Corn Variety Offers More Bang per Bushel

Higher energy and amino acid values of nutritionally enhanced corn hybrids are gaining pork producers' attention.

One variety backed by research from four land-grant universities is NutriDense, a hybrid created by ExSeed Genetics specifically for the end user — livestock.

Developed in the late 1990s by scientist Jerry Weigel, manager of nutrition and technical services for BASF (the North Carolina company that owns ExSeed), NutriDense has consistently shown a 5-6% higher energy value than yellow dent corn. It is not a genetically modified variety.

“Early work at the University of Illinois showed that an inbred crossed with an inbred would have nutritional properties for biological availability,” Weigel says. Once they determined its potential, the company had the hybrid field-tested by Kansas State University researchers.

Swine nutritionist Mike Tokach and co-workers from Kansas State University (KSU) conducted trials at a commercial research farm in southwestern Minnesota to determine if higher energy in NutriDense translated into true feed-per-gain benefit and growth.

It did. KSU research showed Nutri-Dense-fed pigs had a 2% higher average daily gain (ADG) and consumed 5.3% less feed, resulting in a 7% improvement in feed efficiency (FE), compared to pigs fed conventional corn. No fat was added to either ration.

NutriDense-fed pigs also had a 3.5% reduction in feed cost/lb. of gain when compared to pigs fed conventional corn plus 3% added fat. FE and ADG were similar.

“We then examined whether we could add higher levels of synthetic lysine, threonine and methionine because of the higher levels of other amino acids (isoleucine, tryptophan) in the corn,” explains Tokach.

“NutriDense has higher levels of all essential amino acids, but the advantage in higher levels of the fourth and fifth limiting amino acids for pigs is that it allows us to use higher levels of the amino acids that are economical to add as synthetics before another amino acid becomes limiting,” he adds. “Our research proved we can add more synthetic amino acids with NutriDense corn before performance is reduced.”

NutriDense contains about 23% more lysine, 19% more sulfur amino acids, 18% more threonine and almost 34% more tryptophan than yellow dent corn (See Table 1). The hybrid also has 25% more total phosphorus and 50% to 100% more available phosphorus than commodity corn.

Low Phytate Variety

Two KSU studies evaluated the effect of NutriDense low phytate corn in conjunction with increasing levels of added fat on growing and finishing pig performance.

The low phytate corn is similar to regular NutriDense, but with higher available phosphorus content due to lower phytate phosphorus. Experiments were conducted at the research facility in southwest Minnesota.

About 2,300 gilts were fed corn-soybean meal-based diets with yellow dent (YD) or NutriDense low phytate corn with either 0, 3 or 6% added fat.

Results showed that increasing levels of added fat improved growth performance regardless of corn source.

Not yet on the market, the NutriDense low phytate variety allows diets to have 37% to 63% less phosphorus than yellow dent corn diets, giving it a distinct environmental advantage.

The analyzed NutriDense low phytate corn was lower in methionine, cystine, threonine, tryptophan and phosphorus than the calculated values (Table 2). However, because the higher amino acid and available phosphorus levels in NutriDense low phytate corn were accounted for in diet formulation, the similar growth performance between pigs indicates that the formulation values for these nutrients in NutriDense low phytate corn appear to be appropriate, according to the KSU researchers.

More Amino Acid Research

Purdue University and South Dakota State University (SDSU) research reinforced protein and amino acid digestibility of NutriDense and yellow dent corn. A research summary provided by ExSeed showed:

  • SDSU work by nutritionist Hans Stein demonstrated significant improvements in lysine, methionine, cystine, threonine and valine digestibility. Overall, they showed a 4.5% improvement in crude protein digestibility.

  • Purdue University researchers Scott Radcliffe, Brian Richert and Alan Sutton showed significantly greater crude protein (8.9%) and tryptophan (3.8%) digestibility. Numerical improvements in individual essential amino acid digestibility ranged from 2.5 to 7% differences.

Hybrid Availability

BASF Plant Science LLC utilizes a select group of seed partners to deliver NutriDense hybrids to key markets.

Companies with license agreements to market hybrids with the NutriDense trait are listed on the Web site (www.nutridense.com).

Growers receive premiums. Delivery points are located throughout the cornbelt and more locations are being added. The hybrid has been grown in Iowa, Illinois, Nebraska and Indiana.

Yield performance is competitive with conventional yellow dent hybrids, according to the company. Data is available comparing performance of NutriDense hybrids to top-yielding hybrids over a several-year period.

Economic Breakdown

Kansas State researchers calculated the economic value of NutriDense corn compared to yellow dent corn in the '03 study. Diets were formulated to contain identical energy, lysine and phosphorus.

Values of $2.24/bu. for regular corn, $180/ton for soybean meal, $290/ton for monocalcium phosphorus, $40/ton for limestone and $240/ton for choice white grease were used in the calculations.

Using the difference in diet cost and amount of corn in the diets, they calculated the extra value provided by NutriDense at $0.13/bu. That means producers could pay a premium of that amount for NutriDense corn to realize the same growth performance benefits of a typical diet with added fat.

Table 1. Nutrient Composition of Corn Sourcesa
Item Yellow Dent Cornb NutriDense Cornc
Lysine, % 0.26 0.32
Isoleucine, % 0.28 0.41
Leucine, % 0.99 1.35
Methionine, % 0.17 0.21
Methionine & cystine, % 0.36 0.43
Threonine, % 0.29 0.34
Tryptophan, % 0.06 0.08
Valine, % 0.39 0.55
Metabolizable energy, kcal/kg. 1,551 1,630
Crude protein, % 8.50 10.00
Calcium, % 0.03 0.03
Phosphorus (P), % 0.28 0.32
Available P, % 0.04 0.13
aAs-fed basis. bValues are from National Research Council (1998). cValues were provided by ExSeed Genetics.
Table 2. Nutrient Composition of Corn Sourcesa
NutriDense Low Phytate Cornc
Item YD Cornb Calculated Analyzed
Lysine, % 0.26 0.32 0.32
Isoleucine, % 0.28 0.41 0.36
Leucine, % 0.99 1.35 1.25
Methionine, % 0.17 0.21 0.18
Methionine & cystine, % 0.36 0.43 0.38
Threonine, % 0.29 0.34 0.31
Tryptophan, % 0.06 0.08 0.06
Valine, % 0.39 0.55 0.49
Metabolizable energy, kcal/kg. 3,420 3,591 3,591
Crude protein, % 8.5 10.00 9.65
Calcium, % 0.03 0.03 0.03
Phosphorus, % 0.28 0.32 0.30
Available P, % 0.04 0.16d 0.15d
aAs-fed basis. bYellow dent corn values are from the National Research Council (1998). cCalculated and analyzed values of NutriDense Low Phytate corn courtesy of BASF. The calculated values were used in diet formulation.
dAvailability of the phosphorus in NutriDense Low Phytate corn was assumed to be 50%.

Figure 1. Biotech Share of U.S. Corn Per Thousand Acres Planted, 2005

According to the National Corn Grower's Association 2006 World of Corn publication, biotech corn hybrids grown in the United States accounted for 26% of planted corn acres in 2005, up from 25% two years earlier.

Corn with stacked traits, such as NutriDense, accounted for 9% of planted acres in '05, up from 4% two years prior.

Biotech hybrids have had a significant effect on the use of pesticides. American corn producers used 23.3 million pounds fewer pesticide active ingredients on U.S. cornfields as a result of biotech hybrids in 2004.

World of Corn also notes that more than 90 ethanol production facilities are in operation across the United States, with at least 20 more expected in production by the end of this year.

Increased efficiencies in both ethanol and corn production have boosted the net energy balance of ethanol production to 1.67 to 1. In other words, ethanol production results in 67% more energy than it takes to grow the corn.

Non-Biotech 39,244
Biotech 21,257
Herbicide-Tolerant 13,899
Stacked Traits 7,358
Total 81,758

Source: USDA, NASS, Acreage Report June 30, 2005

Are Your Records Up to Snuff?

It's been said, “You can't master what you can't measure.”

With the electronic wizardry available today, there seems to be no limit to what we can measure and record. The challenge, of course, is to select what we measure very carefully, making sure the information we gather has a purpose and a payback potential.

Our capacity to measure and record production information seemingly grows by leaps and bounds daily.

This point was driven home during a first-of-its-kind meeting held in Des Moines shortly after Labor Day. Coordinated by Swine Management Services LLC, and Pigonomics Swine Records & Consulting, the PROFITS (Pig Record Operators Forum on Information Technology Solutions) Forum, invited 11 software companies to present an overview of their sow records programs. Companies were asked to give 50-minute presentations about their software programs. Ten companies accepted.

The beneficiaries of this effort were a select group of pork producers, feed and genetic company representatives, swine veterinarians, identification providers, independent recordkeeping bureaus and a single journalist.

The primary goal of the meeting was to offer this diverse audience an opportunity to review and critique the sow record programs and share any experiences they've had with them — good and not so good.

When each 50-minute time slot expired, the program representative left the room and a candid, roundtable-type discussion ensued. Program glitches, ease of data collection and entry, adaptability, training and support programs, record standardization and pricing were discussed.

In varying degrees, most programs offered keyless data entry capabilities, benchmarking capabilities (some customized) and web-based access.

Costs ranged from monthly fees to fees pro-rated by number of sows or per-pig marketed.

Common points of discussion included the need for standardized calculations (i.e. Production & Financial Standards formulas finalized in 2001), RFID compatibility, the use of a 1,000-day calendar, web-based capabilities to allow benchmarking reports on request, compatibility with hand-held computers/data loggers, and the growing need for grow-finish data collection and analysis.

An astute swine practitioner noted that some production parameters used to measure success or failure no longer apply to modern pork production — and perhaps never did. He called for an industry effort to identify the “true efficiency measures” that will carry pork producers forward. To stimulate thinking, he suggested “pounds of pork/square foot of facility space, pounds of pork/sow space, or feed efficiency/square foot of finishing space.”

An Uncommon Trend

Usually, as new technologies are brought to an industry, an evolutionary process begins. The products operated with the greatest ease, those that deliver the greatest value, and in the case of electronic recordkeeping, those with the least problems, eventually rise to the top. The number of companies offering similar products/services normally narrows.

In the software provider business, the pork industry seems to be running counter to this typical whittling down process. This has occurred, in part, because some feed or genetic companies that offered recordkeeping services as part of their customer service/support programs have divested themselves of that portion of the business.

Existing leaders in the field would normally absorb those programs and clients. That has occurred in some cases, but in others, existing staff or entrepreneurs have purchased the software programs, upgraded their services and recruited a larger client base. Consequently, the number of independent software providers has actually increased slightly in recent years.

Some programs are more expensive than others. Some are more agile — making it easier to convert or extract data to guide day-to-day operations. All offer the end-goal services required to provide valuable, cost-effective performance information to guide decision-making and, hopefully, profitability.

Challenges Ahead

As corn prices continue to climb and profit margins tighten, the need to effectively track costs and productivity levels will be magnified several fold.

If you aspire to be a least-cost producer, logically, you must deal with the facts. Whether you benchmark against past herd performance or against similar operations, you must have confidence that the recordkeeping program you've chosen will provide you with the best measures of efficiency and adapt when changes are needed.

Rest assured, your lender/banker will be particularly interested in those facts during the leaner times ahead. If your current recordkeeping program does not provide the information you need, now would be a good time to find one that does.

Stage Set for Growth Of Enhanced Feedgrains

Convincing pork producers to set energy specifications in the corn that they buy has proven more difficult than expected.

For Pioneer Hi-Bred Inter-national, Inc., the last eight years have been a lesson in patience. The Johnston, IA-based seed company has expended considerable resources to determine the digestible energy (DE) of different corn hybrids.

And Pioneer has used rapid analysis technology to take the next step in developing the capability to measure DE content in whole corn.

But commercializing those and other valuable corn traits for end users, in order to upgrade the overall value from row crops for pork and poultry producers, has encountered some resistance, says swine nutritionist Daniel Jones, business manager, Pork and Poultry, Pioneer.

“Commercialization of these traits will require buyers to begin establishing improved specifications for grain trade based on the grains' functional value. With improved market standards in place, supply chains can begin to recognize value, and the processes to develop products that meet these improved standards can be focused and accelerated,” he explains.

Crop Production Evolves

In the past, plant-breeding efforts focused mainly on increasing crop yields, with little attention to the nutritional or industrial advantages of the grain products produced, Jones recalls.

But new technologies that measure grain potential for end users has widened the focus to opportunities that “enhance end-use utility and value of hybrid grain products,” he notes.

Plus, improved breeding techniques and biotechnology applications of corn seed has “set the stage for significant quality improvement of grains,” he continues.

Changing Buyers' Mindset

The challenge now for seed companies is to convince buyers to begin placing specifications like DE on grain purchases, so that supply chains can operate on that basis rather than on standard physical grades for corn quality, suggests Jones.

Rules for those grades — enacted in 1916 by the U.S. Department of Agriculture and updated in 1986 — provide buyers with very little information on nutrient content or functional quality of the grain.

In the absence of adequate analysis tools for corn, most users simply buy No. 2 yellow corn, even though nutritionists have known that nutritional variation exists, says Jones.

“Historically, the animal feeding industry has just chosen to operate on the ‘use-whatever-we-get’ principal. Even though the same industry has taken note of some of the trends that have occurred over the years, such as the steady decline in corn protein concentration, no significant actions have been implemented on a wide scale to change the course,” he remarks.

Jones says Pioneer and other seed companies are working to boost available energy concentration through improving gross energy by increasing oil concentration in the kernel, increasing digestibility of the energy-containing components (protein, oil, starch and fiber) and employing both strategies simultaneously.

Improving dry matter and/or energy digestibility also offers the positive side benefit of incremental reduction in animal waste excretion, he points out.

Areas of Improvement

Seed companies are working in several areas to improve technology to boost the value of corn:

  • Improved protein quality: Corn supplies a large amount of total protein in mono-gastric diets, due to its large inclusion rate in pork and poultry rations.

    “But the protein quality of corn suffers due to its low concentrations of several essential amino acids such as lysine, threonine and trytophan,” says Jones.

    Biotechnology is being used to change the amino acid content of corn, such as Monsanto's efforts to develop a high-lysine corn.

    Due to environmental constraints pushing lower levels of nitrogen excretion, interest in using biotechnology to change more than a single amino acid in corn is growing, says Jones.

    Research from these efforts (Dupont-Pioneer's parent company and Monsanto) will identify traits to potentially endow corn with amino acid concentrations that are balanced to more closely meet the needs of the animals, he says.

    “These products have potential to dramatically change the need to supplement both protein meals and crystalline amino acids, while at the same time lowering nitrogen excretion and freeing up available energy space in formulations,” he adds.

  • Improved availability of phosphorus: Adding to phosphorus availability for corn and soybeans has tremendous potential impact on nutrient management systems of animal production.

    Development of low-phytate corn and soybean products had stalled because the hybrids had reduced stand establishment, stand integrity and ultimately yield, comments Jones.

    Seed companies have now turned to biotechnology to produce the genetic manipulations required to increase phosphorus availability, hopefully without the agronomic challenges of commercial low-phytate products.

    Syngenta is developing a corn product that carries its own heat-stable phytase enzyme to increase phosphorus availability rather than decrease phytic acid directly.

  • Fatty acid composition of grains: The rapid growth of ethanol and dried distiller's grains with solubles (DDGS) as a feedstuff for swine makes changing the fatty acid profile of corn oil desirable for pork carcass quality, says Jones.

DuPont marketed some high-oil, high-oleic acid corn varieties that reduced the iodine value of the corn oil substantially, but were difficult to produce.

Development of a biotechnology-derived trait to significantly reduce iodine value is underway.

In soybeans, products have been developed more rapidly with altered fatty acid profile. This has mainly been driven by food regulations to reduce or eliminate trans-fatty acids. DuPont, Monsanto and Iowa State University have all developed soybeans with low linolenic acid concentration.

Enhanced-Value Research

Pioneer is a leader in developing measurement systems to provide enhanced value for feedgrains for animal feed, dry grind ethanol, corn wet milling and food corn.

Using Near Infrared (NIR) measurement systems, Pioneer has developed prediction models that measure:

  • Extractability of starch (in cooperation with the University of Illinois);

  • Total fermentable potential of corn for dry grind ethanol production;

  • Digestible energy concentration of corn for pork and poultry;

  • Density of corn grain; and

  • Fatty acid concentrations of corn and soybeans.

Most recently, Pioneer scientists have used NIR to measure DE concentration in whole corn for pork and poultry, and have used the tool to characterize the potential of Pioneer's commercial hybrid products to deliver DE.

Currently, Pioneer is the only seed company that provides corn energy characterization information based on direct measurement of DE on the products they sell, says Jones.

Five States Focus on Feral Swine Threat

The feral hog population is growing at a rapid rate across the United States, raising concerns for pork producers, farms and wildlife systems.

Current estimates place the feral or wild hog population at more than two million animals in about half of all states, according to a report at the U.S. Animal Health Association annual meeting in Minneapolis.

In fiscal year 2006, 12 swine herds were infected with pseudorabies, and 13 were infected with swine brucellosis; both diseases have been eradicated from domestic swine. Feral swine were involved in all the cases.

Feral swine destroy forest regeneration, row crops, pasture lands and food plots for wildlife areas.

In response to the growing danger, Iowa, Missouri, Pennsylvania, Wisconsin and Kansas have launched educational programs to make hog producers aware of the threat posed by feral hogs.

Recently, the Kansas Animal Health Department (KAHD) and the U.S. Department of Agriculture (USDA) have started a program to locate and control the fast-growing feral hog population in that state.

The KAHD and USDA are concentrating on locating feral hogs by surveying landowners, producers, game wardens, etc.

Starting this month, the program will prioritize ground control measures, including trapping and shooting. This will be supplemented by aerial control efforts as the program progresses, says Chad Richardson, wildlife biologist with USDA.

Benchmarking Financial Health

Log onto a popular web browser, such as America Online (AOL), and you'll likely be hit with a chance to do some personal benchmarking.

There are opportunities to compare everything from body mass index to the trade-in value of your car or how your local school district ranks. Beyond a chance to feed any competitive streak you might harbor, benchmarking can motivate change and help monitor progress.

Most pork producers engage in benchmarking at some level. Tracking production parameters, like pigs/sow/year (PSY), average daily gain or lb. of feed/lb. of gain is very common. Perhaps less common, but equally worthwhile, is benchmarking for financial progress, especially cost of production (COP).

Mark Penningroth of Latta, Harris, Hanon and Penningroth (www.lattaharris.com), Tipton, IA, says there is a wide range of ways pork producers approach benchmarking.

“Some people might go to a seminar, look at Iowa State University agricultural economist John Lawrence's numbers or talk to their feed company or veterinarian,” he says. “There are also some pretty astute people, mathematically, who can keep a lot of numbers in their minds that they are rolling up and comparing.”

More Formal Approach

To give clients a more precise picture of how their production costs compare with other swine operations, Latta, Harris, Hanon and Penningroth (Latta Harris), a certified public accounting and consultant firm, presents detailed benchmarking standards each year for clients choosing to participate.

The comparison focuses on eight overall cost categories, with COP benchmarks broken down for farrow-to-finish, breed-to-wean and wean-to-finish enterprises. Figures are established for producers operating at the 50th and 90th percentile profitability levels (See Tables 1-3).

This year, 27 farms participated in Latta Harris' study, reflecting 2005 financial records. Production units with 600 sows to over 10,000 sows were included. Most farms were in Iowa, Missouri, Ohio and Illinois.

To participate, clients must keep detailed financial records, which Penningroth says is the first step in meaningful benchmarking. Expenses should be correlated with production quantities, such as feed purchases tied to a specific group of animals (i.e. nursery, grow-finish, breeding-gestation).

“We use procedures to keep things as comparative as possible,” says John McNutt, Latta Harris business consultant.

In addition to analyzing the participants' financial statements, Latta Harris draws on their own experience and understanding of production costs, plus opinions from a wide range of industry sources, including lenders, veterinarians and economists, to derive specific cost estimates for each category.

“This is a considered value judgment based on everything we see and know,” McNutt explains.

Study participants see the results at a private meeting held just prior to World Pork Expo in Des Moines. Each farm's numbers are expressed as “per pig weaned” or “per hundredweight sold or produced.” Data is normalized as required to make it comparable between farms. Participants are assigned a letter code so they can see their ranking among all study farms but still remain anonymous.

Strengths and Weaknesses

The biggest difference between low- and high-profit producers is feed costs, says Penningroth and McNutt. For example, comparing cost of production for farrow-to-finish units in Table 1 shows there's a $2.55 spread in feed costs/cwt. — a big enough difference to mean making or losing money.

Penningroth and McNutt say their clients' understanding of the benchmarks and how they compare helps them identify their strengths and weaknesses and where to focus their attention.

“Say they have a feed problem. It might be an issue of quantity. Are they using too much feed? Or, is it an issue of too high a price per unit of feed or a combination of both?” explains McNutt. “We are looking for areas that have high opportunities to reduce cost.”

On the flip side, a producer who has mastered low-cost production may “strategically be really well-positioned to expand or take advantage of that strength,” says Penningroth.

That doesn't necessarily mean expanding the size of the herd, they note. Growth for an operation might include expanding into new enterprises, such as offering grinding and mixing services in order to run more tonnage through an on-farm mill. This could drive down costs of production further, for example.

Even smaller line items, such as veterinary care and medicine costs, should be under a producer's microscope, they say. For example, if you look at Table 2 for wean-to-finish units, you'll note that 50th percentile producers paid 90¢/cwt. for veterinary work and medicine, while producers in the 90th percentile spent only 60¢/cwt.

If you have ten, 1,000-head, wean-to-finish barns and you turn them twice a year, selling pigs averaging 275 lb., that's 5.5 million pounds. Therefore, the 30¢/cwt. vet-med advantage of the 90th percentile producer is $16,500.

But a low vet-med bill isn't always the best option, especially when coupled with a performance problem, which could be a sign that a disease problem is not being diagnosed and treated effectively.

Facility costs may be harder to impact because there are many fixed costs, such as insurance, taxes and depreciation. Or facilities may be operating below capacity.

“Sometimes the problem is simply too few units coming from too many dollars of overhead,” says Penningroth. An improvement in cost of production may be limited by inefficient pig flow through outdated or incorrectly sized facilities, he adds.

In other cases, a production problem may lead back to a personnel or management issue. “It may not show up in personnel costs, but it may show up in other key operating areas because they are not getting PSY or managing feed expenses,” he continues.

Bottom line, the benchmarks “help us take them 3,000 ft. up, look at the operation compared to the rest and help them think about their strategies,” says Penningroth. “Like a good consulting veterinarian helps them look at their overall animal health, hopefully we help them look at their overall financial health.”

Table 1. Comparative Cost of Production, Farrow-to-Finish Units (Cost/Cwt.), 2005
Expenses: Benchmark 50th Percentile Benchmark 90th Percentile
Personnel 4.31 3.98
Facilities 6.71 6.38
Other operating costs 2.20 1.59
Total of labor, facilities and other costs normally borne by contractors 13.22 11.95
Genetics 1.82 1.49
Feed 23.35 20.80
Veterinary/medicine 1.61 1.26
Death loss factor 0.00 0.00
Total cost of production before administrative and finance 40.00 35.50
Administrative 1.21 1.21
Total cost of production before finance 41.21 36.71
Interest .54 .25
Total cost of production (per cwt) 41.75 36.96
Source: Latta, Harris, Hanon & Penningroth LLP
Table 2. Cost of Production Benchmark, Wean-to-Finish Units (Cost/Cwt.), 2005
Expenses: Benchmark 50th Percentile Benchmark 90th Percentile
Personnel 2.25 2.10
Facilities 4.75 4.50
Other operating costs 1.89 1.29
Total of labor, facilities and other costs normally borne by contractors 8.89 7.89
Genetics 0 0
Feed 20.84 18.70
Veterinary/medicine .90 .60
Total cost of production before administrative and finance 30.63 27.19
Administrative .65 .65
Total cost of production before finance 31.28 27.84
Interest .40 .19
Total cost of production (per cwt) 31.68 28.03
Source: Latta, Harris, Hanon & Penningroth LLP
Table 3. Cost of Production Benchmark, Breed-to-Wean Units (Cost/Pig Produced (Complete Equivalent), 2005
Expenses: Benchmark 50th Percentile Benchmark 90th Percentile
Personnel 5.50 5.00
Facilities 5.50 5.25
Other operating costs 1.00 .90
Total of labor, facilities and other costs normally borne by contractors 12.00 11.15
Genetics 4.63 3.80
Feed 8.61 7.31
Veterinary/medicine 1.90 1.75
Total cost of production before administrative and finance 27.14 24.01
Administrative 1.50 1.50
Total cost of production before finance 28.64 25.51
Interest .39 .16
Total cost of production (per pig) 29.03 25.67
Source: Latta, Harris, Hanon & Penningroth LLP

A Good Case Study

Chuck Oberman used to give little thought to cost of production at his 2,600-sow, farrow-to-finish operation near Iowa City, IA. Instead, Oberman worked 60-plus hours/week, immersed in everything from cutting piglets' teeth to hauling hogs to market.

Facing serious burnout in the late 1990s, Oberman says he got two pieces of advice that have dramatically improved his business and life.

The first suggestion came from a consultant, who encouraged him to step aside and enable others to take the reins of day-to-day operations. “He told me to manage as a manager and not as an employee,” recalls Oberman.

Over the next couple of years, he elevated employee Harry Reed to the role of general manager at C & R Pork, Inc., which Oberman owns with his father, Richard. In addition, Oberman hired office manager Kim Chamberlain, who gradually took over bookkeeping, production data entry, payroll, purchasing and many other administrative duties.

The other recommendation came from his accountant, Mark Penningroth, who urged him to take a hard look at his feeding program. During their 2003 fiscal year (ending March 31, 2004), C & R Pork had approximately $22.95 in feed costs/cwt. of market pigs sold.

The Latta Harris' benchmarking study that year concluded that producers operating at a 90th percentile profitability level were paying substantially less for feed — around $19.31/cwt. of market pigs sold. That $3.64 difference got Oberman's attention because it represented a potential savings of nearly $500,000 annually.

Penningroth recommended that Oberman bring in an independent nutritionist to review C & R Pork's feeding program. Oberman turned to Kansas State University (KSU) nutrition specialist Steve Dritz, DVM.

Soon Oberman and Dritz were volleying emails and phone calls with details on each of the 18 rations being fed. Dritz and his colleagues worked up lower-cost alternatives.

“It was a bold step,” says Oberman, “because KSU's rations were a lot simpler than what I was used to.”

With new ration formulations in hand, Oberman asked six companies to supply bids for his feed business.

“I chose not to go with the lowest bid, but rather the lowest local bid,” says Oberman. “I like to stay local to help our community and work with people I know.”

He was amazed at the results. By late 2004, C & R Pork dropped feed costs to $19.50/cwt. of total market pigs sold while performance increased.

Today, Oberman says he spends his time “focusing on cost of production and the factors that go into it. We are looking at everything from trucking to employee salaries, to how much owners are taking out of the operation, to how much we spend for office supplies.”

Being a low-cost producer gives Oberman peace of mind. “If given a 1998 scenario again, when we were getting $11/cwt. for pigs, we would be the last ones out. It means longevity for C & R Pork.”

Not A "Good News" Week

USDA's monthly Crop Production and World Agriculture Supply and Demand (WASDE) reports released this week indicate that the big crop is getting SMALLER. That goes against the age-old adage, but it seems to accurately reflect yields from various parts of the country, which have, in general, been a little lower than many farmers had expected.
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The latest estimate of the 2006 corn crop is 10.745 billion bushels -- not far from the pre-report estimates (see Figure 1). Planted and harvested acres remain the same as last month, but USDA lowered its estimated national yield average from 153.5 to 151.2 bu./acre. The adjustment was mainly due to lower yields in Illinois, Indiana, Iowa and Nebraska -- a veritable "Murderer's Row" when it comes to corn production.
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The 160 million-bushel reduction in the estimated crop was balanced by cuts of 50 million bushels for both feed usage and exports and a 60 million-bushel reduction in 2007 carryout stocks. Those stocks, at 935 million bushels, represent just 7.9% of total 2006-07 usage. That stocks-to-use percentage is very low and the driving force for USDA to increase its estimated price received by farmers by 40 cents/bu. -- from $2.80 to $3.20.
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Chicago Board of Trade (CBOT) corn futures traded higher early in today's session (Nov. 9), but closed lower with December 2006 through September 2007 losing 7 to 8.5 cents/bu. and December 2007 losing 11 cents.
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Recall that wheat was a major trigger for this fall's corn price increase. USDA did not change any number in its U.S. wheat forecast from October, but increased world wheat supplies by 2 million metric tons. This year's estimated production of 587 million metric tons is still 32 million metric tons (5.2%) lower than one year ago.
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<b>Soybean Estimates Bumped Up</b>
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USDA increased its estimate of the 2006 soybean crop to a record 3.204 million bushels, 15 million bushels higher than last month; 2007 carryout stocks are now pegged at 565 million bushels -- also a record high. Estimated season-long prices for soybeans were increased by 50 cents/bu. -- to $5.40-6.40 -- mainly to keep up with rising soybean futures, which must keep pace with corn in order to retain some acres next spring.
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The forecast price for soybean meal was also increased -- from $147.50-177.50/ton last month to $165-190/ton; 2006-crop beans were 3.5 to 8.75 cents/bu. lower today, while soybean meal futures settle $2.50 to $3.00/ton lower.
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<b>Buy, Even Though It Hurts</b>
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This report contained no big bullish shocks for feed prices, but did nothing to harm the technical structure of the corn charts, which means the upward trends will likely continue. The same is true, in spades, for soybean meal since some of the 2007 meal futures contracts set contract life highs yesterday.
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I hate buying feed at these prices, but if you haven't bought some already, you should probably consider it.
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One reason for that suggestion is a study released this week by the Iowa State University (ISU) unit of the Food and Agriculture Policy Research Institute (FAPRI), which suggests some major changes for the U.S. pork industry under current ethanol policies. FAPRI will hold a press conference on Monday to discuss the results, but the paper is already published and available at <a href="http://www.card.iastate.edu/publications/synopsis.aspx?id=1029">www.card.iastate.edu/publications/synopsis.aspx?id=1029</a>.
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The premise of the FAPRI report is simple: Oil prices plus the ethanol tax credit plus a value for distillers dried grains and solubles (DDGS), when combined with plant construction and operating costs, create a specific value for corn. FAPRI's estimate is $4.05/bu. As long as the market price of corn is less than that value, new ethanol plants will be built and they will force the price of corn to that level. The only real question is, "What does the rest of United States and world agriculture look like then?"
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The picture is not pretty for the U.S. pork industry. Based on ISU estimates for corn and soybean meal usage and prices, hog production costs will increase by about $31/head, or just over 30%. U.S. production would have to fall by 10 to 15% to drive hog prices up enough to make up for this cost increase. That kind of reduction would drive retail pork prices up by 20% or so given historical demand elasticities.
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Look for more on this report. The results are preliminary, but quite logical. FAPRI is working on a model for DDGS usage that will tell us much more about the competitive shifts that will occur in the U.S. meat sector. I expect it to show smaller negative effects on poultry and perhaps no effect on beef and dairy since they will be able to utilized abundant supplies of DDGS.
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<b>Gestation Stall Battle Lost</b>
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As if all of this isn't enough depressing news, the industry lost the battle for individual gestation stalls in Arizona. Voters there approved a constitutional amendment that would ban veal calf crates and swine gestation stalls after Dec. 31, 2012.
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Florida passed a similar amendment to ban individual gestation stalls two years ago. It only affected two hog farms. The Arizona amendment is different in that it affects more production, most notably Hormel's (formerly Clougherty's) production units near Snowflake, AZ. What is rather disheartening is that the vote was not even close -- 62% to 38% - even though the opposition represented a well-organized group of Arizona and national agricultural groups.
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It is quite obvious that this will not be the last of these efforts. The Humane Society of the United States (HSUS), which has nothing to do with your local humane society, has a large war chest (I have heard $100 million) and has stated its intent to spread these prohibitions. HSUS will very likely attempt to put some animal welfare language into the 2007 farm bill.
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<a href="http://nationalhogfarmer.com/images/1110mkt.doc" target="_new"><img align="left" valign="top" src="http://images.industryclick.com/files/17/graphlogo.jpg" vspace="0" border="0" hspace="3"></a><br><br> Click to view graphs.<br><br>
<font color="red">Steve R. Meyer, Ph.D.<br>
Paragon Economics, Inc.<br>
e-mail: <a href="mailto:steve@paragoneconomics.com">steve@paragoneconomics.com</a></font>

Canadians Report More Slippage

Last week's Hog Statistics Report from Statistics Canada indicates that the Canadian pork production sector is indeed in the clutches of several economic problems, few of which appear to be of their own making.
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Canada's breeding herd on Oct. 1 was pegged at 1.62 million head, 20,000 head smaller than in July and 28,000 head (1.7%) smaller than one year ago. The decline leaves the combined Canada-U.S. herd 1% larger than one year ago on the strength of growth in the United States (see Figure 1).
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Perhaps the more surprising news in the report was the continued decline of productivity measures in Canada. July-September farrowings were estimated to be 857,000 litters, 4.5% smaller than one year ago. That makes the fourth consecutive quarterly decline in Canada's farrowings and every one of those negative figures have been significantly larger than the respective quarter's sow herd reduction. If one wants to argue that we should look at lagged sow herd figures, it gets even worse since the first of these negative farrowings quarters followed year-over-year increases in Canada's quarterly breeding herd.
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What is interesting is that farrowings are down by more than Canada's pig crop. I think that is a testament to the job Canadian producers are doing raising pigs, but the trend in year-over-year change in Canada's pig crops is certainly disturbing. The 3.4% year-over-year decline in Canada's pig crop means that the July-Sept. combined Canada-U.S. crop is smaller than that of 2005 -- the first time that has happened since the second quarter of 2003, when the roles of growth and expansion were reversed.
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Much of this, of course, is due to the devastating impact porcine circovirus-associated disease (PCVAD) has had on Canada's herd, especially in the east. While still a fight, producers appear to be winning some battles in this war. I recently heard Camille Moore, DVM, of Quebec report that vaccines have proven very effective in reducing PCVAD mortalities and the disease's impact appears to be lessening even in herds that have not vaccinated. The word from the Prairie Provinces, though, is that the disease is spreading and causing more severe problems.
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The catch, of course, is vaccine availability. From everything I hear, PCVAD vaccines will be hard to come by for several more months and may not be widely available until well into 2007.
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The practical implication of a smaller Canadian breeding herd, lower Canadian pig crops and growing exports of feeder pigs to the United States is that Canada will not have enough slaughter hogs to fill its packing plants (see data tables below). Maple Leaf's decision to cancel its plans in Saskatoon is symptomatic of that situation and don't expect the symptoms to go away any time soon. It is very difficult for Canada's packers to compete with a dollar nearing par with the United States, especially when they are being forced by a burgeoning oil industry to pay very high wage rates.
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<b>Here's the "Up" Side</b>
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With all of the factors -- slow growth in the United States, potentially very high feed prices, reductions of supplies in Canada, reduced slaughter in Canada (thus reducing the amount of product available for export) -- is it really any wonder that hog futures have been steadily higher in recent weeks? Every contract on the board touched contract life highs on Thursday, and every one except December 2006 set records for highest daily closing price.
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The average price of the Chicago Mercantile Exchange (CME) Lean Hogs futures contracts on the board (Dec. '06 through Dec. '07) was $68.38/cwt. carcass on Thursday. This would translate to just over $51/cwt. on a live weight basis, probably more than compensating for the roughly $30/ton rise in feed costs over the past month.
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Don't get caught up in the gloom and doom of feed prices. The market for your product is offering some profit opportunities and you should manage them carefully over the coming weeks.
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<a href="http://nationalhogfarmer.com/images/1102mkt.doc" target="_new"><img align="left" valign="top" src="http://images.industryclick.com/files/17/graphlogo.jpg" vspace="0" border="0" hspace="3"></a><br><br> Click to view graphs.<br><br>
<font color="red">Steve R. Meyer, Ph.D.<br>
Paragon Economics, Inc.<br>
e-mail: <a href="mailto:steve@paragoneconomics.com">steve@paragoneconomics.com</a></font>

Distiller’s Grain Conference Set For Nov. 20 in Des Moines

The National Pork Board is hosting a conference, “Distiller’s Grains: Implications for the U.S. Pork Industry,” on Nov. 20 at the Des Moines Marriott Downtown in Des Moines, IA.

Pork producers will learn about the current challenges and opportunities facing them as they consider feeding distiller’s grains in their operations.

Speakers will also provide updates on the latest research and information on how distiller’s grains can be incorporated into a feeding program.

The conference runs 8 a.m. to 5 p.m. and is free of charge. Other sponsors include the Iowa Corn Growers Association, the National Pork Producers Council, the National Corn Growers Association, the Iowa Pork Producers Association, the Iowa Agribusiness Export Partnership and the Renewable Fuels Association.

Registration is required; pre-registration is offered through Nov. 15. Details on the program, registration and housing are available from the Calendar section of the Pork Checkoff’s Web site at www.pork.org