Hormel Halts Hog Breeding in California

The hog production division of Hormel Foods’ operation in California is selling off its sows and moving to a finishing operation by October.

Farmer John is shipping about 9,000 sows from its Corcoran, CA, operation. The last pigs from sows bred on the farm will be weaned in April and finished out by October.

In the future, Farmer John will source pigs to finish in California from its existing farms in Wyoming and Arizona, which house 14,000 and 13,500 sows, respectively.

Reasons stated for the sell-off include the rising cost of feed and fuel and concerns over the state’s regulatory environment. An upcoming ballot initiative expected in California’s November election would ban sow stalls, veal crates and battery cages.

Pork Information Gateway Expands Level of Services

The U.S. Pork Center of Excellence has upgraded Pork Information Gateway (PIG) to provide expert answers to swine-related questions.

“PIG is free and a great tool, not only for pork producers, but also the entire pork industry,” says Claire Masker, communications specialist for the U.S. Pork Center of Excellence.

The pork checkoff-supported site (http://isu.porkgateway.org), which now supports Mozilla Firefox and Safari Internet browsers, has been revamped for improved usability.

The newest feature is the PIG library, which provides questions and answers, fact sheets and references about pork production. The site’s search engine has also been improved to mirror the capabilities of powerful, user-friendly search engines like Google.

PIG was launched in 2006. Producer favorites include the Factsheets and Answers link. Producers also like being able to get specific questions answered by clicking on the “My Questions” tab and contacting Extension swine specialists.

“This is a great tool for producers, especially if they don’t have easy access to a swine Extension specialist,” says Masker.

Producers should click on the “Register” button to obtain a user name and password, which are required to view all of the contents of the PIG library. The entire site remains free for all users.

Modified Diet May Offer Boost to Swine Birth Rates

Intensive genetic selection over the last two decades has produced major advances in both litter size and birth weight in swine. However, double-digit preweaning mortality rates have limited maximum reproductive performance.

New research funded by the U.S. Department of Agriculture’s Cooperative State Research, Education and Extension Service (CREES) suggests this problem may be corrected by dietary adjustments during sow gestation.

Limit feeding sows during gestation may curtail excessive weight gain, reduce farrowing difficulties and curb appetite during lactation.

But research from a team of scientists at Texas A&M University and Texas Tech University indicate that sows may not receive adequate nutrients during mid- to late-gestation to support complete growth of fetuses and mammary tissues. These nutrients include arginine, one of the amino acids that are the building blocks for tissue proteins.

With funds from the CREES National Research Initiative, researchers Guoyao Wu, Sung Woo Kim and colleagues discovered that preweaning mortality could be greatly reduced by supplementing sow diets with 0.83% arginine between Days 30 and 114 of gestation.

In recent trials, additional arginine boosted the number and total litter weight of piglets born alive by 2 pigs/litter and 24%, respectively.

This study suggests that a specific dietary intervention can enhance reproductive performance in pigs and potentially provide a significant economic return to pork producers.

NPPC Favors U.S.-Asian Free Trade Agreement

The National Pork Producers Council (NPPC) supports the efforts of the Bush Administration to start talks on investment and financial services with the so-called Pacific 4 (P4) nations that could lead to U.S. membership in a regional free trade agreement (FTA).

The FTA between Brunei, Chile, New Zealand and Singapore, officially known as the Trans-Pacific Strategic Economic Partnership, went into effect in May 2006. It includes an accession clause that permits other countries to join. The United States will participate in a meeting of P4 countries in March that will discuss new FTA investment and financial services.

NPPC hopes that meeting will lead to talks on agriculture and the United States joining the FTA.

“This is an important step toward expanding pork exports in the Asia-Pacific region,” says NPPC President Jill Appell, a pork producer from Altona, IL. “Pork producers have benefited tremendously from the increased exports that result from trade agreements.”

Market access via trade agreements has been a key catalyst for increasing U.S. pork exports. Since the U.S.-Canada Free Trade Agreement was implemented in 1989, U.S. pork exports have grown in value from $394 million to more than $2.6 billion. Pork exports were expected to set a new record in 2007, their 16th-consecutive year of growth.

Animal Auditor CertificationTraining Dates Scheduled

The Professional Animal Auditor Certification Organization (PAACO) has scheduled Meat Plant Welfare Auditor Certification Training courses for April 30-May 1 at two sites in Nebraska.

The training is the first step in becoming a certified auditor. The course features classroom instruction and hands-on experience at the plants of Hormel Foods at Fremont, NE, and Cargill Beef, Schuyler, NE.

Course instructors include Temple Grandin of Grandin Livestock Handling Systems; Jerome Lawler, professional auditor for Silliker, Inc.; Kellye Pfalzgraf, director of the Office of Animal Well-Being for Tyson Foods, Inc.; and Mike Siemens, beef program development director for Cargill, Inc.

Since the first course was held in February 2006, PAACO has certified 34 meat plant welfare auditors, with about 38 more in the process of completing auditing requirements.

PAACO Executive Director Mike Simpson says the program has gained stature in the last two years. “More and more, customers and those firms being audited say that they are reaching a point where they will only utilize auditors who have the PAACO training and certification,” he says. “Retailers, restaurants and others in the industry recognize our value to them as they move toward more involvement with animal welfare issues.”

The classes fill up fast, so Simpson urges interested parties to apply immediately. Registration deadline is March 31.

For more course information and registration materials go to PAACO’s Web site, www.animalauditor.org or contact Simpson at (402) 403-0104 or e-mail mike@animalauditor.org.

USDA Names NPPC Delegates

Agriculture Secretary Ed Schafer has appointed 155 pork producers and eight pork importers to the 2008 National Pork Producers Delegate Body.

The delegates were picked from nominees submitted by state pork producer associations and importer groups. All appointees will serve a one-year term.

Delegates meet annually to recommend the rate of checkoff assessment, determine the percentage of assessments that state associations will receive and nominate producers and importers to the 15-member National Pork Board. The delegate body will be seated during the National Pork Industry Forum March 6-8 in St. Louis, MO.

New "Highs" for Corn, Soybeans?

The title line of Ella Fitzgerald's classic, "How High the Moon," keeps coming to mind these days. Just how high is "high" in the grain markets? And how high will high be regarding hog markets in the coming months and years?

There seems to be no respite from the price increases with every corn, soybean and soybean meal contract hitting contract life highs on Wednesday. In some cases, these are all-time highs.

While I thought many months ago that grain prices were going up dramatically, I didn't foresee the magnitude of this rally in corn and beans. Wheat futures prices continue to rise, as well, and those higher wheat prices could have a big impact on corn and beans.

The key wheat contract is the Minneapolis spring wheat contract, which saw its third straight limit-up move on the March and May contracts on Thursday. The reason the spring wheat contract is so important, of course, is that planting decisions are still being made for that crop, while the winter wheat planting decisions were made last fall. The number of acres of spring wheat planted in Minnesota, the Dakotas and Montana will impact planted acres for soybeans and barley. Fewer soybean acres in those states will push soybeans onto more acres that could have been planted to corn in other parts of the Corn Belt.

Figures 1 through 3 provide a long-term historical perspective on corn, soybean meal and lean hog prices. They show monthly data for the nearby futures contract since 1960 for corn and meal and since 1970 for hogs. The Live Hog contract prices for 1996 and before were converted to Lean Hogs carcass-based prices using a dressing percentage of 73%.

The only record remaining on the corn chart is the 1996 spike. Prices are now within 20 cents of that level. It is not likely that enough good news for soybeans will come out of South America, soon enough to prevent corn from setting all-time record highs on the futures market.

Soybean meal is not in the rarified air of corn prices, but has only two spike highs standing between it and new record-high prices as well. This could be the first ingredient to break -- if we get news confirming a big South American bean crop. But even that would not break soybeans or soybean meal futures much because they must stay high enough relative to corn to get U.S. acres planted to soybeans.

It is also clear from Figures 1 and 2 that corn and soybean meal prices could be going through the same kind of quantum change that happened in 1973, when oil prices exploded, driving prices for virtually all goods higher, and, the era of world trade in grains began.

Finally, hog prices are lagging this upward shift in grains, as they should. Higher input costs get captured by downstream users only after output is reduced. We are in the early stages of that cutback at present and will not see the full results until 2009 or 2010. The long-term resistance level for Lean Hogs is at or just above the $90 level. I would expect prices to exceed that level by 2009, if this liquidation continues at the pace I expect. Lean Hogs prices above $100 are very possible in 2010 and beyond, if feed costs stay on this new, higher plateau.

Why the Low Sow Prices?
What was the deal with the flood of sows that drove prices so low the week of Jan. 25? Anecdotal evidence indicates there was indeed a flood of sows that week, but USDA slaughter data released on Thursday notes that U.S. sow slaughter was not particularly large and was, in fact, lower than the previous week (see Figure 4). Canada's sow slaughter for the same week was 2,309 head -- about the "normal" level. Imports of cull sows and boars from Canada that week totaled 9,758 head, the second highest weekly total since January 2007, but not enough larger to cause a flood of U.S. slaughter.

So why the extreme low prices? Slaughter is not necessarily supply. My contacts indicate that the real problems that week were two-fold. First, sausage demand is not very good during January and February and sausage manufacturers did not want to freeze product. That spells soft sow demand at a time when producer offerings were high; a perfect recipe for prices to free-fall.

Second, the mix of sows hitting the market was dominated by light sows that are not preferred (and pretty much not even wanted) by sausage manufacturers. This is probably a fact of life that we will have to get used to, given the price of feed and the low value of sows. It simply doesn't make any economic sense to use expensive feed to put pounds on these sows -- unless they become much more valuable.

Some suggested that we just had more sows than could be killed. My data disputes that argument. My update of slaughter capacity last August indicates that U.S. sow slaughterers could handle 19,305 head/day or just short of 100,000/week. If that's so, why did weeks of 69,000, 70,000 and 68,000 cause so much trouble?

When I update slaughter plant capacity data, I ask: "How many can you process if hogs are plentiful and margins are good?" It is obvious to me that the reason sow slaughterers did not process more sows those weeks was that one of those conditions -- hog availability or margins -- was not being met. It had to be the margins. Sow slaughterers simply were not going to kill sows that they could not use in the short run and, faced by far more sows than they needed, reduced bids accordingly.

But there is some good news. It now appears that sow offerings have slowed. We are getting closer each day to hot dog and bratwurst season and the kick they provide for sausage material demand. Sow prices have rebounded a bit and will, in my opinion, continue to do so. The Canada-U.S. pork sector still needs to cut sow numbers, but we probably shouldn't try to get it done in a week or two. Sow prices that week in January sent a very clear signal to "slow down!"

Click to view graphs.

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

Nebraska Turns Back Sow Stall Ban Bill

Proposed legislation backed by The Humane Society of the United States (HSUS) to ban individual sow stalls during gestation suffered a swift defeat in the Nebraska legislature.

State Sen. DiAnna Schimek introduced Legislative Bill 1148 on Jan. 23. The legislation proposed to phase out the use of sow gestation stalls by Jan. 1, 2014.

A strong factual presentation of the effect this bill would have on Nebraska pork producers, and a direct request by Nebraska pork producers to Sen. Schimek to withdraw the bill resulted in the Nebraska legislature voting to approve the withdrawal of the bill on Jan. 28.

Nebraska pork producer officials say the battle has been won, but not the war, and they expect further actions soon by the HSUS in Nebraska.

Futures Could Stem Liquidation

Chicago Mercantile Exchange (CME) Lean Hogs futures appear to be confirming a cycle low, especially given the performance of deferred contracts over the past few weeks. Figure 1 shows the weekly chart back to 1990. While the latest observations on that chart (February contract) are nothing to write home about, the remainder of the contracts for this year have risen steadily and now represent decent hog prices, even considering high feed costs.

Figure 2 shows CME Lean Hogs futures prices as of Friday morning. Put those on the weekly continuation graph and you can see that they are indeed in rarified air. Thursday's close of $82 for the February 2009 contract is within shooting distance of the all-time high Lean Hogs price of $86.60 for the June contract set back in April 1997. The 1990 high in Figure 1, though, represents a live hog price of $67.45, which would be just over $89 on a carcass weight basis. Although not record high, the air is certainly thin at these heights.

Amid all the talk of sow liquidation, I have to pose this question: Given these futures prices, where is the incentive for any big cutback in the United States? While costs are astronomical by historic standards, these futures prices allow a breakeven (or better) year in 2008 and, based on the value of the February contract, hold the promise of good revenues going forward. How much it may cost to feed the pigs to be sold in 2008 remains to be seen, but the revenue side looks pretty good.

Remember a few weeks ago when cash hog prices were falling like a rock and an unexpectedly large slaughter of 2.434 million left us scratching our heads? The prevailing mood in the business was that things were going south fast and there was little that could be done. From that week through last week, cash hog prices climbed over $2.50/cwt., carcass, and Lean Hogs futures have been on fire with summer contracts gaining $7 to $8/cwt., December gaining nearly $10, and February 2009 gaining $12. Conventional wisdom is seldom correct in times of extreme duress!

Canadian Conundrum
Kevin Grier of Canada's George Morris Centre raised an interesting scenario at the recent Banff Pork Seminar. He posed the question: "Could Canada soon become a net importer of pork from the United States?" Given the history of trade between the two countries, and the huge difference in population (roughly 300 million vs. 33 million), the question seemed almost preposterous -- until he showed a graph similar to Figure 4.

Should the trends of the last six months of 2007 continue, Grier's premise is more than just a possibility. The driving factor, of course, is the relative value of the countries' currencies. A stronger Canadian dollar makes Canadian pork more expensive for U.S. buyers and U.S. pork less expensive for Canadian buyers. In addition, the higher Canadian dollar makes the production costs that are geographically fixed in Canada (infrastructure, plants, labor to a great degree) higher, thus making Canadian products, in general, and pork in particular, more costly.

The discussion generated at least one accusation that this shift in relative traded volumes is the result of U.S. companies dumping product into the Canadian market. I disagree, and I would argue that the exchange rate is a much better explanation. Still, the accusation got me thinking about the entire idea of dumping.

Dumping is defined as selling a product in another (usually foreign) market at a price that is below the cost of production. The relevant question is: "Whose cost of production?" The ability of country "A" to produce and sell a product into country "B", below country B's cost of production, is the essence of competitive advantage and international trade. But if country A is selling the product in country B for less than country A's cost of production, it is, technically, dumping.

The problem with that definition is easy to spot: In a commodity business with price cycles, we all have to sell below the cost of production from time to time. It's not a choice. It's just the nature of the beast, and making a dumping case out of cyclical variation is not a good use of anyone's time or resources.

This entire scenario is made even more difficult when the items you sell are parts of a whole instead of entities unto themselves. If a company is selling wheel bearings, the cost of those bearings can be determined with relative accuracy since each one is made from a specific amount of steel put through machine processes at a specific speed and packaged and transported in a manner from which the per-item cost can be easily derived. There is no huge cost allocation problem.

Determining the "cost" of one part of a pig carcass, on the other hand, is a bit trickier. We know what the total cost of the carcass is, but does that mean the cost of each piece of that carcass is the same? Maybe so, if the cost is computed precisely at the processing point where the cut comes off the carcass. Beyond that point, though, some pieces require more labor and plant resources than others and, thus, must have different costs.

These computations are further complicated by the fact that different cuts have different values in the marketplace, thus allowing them to carry different shares of the total cost. For example, why can packers sell trimmings at $0.50/lb. when the hanging carcass costs them $1.00/lb.? Because tenderloins sell for $3.00/lb. and ribs sell for $4.00/lb. So, is selling trimmings at $0.50/lb. -- an amount clearly below the average cost of the carcass -- dumping?

This is a complex issue. I would propose it is so much so that we are far better off focusing our time and effort on constructing information systems and, if needed, regulatory processes to make sure that well-informed, competitive markets are at work. Their power to handle such matters is immense -- if we will let them do so.

Click to view graphs.

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