.50 and increase the forecast meal price to $400.00 - $455.00 per ton. 

What does this mean for costs?  My model, which is based on Iowa State University’s Estimated Costs and Returns series, says average costs went up by about $1.10 from Friday to Monday.  The average, as suggested by futures prices at mid-session  Monday, is $78.53/cwt. carcass.  That still compares very favorably to the averages of the past two years, $90.89 and $93.91.

The cost increase and a slight downtrend in Lean Hogs futures leaves our model’s profit outlook for 2014 at $24.86 per head, about $2.50/head lower than last week but still quite good.  That profit level would put 2014 roughly equal to 2005 and still with a chance to be the best year for U.S. pork producers since 1990.

Friday’s report altered the outlook slightly but not materially.  I still expect 2014 to be a banner year for pork producers – and even a good year for those who suffer PEDV losses.

 

 

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National Hog Farmer

What Do 2.3 million Finishing Hogs Tell Us?

We have been working on building the SMS Closeout Benchmarking Program for over three years and this will be the first time we are able to use information from the data set to write an article. SMS is ready now to accept data from other finisher closeout programs. Just like we do with sow data we will collect the raw data and then use our formulas to standardize the data from different closeout programs. There are currently 1,291 finishing closeouts in the SMS database and after applying filters to remove bad data and groups affected by major diseases we ended up with 1,192 closeouts which represent 2,352,309 pigs for this article. There are four separate databases in this program: nursery, finishing, wean-to- finish, and wean-to-finish double stock.

Figure 1 shows the layout for the SMS Closeout Benchmarking Program. An Executive Summary has been created for each producer which includes a chart for the SMS Production Index and 22 production charts showing the trend lines for the last 100 closeouts.

Figure 2 shows the Group Information Report containing the detailed information for each closeout with 62 columns of data displayed. At the top of the page note the Finishing Benchmarking tables with the SMS database and the System (producer) broken into Top 0-25%, 25-50%, 50-75%, 75-100% and the average for all.

 

Production index

As part of the benchmarking program’s ability to rank the individual closeout, we have created what we call the SMS Production Index (Table 1). It is comprised of 4 numbers:

  • Death Loss and DOA's by percentage
  • Culls and Lights by percentage
  • Average Daily Gain
  • Adjusted Feed Conversion (50-270 lb.)

We picked these numbers because they are very comparable numbers across all closeouts and are not affected by changes in markets and feed costs.

Death loss and DOA's have the number-one economic impact on the breakeven price. As you see in the table, Death Loss and DOA’s for the top 25% of farms in the SMS database are at 1.5% versus the bottom 25% of the farms (75-100%) at 5.8%. We performed a calculation in order to show the cost in loss of income caused by pig deaths. The average pig dies at 85 days, so with the value of a feeder pig at $70 + $50 feed +$8 yardage +$7 other cost = $135 invested in a dead pig, or $1.35 added to the breakeven for each 1% death loss for the group.

The second variable is “Culls and Lights.” When you consider pigs in this category are selling for an average $45 less than full-value market hogs, our calculations show that for each 1% in culls you can add $0.45 to the breakeven price.

Average Daily Gain (ADG) determines how much time a pigs spends in the finisher, or how much the pig weighs at marketing. The data shows the average cost for yardage is at $0.11 per pig, per day. And, currently the extra pound of pork equates to a sale price of $0.60 per pound. The data shows the Top 25% of the farms had ADG at 1.91 with average weight sold at 261.1 lb. The Bottom 25% (75-100%) was down to 1.71 for ADG and recorded market weight at 255.3 lb. We can calculate if a producer has fixed days in finishing, the market value difference is 5.8 lb. at $0.60, which equals $3.48 per pig.

Feed conversion is the fourth variable that makes up the SMS Production Index number. We know that there is a lot of variation in both the energy level of diets and diet form (meal or pellet). We feel that it would be very hard to get accurate information on calorie levels of diets used. However with the large variation in starting and ending weights in finisher closeouts, we decided to adjust the weights with starting weight to 50 lb. and ending weight at 270 lb. in order to have an Adjusted Feed Conversion number. For this article, we gave feed an average value of $0.12 per pound. Adjusted Feed Conversion for the Top 25% at 2.62, with the Bottom 25% (75-100%) at 2.92 means a drop to 0.30 lb. of feed per pound of gain. If a pigs gains on average 200 lb. x 0.30 lb. = an extra 60 lb. of feed at $0.12 per pound = $7.20 per head.

 

Table 1 uses the four variables in the SMS Production Index with added values. The table is set up to show the extra income or loss for the average. The difference in value between the Top 25% and Bottom 25% (75-100%) was $14.03 per pig. The table shows Death Loss & DOA’s as the biggest loss area, with the Top 25% at 1.5%, thus improving the value of these pigs by an extra $2.63 per pig.

At SMS, our mission statement is to provide “information solutions for the swine industry”. The addition of SMS Closeout Benchmarking reports will now allow us to talk about both sows and finisher performance. If your farm would like to be part of the either or both Benchmarking databases, or if you have suggestions on production areas to look at, feel free to e-mail or call us. We are looking forward to the year 2014 and being a part of the National Hog Farmer Weekly Preview team.

 

 

SMS Production Index

Table 2 provides the 52-week rolling averages for 11 production numbers represented in the SMS Production Index. The numbers are separated by 90-100%, the 70-90%, the 50-70%, the 30-50% and the 0-30% groups. We also included the 13-week, 26-week and 12-quarter averages. These numbers represent what we feel are the key production numbers to look at to evaluate the farm’s performance.

If you have questions or comments about these columns, or if you have a specific performance measurement that you would like us to write about, please contact: mark.rix@swinems.com or ron.ketchem@swinems.com.

Previous Production Preview columns can be found at www.nationalhogfarmer.com.

 

Legislative Agenda & Election Year Politics

Congress began its election-year session with many believing it will be long on political maneuvering and less on accomplishments.  The first issue for the Senate is the extension of unemployment benefits which expired the end of last year.  The Senate is considering a bill that would restore between 14 and 47 weeks of benefits to an estimated 1.3 million long-term jobless.  This will be a very political issue within the Senate and between the Senate and the House.  

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A key issue for this week will be completing the appropriations for the remainder of fiscal year 2014.  Funding for the federal government to continue to operate expires this Wednesday.  The House Republican leadership plans to continue to focus on health care reform.  They believe this will be a key issue in the November Congressional elections.  Other issues for Congress this year are the farm bill, Water Resources Development Act (WRDA), immigration reform, fiscal year 2015 appropriations, trade promotion authority, expired tax cuts (research and development, biodiesel, wind energy, etc), and tax reform.  We can expect each party to raise certain issues for election year purposes (health care and immigration reform) with little chance that legislation will be finalized.  

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Trade Promotion Authority Legislation Introduced

Senators Max Baucus (D-MT), chairman of the Senate Finance Committee, and Orrin Hatch (R-UT), ranking member of the committee, along with Congressman Dave Camp (R-MI), chairman of the House Ways and Means Committee, introduced legislation that would renew trade promotion authority (TPA).  The “Bipartisan Congressional Trade Priorities Act of 2014” establishes Congressional negotiating objectives and rules for the administration to follow when engaged in trade talks.  This includes “strict” requirements for consultations and access to information for Congress. 

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According to the cosponsors of the legislation, the bill addresses “competition from state-owned enterprises; localization barriers to trade; and restrictions on cross-border data flows.  TPA-2014 updates labor and environment provisions to reflect recent trade agreements, as well as market access priorities for goods and services.  It strengthens oversight by Congress and the public by adding consultation and reporting requirements. TPA-2014 also provides for tougher, enforceable rules against barriers to U.S.  agriculture.  And for the first time, TPA-2014 sets out a clear directive on currency manipulation.” 

Senator Hatch said, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade.  Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”  

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Agricultural Groups React to Trade Promotion Authority

A number of agricultural and business groups recently stated their support for the proposed Trade Promotion Authority (TPA) legislation.  The American Farm Bureau Federation (AFBF) said, “The U.S. market is one of the most open in the world, yet our farmers and ranchers face high tariffs and other noncompetitive practices when they try to export their products.  For U.S. agriculture to thrive, we have to correct these disparities and level the playing field. The current Trans-Pacific Partnership (TPP) and U.S. - European Union Transatlantic Trade and Investment Partnership (TTIP) Agreement negotiations are our best chance to expand our trade opportunities, and only with TPA can we succeed in these negotiations.”

The National Pork Producers Council said, “Getting TPA introduced and approved is an important step in the trade process, and we are supportive, but our main focus will be making sure Japan eliminates farm tariffs at least as quickly as was done by South Korea in its trade deal with the U.S.”  Labor unions stated their opposition to the legislation. 

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The Communications Workers of America said, “Fast track is the wrong track when it comes to a trade deal like the Trans-Pacific Partnership that will affect our laws, our jobs, our food and our environment. Fast track, also known as Trade Promotion Authority, forces Congress to give up its Constitutional right to amend and improve this trade deal, which now is reportedly more than 1,000 pages long.” 

Also, five senior Democratic members of the Senate Finance Committee stated their objection to the bill as currently written.  TPA is always a very contentious fight.  The last time Congress passed TPA was 2002.  

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Still Waiting on the Farm Bill

The agriculture community continues to wait on the details from the farm bill negotiations by the House and Senate Agriculture Committee leaders. Dairy is the major issue that needs to be resolved for the bill to move forward. Other outstanding issues include catfish inspection, Country-of-Origin Labeling (COOL), GIPSA rulemaking, and the King amendment on interstate commerce. It is expected that when the farm bill conference committee meets that there will be votes on COOL, GIPSA, and King. Efforts are being made to complete the bill by the end of the month.  

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NPPC Focuses on Trans-Pacific Partnership with Eye on Pork Exports

The National Pork Producers Council applauded the recent introduction of congressional legislation to grant President Obama Trade Promotion Authority (TPA) as a means to conclude a successful Pacific Rim trade deal.

The Obama administration is working now to finalize the Trans-Pacific Partnership (TPP), a regional trade negotiation that includes the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, which account for nearly 40 percent of global GDP.

TPA, also known as “fast-track,” allows the president to negotiate trade agreements based on strategic goals and objectives outlined in the legislation, with ongoing congressional oversight. Deals concluded under TPA are subject to congressional approval without amendments.

While passage of TPA is important to getting a TPP Agreement – and future deals such as the U.S.-European Union Transatlantic Trade and Investment Partnership (TTIP) Agreement – approved, NPPC pointed out that the even bigger issue is finalizing a comprehensive, high-standard TPP deal. And that means an agreement that includes Japan – the U.S. pork industry’s No. 1 export market – with tariffs eliminated in all of its industry sectors, including agriculture.

Japan is demanding special treatment for its agriculture sector, including exclusion from the agreement or special protection of certain “sensitive” products.

In a December letter to U.S. Trade Representative Michael Froman, an NPPC-led coalition of agricultural groups pointed out that, if Japan is allowed to claim exceptions for sensitive products, other TPP countries inevitably will demand the right to do the same, and the TPP talks could unravel. Such an action, the coalition said, also would set a terrible precedent, affecting future trade agreements, including the TTIP.

“Getting TPA introduced and approved is an important step in the trade process, and we are supportive,” said NPPC President Randy Spronk, a pork producer from Edgerton, Minn., “but our main focus will be making sure Japan eliminates farm tariffs at least as quickly as was done by South Korea in its trade deal with the U.S.

“We will oppose a TPP agreement in which tariffs on pork and other farm products are not quickly eliminated.”

Pork Exports Picked Up in November

November was the strongest month of 2013 for pork exports, according to statistics released by the USDA and compiled by the U.S. Meat Export Federation (USMEF). Pork exports were bolstered by solid growth to Mexico and the Central/South America region, registering the highest totals for the year. Despite that fact, year-to-date U.S. pork exports continue to trail 2012’s record numbers by 6% in volume, or 1.95 million metric tons(mt) valued at $5.5 billion, a 5% decline.

“Market access…product availability…relationships. There are many factors that play a role in the export marketplace,” said USMEF President and CEO Philip Seng. “We continue to see benefits from expanded market access for beef in Japan and Hong Kong. At the same time, the lack of access for U.S. beef to Mainland China and the closure of the Russian market for both pork and beef – which is approaching a year in duration – are significant barriers.”

Seng noted that other impediments for U.S. pork exports to both China and Japan have had an impact. Drought has had widespread ramifications, leading to smaller cattle numbers in the U.S. and a contrasting surge in Australia’s 2013 production, also leading to record exports of Australian beef. 

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Driven by sustained export growth to Japan and Hong Kong and the continued rebound of the Mexican market, U.S. beef exports surged 11% in volume and 16%  in value compared to November 2012, putting 11-month totals at nearly 1.1 million metric tons (mt), up 3% from a year ago. Export value reached $5.61 billion, an 11% increase over last year’s pace and already ahead of the 2012 year-end total of $5.51 billion.

November pork exports

U.S. pork exports in November totaled 192,657 mt. Exports equated to 26% of total pork production and 22% of muscle cuts versus 26.8 and 23%, respectively, last year.

The export value per head was $57.07 for pork in November, an increase of $1.09 versus last year.

The top-performing export markets for U.S. pork for the month were:

  • Mexico: 58,678 mt (up 16%) valued at $124.3 million (up nearly 26%)
    • Exports are on-pace to set another annual record and Mexico remains the top volume market for U.S. pork, trailing only Japan in value
  • Central/South America: 15,876 mt (up 58 %) valued at $42.2 million (up 77%) and exports already set a new annual record with strong growth to Colombia, Chile and Honduras
  • Hong Kong: 7,326 mt (up 35% ) but not fully offsetting smaller volumes to China (27,978 mt, down 15%)
  • ASEAN: 5,831 mt (up 25%) valued at $12.4 million (up 10 %)
  • Caribbean: 4,281 mt (up 18%) valued at $11.2 million (up 23%)

Japan, the No. 1 export market for U.S. pork, continued to trail 2012 levels, down 2 % in volume and 7 % in value for the month, with 11-month totals at 390,388 mt (down 8%) valued at $1.7 billion (down 6%). Based on Japanese import data, smaller volumes of frozen pork from the U.S. have not been fully offset by growth in chilled pork and ground seasoned pork. 

Keep the most in-depth pork production information available at your fingertips! Download our Blueprint app today.

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Nutrient Management Symposium Scheduled Jan. 20-22

Nutrient applicators should mark their calendars and plan to head to Wisconsin on Jan. 21-22 for the 2014 joint symposium hosted by the Professional Nutrient Applicators Association of Wisconsin (PNAAW), along with the Midwest Forage Association (MFA) and Wisconsin Custom Operators (WCO).

The symposium features a lineup including speakers from universities, the U.S. Department of Agriculture, industry experts, and producers from across the Upper Midwest who will be discussing topics that both nutrient applicators and livestock producers have identified as being the most timely and relevant to their businesses. Some nutrient management session topics include:

  • What do confined animal feeding operation (CAFO) owners expect from their applicators?
  • Staying safe around manure facilities & equipment
  • Working with towns on local highway issues
  • Operating safely in the right-of-way
  • Nutrient management regulation update
  • New equipment in the manure application industry
  • Response of Alfalfa to Headline Fungicide

The 2014 Symposium will also feature Level 1 Certification for professional nutrient applicators which will take place the afternoon of Monday, Jan 20 and is free to participants who register for both Tuesday and Wednesday sessions.

For a full agenda, more information or to register online, please visit www.midwestforage.org.  

Ohio Workshop Focuses on Soil Tests and Nutrient Management

Reading soil test results, understanding the meaning of those results and then translating them into accurate nutrient application rates is a key area that will be addressed during the West Ohio Agronomy Day Jan. 13, 2014, offered by Ohio State University (OSU) Extension and Ohio Agricultural Research and Development Center researchers, educators and agronomists. Growers who have a clear understanding of what nutrients are already in their soil and what nutrients are missing are more likely to produce higher yields while saving money, according to OSU agronomists.

Open to growers statewide, the program is designed to help growers produce higher yields while maintaining a strong financial bottom line.

"Nutrient use is the focus of the program this year, with an emphasis on knowing the right amount of nutrients to apply," says Deborah Reinhart Brown, OSU Agriculture and Natural Resources Extension Educator, "Our goal is to help growers maximize their yields while also watching the bottom line by being judicious about how much nutrients they need to apply and how to apply it. Yes, we want growers to get good yields, but we don't want them to waste money by applying too much fertilizer in areas where it's not needed. By knowing what their soil tests say, they can determine what is needed where to improve their yield potentials."


Additional topics that participants will learn about in the courses include:

* New recommendations for nutrient application

* Manure management and fly control

Correct rate of pesticides mixed in the tank 

* Insect management in field crops

Cover crops

* Resistant weed management

* Fumigation

* Introduction to precision agriculture

The program will also feature a grain market update and will offer programs for farmers looking for Private Pesticide Applicator Recertification Credits, as well as programs that offer Continuing Education Units for Certified Crop Advisers, Brown says.

Participants can attend a morning or evening session of the workshop. The morning session runs from 8:30 a.m. to 3:30 p.m. and the evening session runs from 5:30 to 9:45 p.m. A light breakfast and lunch will be served during the daytime session and a light dinner will be served during the evening session. The workshop will be held at St. Michael's Hall, 33 Elm St., in Fort Loramie.

Walk-in registration costs $20. For those needing Private Pesticide Recertification Credits, the cost is $40. More information about the program is available by contacting Brown at (937) 498-7239 or via email at brown.1522@osu.edu.