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Articles from 2010 In November


Hog Price Volatility Reaffirms 'Cash is King'

Last spring, Dr. Michael Swanson, chief agricultural economist at Wells Fargo Ag Industries, addressed the National Pork Board’s Swine Management Conference on the topic, “Economic Volatility has Consequences.” The presentation was very informative and creative, shedding new light on a number of macroeconomic topics, as well as agricultural markets.

In his presentation, Swanson used a chart similar to Figure 1 (attached) that simply shows Chicago Mercantile Exchange (CME) Lean Hogs futures prices for each contract month into the future on a series of given dates. In Figure 1, I used last week and 31-day intervals for six months in the past. This provides a picture of the outlook for the hog market in the eyes of the futures market at 31-day intervals since May 20, 2010. The set of lines is instructive regarding the past and current “thinking” of the market regarding hog prices.

Back in May, it was pretty clear that hog prices were going to be good during the summer. That positive outlook remained in place through July and the outlook for the fall months began to improve. On July 21, October futures were trading at just over $75 and December futures were at about $73, over $3 higher than they had been back in May.

As summer progressed, expectations for August hogs were pretty much fulfilled. The national net cash hog price at the expiration of the August contract was $80.68/cwt., carcass. This strength and continued strength into September stoked the optimism of futures traders as contracts for October and December rose by roughly $4/cwt., carcass, from July 21 through Sept. 21. That optimism fueled even larger increases in futures prices for next summer.

Then came the fall cash market crunch – driven primarily by unexpectedly large numbers of heavy hogs since Oct. 1. By late October, the December contract had fallen to nearly $70, down from $77 in late September. The decline had pulled February and April contracts lower as well, but note that the May and June contracts remained relatively constant while the more distant contracts rose as traders expectations of output expansion waned.

That pattern has continued through November as the nearby December contract has struggled to get above $70, while deferred contracts have risen to the upper $80s, with contracts from May through August setting or nearing the contract life highs.

Cash Remains King
One clear lesson here is the reaffirmation that “cash is king.” Expectations were rising in August and September, but hit the cold, hard reality of a falling cash market in October. The unusual depth of that sell-off had to be reflected in both the October and December contracts.

The other lesson is that the market takes into account long-term implications – perhaps not fully, but to a great degree. The USDA September Hogs and Pigs report indicated that the U.S. breeding herd, in fact, was not growing during the summer. Combine that with sharply lower prices and the market has concluded that hog supplies will not increase next summer. Further, it appears to me that the market may be agreeing with my expectation that the current surge in growth rates will continue and the first “marketing hole” we might see will be next summer when higher temperatures slow pigs’ growth down.

The catch in these relationships, of course, is that quarterly average futures prices for 2011 are now anywhere from 4 to 11% higher than the respective cash prices in 2010. Those increases suggest an output decline of 1.5 to 3.5%, year-over-year, in 2011. Weights could indeed be lower given higher feed costs. And, recent sow slaughter levels suggest that some farms may be liquidating rather than face another year of losses.

Still, growing productivity causes me to doubt that we will see output reductions. If that is the case, demand must be substantially higher in order to realize the price levels currently being predicted by the futures markets.

Thankful for Pork
I hope you and yours had a great Thanksgiving and enjoyed some great pork – a meat you can truly be thankful for! We had ham in several forms, as well as roast pork loin and all the trimmings. It was a great plan this year – friends on Thursday, immediate family on Saturday and extended family on Sunday. Three for one! I really must work on arrangements for Friday next year.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com

A Closer Look at Mycoplasma-Related Lameness

Often, the declaration from your veterinarian, “these pigs have Mycoplasma,” is immediately followed with a question: “What does that mean?”

The confusion is understandable when we recognize that there are several quite different Mycoplasma species that very commonly infect pigs. Additionally, Mycoplasma infections do not always cause clinical disease.

Mycoplasma are bacteria-like organisms that have a long history causing disease in swine. The most well-known and most economically important is Mycoplasma hyopneumoniae, a very common cause of pneumonia.

Three other species cause disease in swine: M. hyosynoviae (Mhs) causes arthritis (more below); M. hyorhinis can cause disease in young pigs; and, M. suis (formally known as Eperythrozoon suis or “Epy”) can cause anemia in pigs (Table 1). Importantly, none of these Mycoplasma are obligatory pathogens; pigs (herds) can be infected with no discernible clinical disease. In addition, there are at least six more species, including M. flocculare, that can be isolated from swine and sometimes can contribute to erroneous interpretation of certain diagnostic tests.

Grow-Finish Arthritis, Lameness
The remainder of this discussion focuses on M. hyosynoviae (Mh). Concerns have increased in the last several years about arthritis and lameness in the grow-finish stage. There may be an actual increase in prevalence of lameness, or perhaps an increased awareness due to control of other major diseases (such as porcine circovirus type 2), increased recognition of lost economic opportunity of lameness or welfare concerns.

Because lameness has several primary causes and a host of risk factors (Table 2), it is difficult to point to one single factor as causal. Astute clinical examination, response to treatment, and confirmation of diagnosis by laboratory testing should align before pronouncing Mycoplasma hyosynoviae as the sole cause of lameness.

Mycoplasma hyosynoviae infects the upper respiratory tract and can lead to an indefinite tonsil carrier state. The infection can be transmitted from carrier pigs to non-infected pigs by contact, usually after 4-8 weeks of age. The rate of spread of infection likely is influenced by herd immunity, environmental factors and stocking density, whereas the outcome of infection (disease or no disease) is often related to concurrent joint stressors, such as trauma, body conformation (genetics), nutritional imbalances, subclinical osteochondrosis and variation in pigs’ resistance or immunity.

Once infected, Mh can penetrate mucosal barriers and be found in the blood for 4-10 days after infection. In the more susceptible animals, the organism may localize in synovium of joints (connective-tissue membrane that lines the cavity of a joint and produces synovial fluid) and cause inflammation. Clinical lameness typically occurs in 3- to 5-month-old pigs. Of the 50 most recently confirmed cases of Mh arthritis at the Iowa State University Veterinary Diagnostic Laboratory, all were pigs between 10 and 28 weeks of age. Half of the cases were in pigs 17 to 20 weeks old.

Clinical Signs
Clinically, the onset of lameness is abrupt with no fever. The hock and stifle joints of hind legs are most commonly affected; “dog-sitting” and reluctance to move are often the first signs observed. Because larger, heavily muscled joints, such as the stifle and shoulder, are often involved, obvious joint enlargement may not be apparent. Joints may be “puffy,” but no fibrin or pus is expected within joints with Mh. The most remarkable change with Mh-associated arthritis may simply be increased amounts of joint fluid. Generally, less than 1 milliliter (ml) of joint fluid can be aspirated from the stifle of a normal 200-lb. pig. If 3-5 ml can be collected, and especially if the fluid is amber to blood-tinged in color, Mycoplasma arthritis should be highly suspected (Figure 1).

Challenging Diagnosis
The diagnosis of Mh arthritis can be a challenge since affected pigs may be lame, down, without a fever and may not have obvious joint enlargement. Live, acutely affected, untreated pigs are preferred for diagnostic workup. Prior to opening the joints, one should attempt to aspirate joint fluid from the hock and stifle joints. If more than 1 ml (often 2-5 ml) of clear to amber-colored fluid can be aspirated, M. hyosynoviae arthritis should be the primary differential. Joint fluid and formalin-fixed synovium should be submitted for laboratory confirmation and to rule out other infectious processes. The joint surfaces should also be evaluated for osteochondrosis as a primary diagnosis or as a risk factor by gross and histopathologic examination.


Click to view graphs.

Kent Schwartz, DVM
Iowa State University Veterinary Diagnostic Laboratory
kschwart@iastate.edu

Thousands File GIPSA Comments

Thousands of public comments were filed concerning the proposed GIPSA (Grain Inspection, Packers and Stockyards Administration) rule on buying and selling livestock and poultry. Many of the comments were from letters or electronic e-mails.

Some of the more detailed comments came from industry trade associations. The National Pork Producers Council (NPPC) in its comments said that USDA lacked authority or “exceeded” it on certain provisions of the proposed rule, failed to support the need for the regulations with evidence of problems in the pork industry and didn’t consider its own studies showing that restricting contracts could harm the industry. NPPC said that the regulations were “bureaucratic overreach.” NPPC CEO Neil Dierks said, “In all my years in the pork industry, I have never seen a regulation proposed that would do as much harm to America’s pork producers as the GIPSA rule would do. There’s no justification for imposing this rule on pork producers. It’s based on anecdotes, not analyses.”

The National Cattlemen’s Beef Association (NCBA) said the proposed rule was a “pervasive invasion of government into private business.” NCBA said that the rule was offered by GIPSA with no meaningful economic analyses and without concern for its impact on producers, packers, retailers or consumers. The American Meat Institute (AMI) urged USDA to withdraw the proposed rule because it exceeds the congressional mandate in the 2008 farm bill; will eliminate more than 100,000 jobs; will destroy partnerships between livestock producers and meat companies that have improved product quality; and will raise meat and poultry prices for consumers.

U.S. Cattlemen’s Association (USCA) proposed clarifications in specific sections of the rule (definition of a packer, packer-to-packer sales, etc.) while fully supporting the intent of the rule to “enhance price discovery and restore competition to the marketplace.” USCA said in a press release, “Critics have contended that the proposed rules go beyond the mandate of the 2008 farm bill. However, those same critics fail to recognize the authority and obligation to protect the markets that are already in place under the law. USCA has been consistently adamant that nothing in the downstream activities and the comments filed with USDA reflect that position.”

A new coalition, Our Competition Coalition, has been formed in support of the proposed GIPSA rule. Members of the coalition include R-CALF USA, National Farmers Union, National Family Farm Coalition, Rural Advancement Foundation International-USA (RAFI-USA), Land Stewardship Project, Western Organization of Resource Councils (WORC) and the Organization for Competitive Markets (OCM), The coalition says the proposed rule will help independent producers get fairer prices for their animals from packers, whose industry has consolidated to the point of creating excessive buying power.

EPA Delays E15 Decision on Older Cars — The Environmental Protection Agency (EPA) announced that it will delay until January its decision on the use of E15 in cars and pickup trucks for model years 2001-2006. The delay is a result of testing failures unrelated to fuel and E15. It is estimated that 60% of the nation’s cars and trucks are newer than 2001.

P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.

Third Annual Passion for Pigs Seminar Is Dec. 16

Mike Brumm of Brumm Swine Consultancy, North Mankato, MN, keynotes the Passion for Pigs Seminar & Trade Show with “We Lose Too Many Pigs with Our Mistakes” in a discussion of emergency ventilation systems and pit pumping mistakes.

The conference is Dec. 16 at the Executive Center, Holiday Inn, Columbia, MO. To register, call Julie Lolli at (660) 651-0570 or e-mail julie.nevets@centurytel.net.

The morning program includes talks on preventing moldy feed, mycoplasma and swine influenza virus update, producing robust pigs, subclinical ileitis, circovirus, practical rodent control, ag law update and protecting 50% of your farm income with a simple semen thermometer.

The afternoon session covers advances in biosecurity, gut health in sows, ingredients to lower nursery feed costs and increase pig weights, new tools for porcine reproductive and respiratory syndrome (PRRS) and genetics to achieve high-producing sows.

Reid Philips, DVM, Boehringer Ingelheim Vetmedica Inc., addresses “PRRS is Lurking – Are You Prepared?”
Missouri swine consultant Dennis DiPietre discusses “Precision Agriculture for Swine Producers.”

Brumm closes with “Technology Changes That Will Impact Your Future.”

Hog Prices May Rebound To Fairly Profitable Levels

Hog prices may have bottomed out and may be on their way back up again, according to Purdue University Extension Agricultural Economist Chris Hurt.

“First, hog prices are probably at their seasonal lows in late November as consumers are buying their Thanksgiving turkey rather than pork. Second, lower corn and meal prices provide an opportunity to lock in feed prices at levels that were not available a few weeks ago,” he points out.

The 2011 outlook also provides a note of optimism for a year of positive margins on average, which producers may want to consider taking advantage of now.

Granted live hog prices fell from nearly $60/cwt in September to the mid-$40s by mid-November. With costs of production in the mid-$50s, this means losses near $15 per head in the final quarter, Hurt says.

“The saving grace is that profits were strong last spring and summer. Those profits will offset current losses and result in an estimated 2010 yearly profit of $14 per head,” he adds.

Hog prices typically rise slowly after Thanksgiving into mid-February, and then dip modestly into early April before moving to highs in May and June, he notes.

“This pattern of generally rising prices is expected into next spring and summer. Live prices are expected to average near $50 in the final quarter of this year and then move higher into 2011,” Hurt says.

First-quarter prices are expected to average near $55 per live hundredweight with second and third quarter prices stretching to $62 and $61. Last-quarter prices will drop to the mid- to lower $50s. These hog prices are derived as forecasts of cash prices from current lean hog futures, which means these prices can be hedged by pork producers, he says.

Lean hog prices have improved while feed prices have dropped, providing profitable market opportunities for 2011. Taking margins can be accomplished in the futures market by selling lean hog futures for 2011 and buying corn and meal futures, then later converting these to cash positions.

Margins can also be taken in the cash market or through combinations of futures and cash positions, he says. Hurt predicts an average of near $7 per head profit for 2011.

“The difference for 2011 is much higher hog prices after substantial herd reduction from 2008 to 2010. Live hog prices are expected to average near $57 in 2011, $10 higher than in 2008,” he says.

AMI Urges Withdrawal Of GIPSA Regulation

The American Meat Institute (AMI) today filed comments urging the Grain Inspection, Packers and Stockyards Administration (GIPSA) to withdraw its livestock and poultry marketing proposed rule because it:
--Exceeds the congressional mandate in the 2008 farm bill;
--Eliminates more than 100,000 jobs;
--Destroys partnerships between livestock producers and meat companies that have improved product quality; and
--Raises meat and poultry prices paid by consumers.
“In addition to exceeding the direction it received from Congress and containing numerous provisions that are legally infirm, GIPSA’s proposed rule, if finalized, will cost the meat and poultry industry dearly in jobs, revenue and productivity,” says AMI Senior Vice President of Regulatory Affairs and General Counsel Mark Dopp. “Unfortunately, GIPSA is hurtling down a path based on anecdote and innuendo, but with no regard to the truly significant adverse economic and social consequences this rule would have on livestock producers, consumers and the meat and poultry industry,” he adds.
There are five flawed areas that AMI has outlined in its comments:

  1. The proposed rule conflicts with long-standing judicial precedent that affirms the need to demonstrate harm to competition.
  2. Many provisions would cause severe economic harm to producers, consumers, packers and live poultry dealers.
  3. Many elements of the proposal are unconstitutionally vague and patently unworkable.
  4. The proposal would adversely affect the meat and poultry industry’s ability to compete internationally.
  5. The agency failed to meet the requirements of Executive Order 12866 that requires a more comprehensive assessment than the simplistic cost-benefit analysis conducted as part of the proposed rule.

To read AMI’s complete comments, go to http://bit.ly/9SQVop.

Free Market System Isn't Always Favorable

A few months ago, I commented in this column that packer margins and producer prices have become positively related in recent years. That contrasts with pre-2000, when the two values were clearly negatively related – high packer margins were associated with low hog prices. I still think the positive relationship is a good thing, but the past six weeks has seen the reemergence of the negative relationship, and that has caused some conflicts for pork producers.

I’m looking forward to today’s deadline for submitting comments on GIPSA’s proposed rules that will have major impacts on livestock and poultry production and marketing practices. Many (and I think most) pork producers have fallen on the “Stay out of our markets and let us work this out!” side. Some of those same producers, however, have complained that packers are just making too much money at a time when producers are hurting.

Sorry, but you can’t have it both ways. Winston Churchill, apparently quoting an unknown author, once famously quipped, “It has been said that democracy is the worst form of government except for all the others that have been tried from time to time.” So it is, I think, with free markets. They don’t always treat us the way we like, or the way we think we deserve, but they are better than the alternatives.

Packer Profits, Producer Losses
The hog and pork markets this fall have indeed provided an opportunity for profits for packers. By-product values have bumped $20/head virtually all year and meat margins have spent the vast majority of the year above $10/head and several weeks this fall at over $20/head. Both have been near record highs (See Figure 1).

Those $20/head meat margins have drawn the particular attention of pork producers, primarily because they have coincided with a $23/cwt carcass decline in negotiated net (ie. spot market) prices and a $16/cwt carcass decline in the weighted average net price across all purchase methods (Figures 2 and 3). Both of those price series appear to have bottomed out and turned upward the past two weeks, but there is a reason for the dramatic declines: Producers kept bringing a lot of hogs!!

Hogs on Steroids
Before you start firing off e-mails that begin with “Steve, you idiot …” or worse, please read on. I know that producers had no choice in the short run. Nine-month old corn and hot weather usually back up pigs in the summer. Fresh corn and cool weather cause them to hurry to market in the fall. Add in the fact that October has no holidays and you get seasonally-huge supplies in the fourth quarter. Hardly ever fails. Mother Nature is tough to fool. But the “piling up” effect of hog supplies has been on steroids in 2010. Nine-month old corn that started out lousy and got worse and pretty normal hot weather backed up a few hogs. Much better corn and near-perfect fall temperatures then began pulling them ahead. We have shipped an average of 2.33 million-plus head of hogs for five weeks now, when the September Hogs and Pigs Report said we should have averaged 2.24 million (Figure 4). And even at that marketing clip, the average weight of top barrows and gilts went up 6 pounds! Producers were shipping them as fast as they could!

Numbers Mount Up
The .09 million head-per-week difference between expected and actual slaughter doesn’t sound like much. But it is 90,000 hogs per week or 4% of expected weekly slaughter. Further, 2.33 million/week is almost precisely the number that current capacity can handle in 5.4 days. My experience tells me that 5.4 days per week is the “sweet spot” for the U.S. packing sector – few enough to keep overtime and Saturday operations at reasonably sustainable levels and big enough that packers will not chase supplies. Per-unit costs are very likely near optimum levels of capacity utilization. Life is good – if you are a packer.

That’s not so if you are a producer and this year, of course, includes higher feed costs at a time when many expected them to trend lower. Producers just can’t win – right now. The beauty of markets that are allowed to function is that they change. Hog supplies will eventually decline. Packers who are now rather complacent because of near-optimal throughput will have to bid hog prices higher. Producer revenue will improve. Meat margins will fall. The world will be fairer. Until the next time it is not.

And what if that does not happen and packer margins remain wide? Someone will enter the packing business or expand their current level of operations. It has been proven possible. Entry into pork packing is not cheap nor easy, but it can be done and will be done again should these margin levels and low hog prices persist.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com

Fiscal Commission Calls for Cuts in Agriculture

The co-chairmen of the National Commission on Fiscal Responsibility and Reform released their recommendations of what steps need to be taken on the federal deficit and for debt reduction. They made recommendations on discretionary spending cuts, tax reform, health care savings, social security adequacy and solvency and mandatory spending cuts. The following recommendations were made for agriculture: “Reduce farm subsidies by $3 billion per year by reducing direct payments and other subsidies, Conservation Security Program funding and funding for the Market Access Program.” The report also recommends that user fees be charged to meat and poultry processing facilities to finance food safety and inspection services. The co-chairs’ recommendations will be considered by the full commission and presented to Congress in December.

Congress Returns for Lame Duck — Congress returned for the first time since the mid-term elections with a large agenda of unfinished business. The major items to be addressed will be expiring tax cuts and fiscal year 2011 appropriations. The Republicans are proposing that the Bush tax cuts be permanently extended. Other options being considered are: making the middle class tax cuts permanent and ending the tax cuts for those making over $250,000; making the middle class tax cuts permanent and extending the tax cuts for those making over $250,000 for a year or two; and extending all tax cuts for one or two years. The president and the Democratic and Republican congressional leadership will be meeting on Nov. 30 to determine if an agreement can be reached. If the administration and Congress do not reach an agreement by Dec. 31, tax rates will increase on Jan. 1. Also, Congress needs to deal with the fiscal year 2011 appropriation bills by Dec. 3 when the continuing resolution expires. Other issues that are being considered by Congress include the Food and Drug Administration’s food safety bill, child nutrition reauthorization, FAA reauthorization, extension of unemployment benefits and immigration.

Ag Groups Oppose Tester — Senator Jon Tester (D-MT) is proposing that small entities ($500,000 gross sales or less) be exempt from the requirements of the Food and Drug Administration’s food safety bill that is being considered by the Senate. A number of agricultural groups oppose Tester because they strongly believe his proposal would “reject a risk-based approach to food safety, setting up a federal food-safety system that adheres to arbitrary exemptions rather than sound, scientific principles.” In a letter to the Senate leadership the groups said, “We believe an operation’s size, the growing practices used, or its proximity to customers does not determine whether the food offered is safe.” Those signing the letter included: American Feed Industry Association, American Frozen Food Institute, American Meat Institute, Corn Refiners Association, National Council of Farmer Cooperatives, National Meat Association, National Pork Producers Council, National Turkey Federation and the U.S. Apple Association.

112th Congressional Leadership — The House and Senate Democratic and Republican caucuses selected their leadership teams for the 112th Congress. Senate: The Senate leadership remains the same with Senators Harry Reid (D-NV), majority leader; Dick Durbin (D-IL), majority whip; Mitch McConnell (R-KY), minority leader; and Jon Kyle (R-AZ), minority whip. House: The Republican caucus elected Congressman John Boehner (R-OH) as the new speaker; Congressmen Eric Cantor (R-VA) as majority leader; and Congressmen Kevin McCarthy (R-CA), majority whip. The House Democratic leadership will remain the same with Nancy Pelosi (D-CA) serving as minority leader and Steny Hoyer (D-MD) as minority whip. Pelosi faces a fractured caucus with a number of her members urging her to step down as leader.

Senate Agriculture Committee — Senator Debbie Stabenow (D-MI) will be the new chairman of the Senate Agriculture Committee. Stabenow was a member of the House Agriculture Committee when she served in the House of Representatives. Senator Kent Conrad (D-ND) will remain as chairman of the Senate Budget Committee. He had his choice of being chairman of the agriculture committee or budget committee.

P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.

NPPC Charges GIPSA Lacks Authority for Rule

A U.S. Department of Agriculture (USDA) agency lacked or exceeded its authority to promulgate a proposed rule on buying and selling hogs, says the National Pork Producers Council in comments filed Friday. USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) also failed to support the need for the regulation with evidence of problems in the pork industry and didn’t consider its own studies showing that restricting contracts could harm the industry, NPPC said.

The GIPSA rule was issued June 22, 2010 and a public comment period on it ended today, Nov. 22, 2010. The rule, prompted by the 2008 farm bill, would amend the Packers and Stockyards Act (PSA), which regulates livestock and poultry contracts and marketing practices.

NPPC called the GIPSA regulation a “bureaucratic overreach,” and said that GIPSA lacked authority to, for example, declare that no showing of injury to competition is necessary to establish a violation of the PSA. NPPC pointed out that federal courts have uniformly rejected that view and that Congress rejected a similar provision during debate on the 2008 farm bill.

The rule was also offered with no meaningful analysis of its impact on the pork industry.

Last week, NPPC, along with the National Cattlemen’s Beef Association, National Meat Association and National Turkey Federation released an economic analysis of the GIPSA rule that found it would result in nearly 23,000 lost jobs and reduce gross domestic product by $1.56 billion. The cost to the pork industry would be $333 million annually after an initial $69 million expense.

“In all my years in the pork industry, I have never seen a regulation proposed that would do as much harm to America’s pork producers as the GIPSA rule would do,” remarks NPPC CEO Neil Dierks. “There’s no justification for imposing this rule on pork producers. It’s based on anecdotes, not analyses.

NPPC asked that GIPSA withdraw the portions of the proposed rule that will have an immediate and detrimental impact on the pork industry. It also requested a thorough analysis of the affect on pork producers of any new regulation.

“As proposed, the GIPSA rule is bad for farmers and ranchers, bad for consumers and bad for rural America,” declares NPPC President Sam Carney, a pork producer from Adair, IA. “We’d like the agency to rewrite the rule, stick to the mandates Congress gave it in the 2008 farm bill.”

Now Not the Time for Costly Rules

Click Here for a PDF of the full letter

I am writing from an ag lenders’ perspective to express my concerns regarding the economic analysis for the proposed rule by the Grain Inspection, Packers and Stockyards Administration (GIPSA) on the marketing of livestock and poultry under the Packers and Stockyards Act.

For an organization that has a congressionally mandated purpose to strengthen America’s agriculture industry and revitalize rural communities, the United States Department of Agriculture’s (USDA) recent proposal to limit livestock marketing agreements is perplexing to those of us working in America’s agriculture industry. While the USDA argues that the rule will help the livestock industry, the reality is this policy could limit the availability of many common food products, increase consumer prices and cost tens of thousands of jobs across the country.

Now is not the time for costly rules. The livestock industry has seen historic volatility in recent years. In fact, the pork industry alone lost $6 billion in equity from 2008 to 2009, causing many pork producers nationwide to struggle to survive. Dramatic daily shifts in livestock market values make it difficult for producers to provide high-quality animals at affordable prices, and make it difficult for ag lenders to provide critical operating capital to these farmers.

Marketing agreements between livestock farmers and meat- producing companies are one of the tools that help farmers manage this intense level of volatility. Producers of all sizes benefit from the stability these agreements can provide. As an ag lender, these marketing agreements help create stability that limits the risks associated with an unpredictable livestock market. When we know a farmer has secured a dependable contract to sell his/her livestock inventory or a producer has a reliable supply of animals, we can accept the moderate risk of providing capital to support that farmer or producer who may not otherwise be able to secure financing because of the high-risk environment in which they operate.

Without these agreements, the livestock market is simply too volatile for most lending organizations to risk financing. Current use of marketing agreements actually helps new farmers build the credit they need to become long-term contributors to the industry and their local economy.

Like the broader U.S. economy, access to capital is a critical factor that will determine how the food and agriculture industry will emerge from this recession. Limiting the ability of the nation’s livestock producers to use a proven risk-management tool to secure operating capital will limit the ag industry’s expansion potential at a time when our country desperately needs more opportunities.

A recent study done by John Dunham and Associates for the American Meat Institute estimates a total of 104,000 jobs will be lost if the proposed USDA rule for livestock marketing agreements is approved. Livestock operations that will close as a result of this rule will cause local, state and federal governments to lose approximately $1.4 billion in tax revenue – financial gaps that will only exacerbate the severe economic pressures our communities are facing.

There will be consequences for consumers as well. The agreements the USDA wants to limit help ensure that consumers have high-quality products at a consistent, affordable price. They also create valuable relationships between livestock farmers and producers that result in development of innovative, high-quality food products. Stephen R. Koonts, Ph.D., Colorado State University of Agriculture and Resource Economics, recently stated, ‘The net effect of eliminating alternative marketing agreements would be increased retail prices, decreased farm level prices, decreased quantities produced and consumed and economic losses in producer and consumer surplus in all segments of the industry.’

Unfortunately, despite the significant economic impacts to the livestock industry and American consumers, USDA has failed to conduct any research or economic analysis of the potential impacts of the proposed rule. In a show of broad bipartisan support, 115 members of the U.S. House of Representatives including House Agriculture Committee Chairman Colin Peterson, and Ranking Minority Member Frank Lucas sent a letter on Oct. 1, 2010, to Agriculture Secretary Tom Vilsack requesting USDA conduct an economic analysis on the GIPSA proposed rule.

I urge American consumers to contact their lawmakers and the USDA. Urge the USDA to evaluate the impacts of this proposed policy, conduct due diligence and make the right decision for the overall U.S. economy.

(This is an excerpt of the comments submitted by Mark Greenwood for AgStar Financial.