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Articles from 2006 In March


Pork Board Buys Pork Brand

The National Pork Board has announced it has secured the rights to the “Pork. The Other White Meat” trademark from the National Pork Producers Council (NPPC). The terms have been approved by the U.S. Department of Agriculture but are contingent upon final approval of the contract.

The National Pork Board has been licensing the rights to the popular trademark, which was created by the NPPC in 1985, prior to the formation of the National Pork Board and the creation of the mandatory pork checkoff in 1986.

A study by Northwestern University in 2000 concluded that Pork. The Other White Meat was one of the five most-recognizable taglines in American advertising.

“This is a significant agreement because we believe it is important that America’s 70,000 pork producers own one of the industry’s most valuable assets,” National Pork Board President Danita Rodibaugh told delegates at the annual Pork Industry Forum in Kansas City.

“Farmers know there is great risk in making improvements to land they don’t own,” says Rodibaugh. “The same is true with Pork. The Other White Meat. As the National Pork Board embarks on its new “Don’t be Blah” marketing campaign to extend the reach of pork among American consumers, we determined that it was essential that we own Pork. The Other White Meat. It simply would be unwise to invest significant amounts of money in a campaign to build on the success of Pork. The Other White Meat without knowing that we always will be able to use that trademark.”

The proposed terms of the agreement call for the National Pork Board to pay the NPPC $3 million annually for 20 years.

The agreement also protects the checkoff organization’s ability to pay for the trademark. Because the Pork Board’s sole source of income is the pork checkoff, the agreement specifies that if the Pork Board’s ability to pay for the trademark lessens, due to a reduction in checkoff rate or some other cause, the purchase agreement will be suspended, the equity will be preserved and the final three years of the existing licensing agreement will be reinstated. The Pork Board and the NPPC would then have three years to negotiate new terms based on the board’s new financial position, or give the board time to move to a new trademark and brand.

Rodibaugh defended purchasing the brand vs. building a new brand. “We believe building a new brand to the same recognition level would take a minimum of seven years and cost more than the terms of this agreement. There also is no guarantee that a new brand would reach the 90% awareness among consumers achieved by Pork. The Other White Meat.”

Delegates Select Members, Pass Motions

National Pork Board delegates ranked candidates for the board of directors and passed several resolutions during the National Pork Industry Forum held early this month in Kansas City.

In the voting, nine pork producers were ranked for consideration by the U.S. Secretary of Agriculture. The secretary will appoint five to serve three-year terms and one to finish the remaining two-year term of Deborah Johnson, who resigned to fill the state executive position at the North Carolina Pork Council.

The nominees, as ranked by the delegates, include: Diane Bettin, Minnesota; Dennis Michael, South Dakota; Jeff Galle, Illinois; Gene Nemechek, DVM, North Carolina; Randy Brown, Ohio; Alan Wilhoite, Indiana; Dale Springer, Kansas; Curtis Meier, Iowa; and David Reinecker, Pennsylvania.

Pork Board delegates also elected two members to two-year terms on the National Pork Board Nominating Committee: Brad Greenway, South Dakota and Brent Sandidge, Missouri.

The delegates passed resolutions that asked the Pork Board to:

  • Work with pork producers to improve the image of modern pork production by stressing the economic viability of farms, emphasizing the involvement of family members, and by recognizing producer commitment to the betterment of the community and the environment;
  • Develop educational materials to support producers on registering their premises with state animal health officials and improving reporting and record-keeping systems to protect farms from disease outbreaks; and
  • Research the implementation of a swine species-specific identification system to meet the Agriculture Department’s goal of 48-hour traceback in the event of a disease outbreak.

Hog Price Data Analyzed

Agriculture Department price data suggests fewer hogs were sold through daily-negotiated transactions (the spot market) during January than in previous years, even though the prices of over half the hogs in the United States still are set by the spot market. Consultants for the pork checkoff did the analysis.

“If the rate of decline in the percentage of negotiated or spot market hogs returns to the pre-’04/’05 rate, it will increase the urgency for the industry to find another form of price discovery for most of the contracts,” remarks Glenn Grimes, professor emeritus at the University of Missouri. “However, the slowdown in the rate of decline in negotiated or spot purchase hogs gives us some hope that the number of negotiated hogs will stop at around 10% of total slaughter. If it does, we believe it will do a satisfactory job of representing the true supply and demand situation and can be used as the base price for market contracts.”

Annual studies show the percent of hogs sold on the spot market has fallen from 35.8% for 1999 to 10.2% in January 2006. By adding the percentage of hogs purchased in the negotiated market to the percentage purchased on hog or meat market formulas, the price of about 52% of U.S. hogs was directly determined by the negotiated market, according to the study.

“The true percentage is higher because a high number of packer-owned and packer-sold hogs are priced with a market formula,” notes Ron Plain, University of Missouri agricultural economist.

NPPC Elects Officers, Board Members

Joy Philippi, Bruning, NE, was elected president of the National Pork Producers Council (NPPC) during the group’s early March annual meeting in Kansas City, MO.

Jill Appell of Altona, IL, is president-elect. Bryan Black of Canal Winchester, OH, is vice president.

Elected to the NPPC board for three-year terms in the producer category were Black; Don Butler, Clinton, NC; and Bob Dykhuis, Holland, MI. Doug Wolf, Lancaster, WI, was elected for a three-year term in the “small state” producer category. Small states are defined as those that market less than one million pigs a year.

Elected to the board for two-year terms were Terry Vanlaningham, Mentone, IN, and Quentin Bottorff with Phibro Animal Health, as the representative of the Pork Alliance group.

NPPC Sets Public Policy

The National Pork Producers Council (NPPC) approved several public policy resolutions at its recent annual meeting in Kansas City:

  • Study the value of suggesting Congress wait to write the 2007 Farm Bill until current World Trade Organization talks are completed;
  • Urge pork producers to support a national animal identification system and suggest producers register their premises;
  • Support an increase in funding for USDA’s Animal and Plant Health Inspection Service to better meet the needs of the swine industry;
  • Support a USDA recommendation for reforms to the Grain Inspection, Packers and Stockyards Administration;
  • Oppose the Captive Supply Reform Act, which would limit the types of contracts producers could enter into with packers;
  • Work with USDA’s Food Safety and Inspection Service to alleviate producer concerns about packer policies regarding condemnations;
  • Seek reauthorization of the mandatory price reporting law, which expired last September, and support a study of mandatory price reporting of pork carcass cutouts to increase transparency and more accurately reflect pricing of the entire product;
  • Favor legislation that would clarify that livestock manure is not a hazardous substance, pollutant or contaminant under certain federal environmental laws;
  • Request the federal government establish a streamlined process for clearing trucks carrying hogs at border crossings between the United States and Canada;
  • Support the American Association of Swine Veterinarians’ efforts to rename postweaning multi-systemic wasting syndrome to porcine circovirus-2-associated disease syndrome; and
  • Support permanently adding pork and pork variety meats to USDA’s weekly export/sales report.

Toll-Free Price Information Line

A new toll-free telephone number provides information on data in the Livestock Mandatory Price Reporting program, the federal law requiring meat packers to report the prices they pay livestock producers for their animals.

By calling 1-800-687-7410, producers can verify that their transactions were reported to USDA’s Agricultural Marketing Service. Producers can also get answers to questions about the reports issued through the price reporting program and how to use them.

Even though the price reporting law expired in September, some companies have agreed to voluntarily adhere to audits and other program requirements.

“This is something pork producers have asked USDA to implement,” says National Pork Producers Council President Don Buhl, a Tyler, MN, producer. “We are pleased that an 800 number is now operating for producer inquiries about mandatory price reporting.”

Veterinarians Name Officer Slate

Scott Dee, DVM, professor in the Swine Disease Eradication Center at the University of Minnesota, was installed as the president of the American Association of Swine Veterinarians (AASV) at the group’s annual meeting in Kansas City.

Dee replaces Tom Gillespie, DVM, Rensselaer, IN, who becomes immediate past president.

Daryl Olsen, DVM, Audubon, IA, was selected president-elect, and Kerry Keffaber, DVM, North Manchester, IN, vice president.

“I am confident that our association will serve as the model for all veterinary species-oriented associations in regard to how veterinarians work with industry to solve economically significant problems related to food animals,” says Dee.

“Specifically, my focus will be to build an industry-wide team dedicated to the long-term goal of eliminating the porcine reproductive and respiratory syndrome virus from the North American pig population,” he adds.

Minnesotan Inducted Into Hall of Fame

North Mankato, MN, pork producer Karl Johnson has been inducted into the National Pork Producers Council (NPPC) Hall of Fame for his outstanding contributions to the pork industry.

Johnson, a 40-year veteran of the pork industry, runs a farrow-to-finish operation with his brother, Paul.

Johnson served as president of NPPC in 1993, during which he represented producer interests on various trade issues including the North American Free Trade Agreement and the Uruguay Round of the General Agreement on Trade and Tariffs.

Karl Johnson also served as president of the Minnesota Pork Producers Association, chairman of the U.S. Meat Export Federation and was on the Secretary of Agriculture’s Technical Advisory Committee, which addressed trade issues.

Service Award to Leman

Eugene E. Leman of Dakota Dunes, SD, was presented with the Pork Checkoff Distinguished Service Award during the National Pork Industry Forum in Kansas City recently.

Leman was recognized for his 41-year career in meat packing and procurement, his strong support of industry organizations. Until his recent retirement, he served as senior group vice president of Tyson Fresh Meats, Inc., a division of Tyson Foods, Inc. Leman was responsible for overseeing the company’s pork and beef business.

During his career, he made key contributions to the growth and diversification of IBP, Inc., acquired by Tyson Foods in 2001. Leman spent 17 years with Wilson Foods before joining IBP in 1981 to launch the company’s pork division. Under his leadership, IBP grew to be the country’s largest pork processor. Nearly 20 years later, he led IBP’s initiative to prepackage brand-name pork and beef products.

“Gene is one of the few people in the meat industry that has a thorough understanding of the entire pork industry,” proclaimed Tyson Foods’ Gary Machan.

The Distinguished Service award is presented annually to recognize the lifelong commitment of an outstanding leader, explains National Pork Board President Danita Rodibaugh.

Meat Inventories Must Be Trimmed

The very first rule for getting yourself out of a hole is stop digging!

Granted, it's not easy to rein in livestock production, but the past few weeks have seen an acceleration of hole-digging in terms of meat and livestock prices. And, I fear, it may get worse before it gets better.

For most of 2005, we lamented the sad state of meat demand and didn't have much of an explanation other than the cessation of the high-protein diet trend. It's hard to get a handle on meat demand thus far in 2006, and the biggest reason is that we are dealing with huge supplies of all meats. Figures 1 and 2 and the weekly data tables tell the sad tale.

Total pork and beef production (Figure 1) was nearly 7% higher last week than for the same week last year and now stands 2.9% higher for 2006. The first two, 2-million head hog slaughter weeks ever in March are just behind us and this week is going to be very close to breaking the 2-million barrier as well. The inexorable climb in carcass weights adds another short 1% to total production.

And if you think hogs are problem, look at the cattle and beef situation. Last week's Federally inspected (FI) cattle slaughter was over 5% larger than last year and their weights are over 3% larger. U.S. FI beef production was over 9% larger than last year.

Each of the last three weeks has seen beef and pork production 5% or more higher than last year. Seven of the 11 weeks this year have seen that figure at 3% or more. In fact, the only weeks even close to last year were Week 1 (New Year's Day is in that week this year where it was not last year) and the two weeks that beef packers forced production lower by simply refusing to kill cattle at a loss. Those decisions have now backed up cattle and put us in an over-supply situation for the foreseeable future. And, remember, feedlots have some responsibility, too. They could have accepted lower prices and kept cattle moving during those weeks!

Market analysts' estimates for Friday's Cattle On-Feed Report indicate that they expect March 1 inventories to be 7.5% larger than last year. Those numbers are inflated by cattle that have been moved from poor pastures (especially wheat) in the southern plains. This early movement will be offset to some degree in the next two months, but these inventories are record large and spell plenty of beef through late summer.

The Chicken Standoff
Then there is chicken. Prices are 20 to 30% lower than one year ago and production 5% higher. While that's not larger than the red meat guys, it does come from a sector that has much more control over output in the short run. Yet egg sets for the week ending March 4 were still 1.4% higher than last year.

Last week, USA Today discussed the recent dismal performance of chicken company stocks, noting that the stock prices of all the major players (Pilgrim's Pride, Sanderson, Gold Kist, Tyson) were well below their 52-week highs. These companies are very market share focused. No one wants to be the only company to reduce output and thus the standoff continues.

Round 'em up, Move 'em Out
The moral to the story -- profits beget production. While these levels of output were not predicted from some of the previous inventory data, we should not be surprised. Cow-calf operators have seen record profits. Pork producers have seen a long string of profitable months. Chicken producers saw record prices and profits just one year ago. Even cattle feeders made big money in 2003 and have seen on-and-off profits on some cattle (depending largely on how they got the feeders bought) since then. Add in Omaha corn at $1.82 (4% lower than last year) and Central Illinois meal at $173 (11% lower than last year) and we should not be that shocked.

What to do? First, get these critters to town! That won't help prices in the short run, but we need everything to get more current; 783-lb. beef carcasses, 203-lb. pork carcasses and 5.3-lb. dressed chickens are a big part of the problem.

We cannot feed our way to profitability! While seasonal meat demand strength will help improve prices, it will not likely overcome this kind of supply bulge. This medicine is bitter, but it must be taken.

Second, continue to watch futures markets for pricing opportunities. There is certainly a chance that the most negative impacts of these supplies will be this spring -- if we work through them and stop digging! Failing to do so, this weakness will continue to be pushed to summer and fall contracts that, by the way, are still offering profits for average or better pork producers.

If you are not comfortable with futures markets, talk to your packers about cash contracts. The caveat there is to watch the basis level closely. Packers will not take the risk of a cash contract, but they will sell futures contracts to cover their long position in hogs. That means they will face basis risk and they will include a large enough basis in the price quoted to you to cover that risk. That may mean the largest observed basis over the past 10 years or so. You can see historic Iowa basis levels at Dr. John Lawrence's ISU website: (www.econ.iastate.edu/faculty/lawrence/HOGS_files/Car-Hog%2004.pdf).




Click to view graphs.

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