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Articles from 2013 In December


Addressing the Changing Face of Agriculture

USDA’s Agricultural Outlook Forum brings together leadership and more than 100 speakers from throughout the agricultural community, Feb. 20-21, 2014 at the Crystal Gateway Marriott Hotel in Arlington, VA.

USDA’s 90th annual outlook forum features Agriculture Secretary Tom Vilsack moderating two plenary sessions exploring the future of agriculture.

The U.S. Farmers and Ranchers Alliance will host a live streamed Food Dialogues session: Nutrition – Who is Shaping America’s Eating Habits?

Twenty-nine sessions cover:

  • New agricultural census
  • Agriculture supporting our veterans
  • Women in agriculture
  • U.S. and foreign agricultural trade outlooks
  • Food price and farm income outlooks
  • Commodity and weather outlooks
  • Agriculture and social media
  • U.S. farmland
  • Conservation
  • Nutrition and food safety
  • Nanotechnology
  • Invasive pests
  • Know your farmer, know your food
  • Agroforestry
  • Climate variability
  • Rural economics
  • Citrus disease challenges
  • Extension’s 100-year anniversary.

Early registration of $375 ends on Jan. 21, 2014; thereafter registration is $425. Register online at www.usda.gov/oce/forum.

Learn How Public Policies Affect Agriculture

A Purdue University agricultural economist is producing a series of publications to help farmers, policymakers and taxpayers better understand changing U.S. agricultural policy and develop informed opinions about them.

The Purdue Extension free publications under the series title of “APEX,” an acronym for Ag Policy Explained, will delve into public policy issues and how they affect the agricultural economy.

“Readers want to know the system and mechanisms, but they are turning to Extension to find an explanation for how it all works together so that they can not only be better managers of resources, but also become better informed students of agricultural policy,” says Roman Keeney, who is leading the project and is an author.

The first publication, The End of the Direct Payment Era in U.S. Farm Policy, explains why direct payments to farmers likely will end with enactment of a new five-year farm bill and how the elimination might affect the agricultural economy as other support programs are created.

Initial topics of the other publications also will focus on farm bill issues, including agricultural risk and policy, farm bill budget and baseline, farm bill eligibility and payment limits. The series later will cover other policy topics of importance to agriculture such as immigration, renewable fuels, animal welfare and local issues.

Keeney notes in The End of the Direct Payment Era that the idea of eliminating direct payments – government subsidies provided to farmers regardless of need – has near unanimous support among lawmakers as they now debate a new farm bill.

“Direct payments are no longer politically sustainable as part of the agricultural safety net,” Keeney writes in the publication.

Keeney gives the origin of direct payments, which began in 1996 to replace a set of farm programs and were initially intended to end in 2002. But the concept of direct payments as “transitional” was abandoned in 2002, and farmers have continued to receive such payments totaling $5 billion annually.

“When agricultural incomes were considerably lower in the 2002-2008 period, the idea of providing $5 billion worth of agricultural income support via fixed annual payments had enough political support to be maintained,” Keeney explains. “Since 2008, while most of the U.S. economy has been strongly affected by recession and a slow recovery, agricultural incomes have soared, setting historical highs in recent years. The prospect of continuing to make direct payments during this period of prosperity no longer has any political champions.”

Meanwhile, Keeney says, rising farm prices and incomes of the past five years have meant few payments to farmers from other support programs that help farmers facing low prices or incomes, leaving the $5 billion in direct payments as a target for helping to reduce the nation's deficit.

Because deficit reduction is calculated against a 10-year projection of government spending, Keeney observes it would seem that elimination of direct payments would provide about $50 billion toward reducing the deficit. But he says that might not be the case because the House and Senate want to put $15 billion to $30 billion of that savings toward new farm subsidies. The new subsidies could end up costing even more than $50 billion, depending on circumstances.

“The set of programs replacing direct payments will vary depending on what happens with prices, yields and participation choices that are unknown at the time of enactment,” he says. “Because of this feature, under sustained declines in farm revenues, new farm subsidy spending could actually increase dramatically over the 10-year period rather than decline.”

All of the publications in the series will be available online at Purdue Extension’s The Education Store at www.the-education-store.com. The End of the Direct Payment Era can be found by searching for publication number EC-774-W or by the name of the publication.

 

 

Reflecting on the Challenges Faced in 2013

Reflecting on the Challenges Faced in 2013

As the end of 2013 approaches, most pork producers are glad to see a new year coming.  At AgStar, we monitor a financial database which includes a large portion of AgStar’s portfolio with producers across the country and nearly one million sows' worth of production. The data shows that the average producer will not see much in the form of positive earnings for 2013. With the drought creating high feed prices and large positive basis on corn for much of the year, it’s not hard to tell why. On top of that, there were negative basis issues early in 2013 on lean hogs and we’ve cycled back to large historical negative basis on hogs today. 

Cash prices in mid-December were running around $75-76/cwt, with February lean hog futures around $85-87/cwt. Cutout remains in the $90’s definitely giving packers an incentive to run more hogs through the system.  We’ve seen that happen in mid-December, with total numbers harvested finally surpassing the previous year. That, combined with heavier weights, means there’s a lot of pork out there.  It will be interesting to see how long we can hold the larger total harvest numbers when one would expect a shortage because of porcine epidemic diarrhea virus (PEDV).

Everyone has likely had their fill of PEDV talk this year, but it gives us another reason to look forward to next year and, assuming you don’t break, its helps make 2014 look profitable.  Those who can manage around—or are prepared to manage through—PEDV and porcine reproductive and respiratory syndrome (PRRS) in the best fashion will stand to have a tremendous 2014.  It appears that those who are prepared ahead of time to act immediately upon the break of PEDV can greatly reduce the piglet death loss incurred and therefore mitigate the financial impact on their operation.  Are you prepared to act within hours of a break?

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On a much more positive note, 12-month forward margins rebounded to historical highs during the latter half of 2013. We continue to see clients capture those opportunities, but when looking beyond the pigs already on the ground, the mentality has shifted some, due to PEDV and the uncertainty around whether they will truly have the hogs to sell.  We’ve seen more use of options farther out and producers capping their level of coverage, for pigs not on the ground, at levels they are comfortable with.

At the end of the day, 2013 has been a trying year for producers from both a marketing standpoint and a production standpoint due to the introduction of PEDV. Even those who have remained disciplined on risk management and may have made money in 2013 had to ride the rollercoaster of the markets and fund massive margin calls early in the 4th quarter.   The challenge going forward will be managing through this and capturing the projected profitability in 2014.  It will be welcomed by many! 

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2014 Looks Good for U.S. Pork Producers

2014 Looks Good for U.S. Pork Producers

First today, allow us to wish you a happy and prosperous 2014.  There have been few years in my professional career for which the financial prospects of pork producers have looked quite so positive at the dawn of a new year.  The world is still fraught with danger but that is the case when economic prospects are bleak as well.  Let’s enjoy the view from here, make the necessary plans to capitalize and do all of the things within our power to bring those plans to fruition.

One casualty of the holiday is a portion of the data needed for our Weekly Production and Prices table.   It will return next week.

Friday’s quarterly Hogs and Pigs report will be a bit bullish for the hog market as many of the numbers came in below most of the pre-report estimates of analysts.  The key national data as well as the averages of the estimates appear in Figure 1. 

Figure 1:

 Some key takeaways are:

·       The biggest surprise was a breeding herd estimated at 5.757 million head, 1.1% SMALLER than one year ago and 57,000 head fewer than on Sept. 1.  The number is problematic since sow slaughter has been down sharply (5.9%) since July 1 and has been even lower (-7.2%) since Sept.1.  In fact, sow slaughter from Sept. 1 through the end of November, based on weekly data, was 57,000 head lower this year than it was one year ago.  Slaughtering 57,000 head fewer and ending up with 57,000  head fewer (the match of those numbers is purely coincidental) implies HUGE death losses – or something is wrong.  Only time will tell but I am pretty confident that death losses have not been very high and have definitely not been impacted much by porcine epidemic diarrhea virus (PEDV) which does not, in general, kill adult animals. 

·       The breeding herd figure implies NO GROWTH in spite of much lower costs and terrific profit opportunities in the coming year.   I doubt this number, but it will be traded until proven wrong so it should be bullish for deferred 2014 contracts and the 2015 contracts now being traded.

·       Market hog inventories were pretty much in line with pre-report expectations.  Only the under-50-lb. category was as much as 1% different so we do not see these numbers being terribly significant.   They suggest slaughter numbers through May that will be very much like year-earlier figures.  It is important to note that weights will add pounds to production, so steady slaughter and 2% higher weights will give us as much as 2% higher production during the first quarter of 2014.

·       The other mystery in the report is just how we will get 1.3 and 1.4% more litters out of a 1.1% smaller sow herd over the next two quarters.  Note that the analysts’ pre-report estimates fit pretty well with a 1% larger breeding herd, so the driver of this  “herd-litters” mismatch is the breeding herd number.  One explanation for the mismatch, though, is the disruption  that PEDV has caused in breeding schedules.  Sows whose litters were infected with the deadly virus returned to estrus sooner than usual and may have been bunched up in breeding, thus adding to the litters expected to be farrowed over the next two quarters.

·       USDA did pick up on PEDV losses.  The average litter size of 10.16 is just .01 pig larger than last year.  That is the smallest year-on-year increase since Q3 2003! In addition, the monthly farrowing data in the report saw average litter size of 10.28 pigs in September, 10.17 pigs in October and 10.04 pigs in November.  That final number is 0.12 pigs lower than one year ago and the accelerating rate of decline from month to month fits with the data that say the impact is getting larger over time. 

·       With all of that said, we still need to realize that this report covers a time period in  which PEDV losses were less than they have been in recent weeks.  This report picks up the impact of PEDV but a) may understate it a bit for the  time period in question  and b) say nothing about the losses in December and thus the supply impacts from May 2015 forward.

The report implies supplies very close to those in 2012 through May.  Weights will be higher, thus adding to production totals even if slaughter is steady.  We still expect higher exports which, when coupled with a growing U.S. population,  should leave per capita  supplies slightly lower during that period.  U.S. hog prices will be VERY CLOSE to 2012 levels.

 

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The situation for May 2015 forward is still a big question mark.  We believe the impact of PEDV has worsened and might take 3-5% off of slaughter next summer.  If that happens, current summer Lean Hogs futures are not as high as cash hogs will be.  Average prices for Q2 and Q3 will be near $100.  That means some hogs at, and possibly above, $105.

In spite of PEDV, 2014 still looks good for U.S. pork producers.

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Raising Pigs Without AGPs

The Stein Monogastric Nutrition lab at the University of Illinois has produced a brochure intended to help producers make the transition to raising pigs without antimicrobial growth promoters (AGPs). The brochure describes a number of strategies for promoting growth, reducing disease exposure, and increasing resistance to disease among weanling pigs. Some of these strategies include:

  • Weaning practices: Segregated early weaning and all-in-all-out production reduce disease pressure.
  • Environmental controls: Keeping facilities at the proper temperature and avoiding crowding reduce stress on pigs, while pest control reduces pathogen exposure.
  • Feeding pelleted or liquid diets: Pelleted and liquid diets enhance energy and nutrient digestibility and improve performance.
  • Restricted feeding: Feeding small amounts several times per day instead of giving ad libitum access to feed means that less undigested feed is fermented in the hindgut, which reduces the incidence of diarrhea.
  • Feeding alternative cereal grains: Hindgut fermentation of specific fibers present in barley, naked oats and oats may reduce pathogens and increase the concentration of favorable microbes.
  • Feed additives: Acidifiers, functional proteins, probiotics, prebiotics, copper, zinc and mannan oligosaccharides may improve pig health and growth performance.
  • Low protein diets: Reducing the amount of undigested protein that reaches the hindgut reduces microbial fermentation and diarrhea.

Some of these strategies will increase diet costs and thus reduce profitability. But following these guidelines will allow producers to manage weanling pigs without the use of AGPs with no loss of performance.

The brochure, "Strategies for managing weanling pigs fed no antibiotic growth promoters," can be downloaded from Hans Stein’s website at http://nutrition.ansci.illinois.edu/SwineFocus003. Hard copies can also be requested from University of Illinois Extension offices.

Senators Ask for Broad Market Access for U.S. Pork in TPP

A bipartisan group of Senators sent a letter to U.S. Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack urging them to push for broad market access for U.S. pork in the countries that are part of the current Trans-Pacific Partnership (TPP) trade talks.  The senators said, “Around the world, however, numerous market access barriers exist that prevent pork exports from contributing even more to the domestic economy.” 

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The senators reminded the administration that a number of TPP nations currently have highly restrictive trade barriers that limit U.S. pork exports. Japan has a complex system of tariffs that reduce the volume of U.S. pork exports, while other countries have non-tariff barriers that limit U.S. pork exports.  Senators Joe Donnelly (D-IN) and Chuck Grassley (R-IA) were joined by 32 senators on the letter.  Countries involved in the TPP negotiations are the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  

Farm Bill Next Year

Congress left for the year without passing a new farm bill.  However, the leadership of the House and Senate Agriculture Committees believe they will have a framework for the farm bill conference committee to consider early next year. 

 

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Indications are the full House-Senate farm bill conference committee will meet the first week of January to resolve any outstanding issues that the leaders did not complete.  These will include key issues for the livestock and meat industries: country-of-origin labeling (COOL), GIPSA, and the King amendment.  After the conference committee is finished, it is expected the farm bill conference report will be considered by the full Congress.  The goal is to complete the bill by the end of January.          

Eliminate RFS Corn Ethanol

Senators Dianne Feinstein (D-CA) and Tom Coburn (R-OK) have introduced the “Corn Ethanol Mandate Elimination Act of 2013.” The bill ends the corn ethanol mandate, but keeps the requirements for other biofuel production requirements.

Senator Feinstein (D-CA) said, “I strongly support requiring a shift to low-carbon advanced biofuel, including biodiesel, cellulosic ethanol and other revolutionary fuels. But a corn ethanol mandate is simply bad policy.”  She also believes the changes are needed to prevent increased food costs, environmental harm and damage to engines because of the corn ethanol mandate. 

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The National Chicken Council said in support of the legislation, “Congressional action to repeal the corn ethanol mandate remains the most viable pathway to allowing all users of corn to have equal standing in the marketplace.”  The Renewable Fuels Association (RFA), which represents the ethanol industry, said, “This legislation ought to be entitled ‘The Oil Monopoly Protection Act of 2013.’ This bill would deprive Americans of cost-saving, renewable fuel choices. It would set this country back in its quest to gain energy independence and further damage the environment by increasing the need for fracking, tar sands and off-shore drilling.” 

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Compromise Budget Goes to the President

The Murray-Ryan budget passed Congress and has been sent to the president for his approval.  The bipartisan, two-year compromise budget eliminates the threat of another government shutdown and allows for the passage of the fiscal year 2014 appropriation bills.  The overall federal budget for fiscal year 2014 will be $1.012 trillion and $1.014 trillion for fiscal year 2015.  

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Vetter Nominated Chief Ag Negotiator

President Barack Obama has indicated that he plans to nominate Darci Vetter to be the chief agricultural negotiator at the office of the United States Trade Representative.  Vetter currently serves as USDA’s deputy under secretary for Farm and Foreign Agricultural Services.  

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Earlier in her career, she was the international trade advisor on the U.S. Senate Committee on Finance and also worked at the Office of the United States Trade Representative.  Vetter’s nomination will receive strong support from the agricultural community.  

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