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Special Report from National Pork Industry Forum

Special Report from National Pork Industry Forum

National Pork Industry Forum, which serves as the annual meetings of the National Pork Board (Pork Checkoff) and the National Pork Producers Council (NPPC), met in St. Louis, MO on March 6-8.

The National Pork Board is responsible for pork checkoff-funded research, promotion and consumer information as prescribed under the Pork Act, while NPPC is the industry advocacy organization serving as the industry’s voice in fighting for reasonable legislation and regulation, developing revenue and market opportunities and protecting producers’ livelihoods.
Following is a report of some activities that took place during Pork Forum, as well as the actions taken by delegates to the two organizational annual meetings.

Industry Honors Former National Hog Farmer Editors

Former editors of National Hog Farmer magazine, Neal Black and the late C.R. “Mitch” Mitchell were inducted into the National Pork Producers Council Hall of Fame during special ceremonies at the Pork Industry Forum held in St. Louis on March 6-8.

Mitchell was the first and founding editor of National Hog Farmer, launched in 1956. Black succeeded him as editor of the magazine in 1973.

Black and Mitchell were instrumental in calling for, and organizing, the legendary Moline 90 meeting in 1996 where 90 producers from 11 states agreed to hire the first fulltime executive secretary and launch the first, voluntary pork checkoff program.

Black and Mitchell also wrote a series of articles in National Hog Farmer entitled “Blueprint for Decision,” which helped establish a national pork industry organization – later to become the National Pork Producers Council – and advance the voluntary pork checkoff program known in its early years as “nickels for profit.”

Black and Mitchell organized the Pork Industry Conference from 1958 through 1968, an event that merged with the NPPC’s annual meeting held during the American Pork Congress, and later evolved into the World Pork Expo.
Mitchell was a strong advocate of the modern, meat-type hog, creating a more acceptable retail product for American consumers. He was honored, posthumously, in 1985 with the NPPC’s Distinguished Service award for excellence and dedication to the pork industry.

Black dedicated much time and energy into the eradication of hog cholera in the United States and served as chairman of the Livestock Conservation Institute’s hog cholera eradication committee. He was also instrumental in challenging USDA Assistant Secretary Carol Foreman’s efforts to eliminate nitrates in pork curing. In 1980, Black resigned his position as editor of National Hog Farmer to be named president of the Livestock Conservation Institute, where he led the national pseudorabies eradication efforts.

“For their efforts and influences, which helped build the organizational structure of the U.S. pork industry, C.R. Mitchell and Neal Black have been inducted into the NPPC’s Hall of Fame. They were true leaders, who not only wrote about our industry, but helped shape it,” said Jill Appell, NPPC President and pork producer from Altona, IL.

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Spot Marketing Hog Sales Slip In January

Price data from the U.S. Department of Agriculture (USDA) shows fewer hogs were sold through daily-negotiated transactions (the spot market) for January 2008, than in previous years.

This is despite the fact that the prices of about half of the hogs in the United States still are determined by the spot market.

Pork checkoff consultants, who reviewed data collected by USDA, conducted the analysis.

“If the rate of decline in the percentage of negotiated or spot market hogs returns to the pre-2006/2007 rate, it will increase the urgency for the industry to find another form of price discovery for most of the contracts,” says Glenn Grimes, professor emeritus at the University of Missouri.

“However, the slowdown in the rate of decline in negotiated or spot market hogs gives us some hope that the number of negotiated hogs will stop at around 10% of total slaughter,” he says. “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.”

Three economists conducted the analysis: Grimes; Ron Plain, professor at the University of Missouri; and Steve Meyer, president of Paragon Economics and columnist for National Hog Farmer’s weekly e-mail newsletter, North American Preview.

The data came from reports created by the Livestock Mandatory Reporting Act of 1999, which went into effect in 2001, but became voluntary when the law requiring the act expired on Sept. 30, 2005.

Total federally inspected hog slaughter for January 2008 was 10,473,760 head; data was collected for nearly 91% of that total and reported through the mandatory price reporting system.

The percentage of hogs sold at negotiated prices has fallen from 35.8% in 1999 to 9.2% in January 2008. By adding the percentage of hogs purchased in the negotiated markets to the percentage purchased on hog or meat market formulas, the current study indicates that the negotiated market directly determined the price of at least 46% of U.S. hogs slaughtered.

“The true percent is higher because a high number of packer-owned and packer-sold hogs are priced with a market formula,” says Grimes.

More than a third of hogs were sold through a price-shifting arrangement, including 13.4% through other purchase arrangements and 11% on contracts tied to the futures market.

“About 24.4% of the hogs in January 2008 were purchased under some system that supposedly reduces price risk to producers,” observes Grimes. “I suggest ‘supposedly’ because some of the pricing systems do not actually affect the variance of the price received by the producers. Only cash contracts, those tied to futures and contracts without ledgers reduce producers’ price risk. Other arrangements may or may not result in a realized average price that is different from the actual averaged negotiated price.”

The mandatory price reporting legislation requires packers to report percent lean, carcass weight, base price and net price for each type of marketing arrangement.

The negotiated hogs had the second-lowest percent lean and the lightest average weight.

Evaluating Lower Market Weights

When low hog prices come, it never takes long for someone to call for lower market weights in order to reduce pork supplies and push prices back upward. It is a logical response that, if it worked, would have the desired outcome. The problem is that it hardly ever works. There were some good reasons, some of which still apply, and some of which may no longer apply. Let's consider the weight issue and how it plays out.

Hog weights have been on a more-or-less constant uptrend since the 1950s. Figure 1 shows monthly data for average hog carcass weights since 1986, and this long-term uptrend is clearly visible. The only clear exceptions to this uptrend occurred in the mid-1990s, in 2006 and in early 2007. All of those were caused by high feed costs. The question now is whether the most recent period will be merely another temporary slowing of the trend or mark an actual change in this long-term trend.

Factors Favor Heavier Hogs
There are good reasons why hogs have gotten heavier. First and foremost, the genetic potential of today's pigs is to deposit less fat than their ancestors at virtually all weights. This characteristic means that pigs can be taken to heavier end-weights without producing extra fat. So, more pounds of high-value, saleable product can be produced from each pig. Producers' and packers' fixed costs (plant and equipment depreciation, interest, taxes, repairs, etc.) and quasi-fixed costs (labor being the largest) can be spread over larger levels of output, thus driving total profitability.

Note that I call labor a quasi-fixed cost. It is technically a variable cost in that it goes away if production ceases. Labor, though, behaves more like a fixed cost in the short run because firms cannot just lay off labor and hire back equally skilled workers when economic conditions improve.

The proportion of costs represented by variable-cost items has fallen over time due to higher investments in confinement facilities and the labor to man them. This lower variable-cost level means that prices have to fall farther for average variable costs to not be covered -- the point in economic theory that says output should be reduced.

Finally, producers appear to treat feed costs as the only component of marginal costs -- ie., the additional cost of the last unit of output. The cost of feed needed to put on the last pound of gain has almost always been lower than the value of that pound, making the profit-maximizing decision easy: "Keep feeding them."

This behavior slowed in late 2006 and early in 2007 (Figure 2) as producers dealt with significantly higher feed costs. They seemed to adjust to those costs, though, and market weights again began to run 1 and 2 lbs. higher than in 2006 during the second half of 2007. That trend has changed again with weights equal to or 1 lb. lower than year-earlier levels in the past six weeks.

Renewed Call for Lighter Hogs
Feed ingredient cost increases since last fall have again precipitated calls for lighter hogs, and reducing weights with finish diet costs well above $200/ton is probably a good decision. But there is a problem: It couldn't be done, at least not until recently.

Consider Figure 3, the same weekly hog slaughter graph I showed last week but with a slaughter capacity for 5.5 days/week added. Could any more hogs have been slaughtered from October through January? Well, packers could have added even more hours, but that rarely happens and, when it does, packers usually run into severe absenteeism problems. So the answer is probably not.

But what would have to happen to slaughter for the industry to pull market weights back by 2 lbs.? The pigs to be slaughtered on Monday are already out there. And there are more out there for the next day and the next day and the next . . . well, you get the picture. So, to pull weights down by one day's growth (about 2 lbs.), we would have to make one day's worth of slaughter simply vanish. That cannot be done when slaughter runs are near capacity levels.

The good news is that it can happen now. Total slaughter has been below the 5.5 day/week capacity since the last week of January and, at current levels, we could process about 100,000 to 150,000 more hogs per week if the economics dictated doing so. The bad news is that at 100,000 to 150,000 more pigs/week, it will take three to four weeks to make that one day's worth of slaughter disappear.

Help Yourself
It is a slow process. I urge producers to do what is best on your farm. Today's feed and cash hog prices suggest that lighter weights might be optimal. But do what is best for you and let the market translate that into a broader impact. Any reductions should help hog prices and move us a bit closer to profits.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: [email protected]

Pork Exports Make Impressive Gains

An analysis of data by the National Pork Board and the University of Missouri shows impressive gains in U.S. pork exports over the last 22 years.

U.S. pork exports have grown from 86 million lb., carcass weight equivalent, in 1986 to 3.1 billion lb. in 2007. Another comparison shows that the United States has gone from a negative 1.036 billion lb. net export in 1986 to a positive 2 trillion lb. in 2007.

“The growth of exports is good news for pork producers,” reports Glenn Grimes, an agricultural economist with the University of Missouri. “It has had a great impact on their income.”

The value of pork and pork by-product exports has increased from $1.97/hog slaughtered in 1986 to $28.91/hog slaughtered in 2007. These changes have enabled the pork industry to grow at an additional rate of about 0.8%/year on average over the last 22 years.

“In other words, the U.S. pork industry was about 18 million head larger in 2007 than it would have been had pork imports and exports remained at 1986 levels,” explains Grimes. “Not only has the increase in the quantity of pork traded allowed the industry to grow without lowering prices, but it has also added to producer’ incomes in the years when net exports grew.

“Based on our efforts to calculate the effect of imports and exports on the price of hogs between 1986 to 2007, we believe these estimates are conservative because they show that prices increased only in the year when net exports grew,” Grimes continues. “We assumed producers reacted to higher prices by increasing the U.S. herd enough to offset any price benefits from net export growth in the following years.”

Grimes says that total pork producer income grew by $7.4 billion over the last 22 years due to the increase in pork exports.

Pork producers have spent nearly $64 million promoting pork through the pork checkoff over the last 22 years.

“Pork producers can take credit for much of this export growth. They have improved the quality of pork, which has made it more competitive and funded promotional efforts,” says Grimes.

Lawrence To Address Livestock and Ethanol Boom

Iowa State University Extension Livestock Economist John Lawrence will speak on the economics of livestock production in the ethanol boom at the March 19 annual meeting of the Northeast Iowa Agricultural Experimental Association (NIAEA).

All area producers are invited to attend the meeting, which is free and open to the public. The program will be at Iowa State University’s (ISU) Northeast Research and Demonstration Farm near Nashua, IA.

The program begins at 9:30 a.m. and ends at noon. Lunch will be for sale at noon.

The board of directors of the NIAEA will meet following lunch.

The program will also include a presentation by Craig Chase, ISU Extension farm management specialist, on corn and soybean profitability.

Ken Pecinovsky, farm superintendent, will give a review of current research on the farm.

The program will also feature an update on the Borlaug Learning Center, a new building project at the research farm.

For more information, contact your local ISU Extension office.

Learn About Pork Industry Opportunities At New Conference

A first-time conference on educating new or aspiring hog farmers about the pork industry will be held this spring in Ames, IA.

“Exploring Opportunities: A Conference for Aspiring Pork Producers” is scheduled for April 1 at the Quality Inn and Suites in Ames, IA. Registration starts at 9:30 a.m. and the conference runs until 3:30 p.m.

Sponsors include the Iowa Pork Producers Association, Iowa State University’s Iowa Pork Industry Center (IPIC), Beginning Farmer Center and Farm Credit Services of America.

“We’re excited to present this conference and give farmers who are considering raising hogs insight into the industry, what they need to know and how they can get started,” says Colin Johnson, Extension program specialist at the IPIC.

Iowa State University Extension Livestock Economist John Lawrence will provide an overview of the pork industry and talk about opportunities and sustainability.

Gary Thome from Riverland Community College in Austin, MN, will discuss contract finishing.

Dave Stender, area Extension specialist for ISU, and Gary Huber of Practical Farmers of Iowa will discuss raising hogs for niche markets in morning breakout sessions.

Afternoon breakout sessions will include a discussion by a panel of experts on how to obtain capital.

Regulations and neighbor relations will be the subject of another session.

A group of veteran hog farmers will share thoughts on how young farmers can map their future and transition ownership.

“This conference will be ideal for those considering constructing a finishing building but don’t know the process and available financing options,” notes Johnson. “Veteran farmers looking for the next generation of managers and owners also will benefit from the seminar, as will employees and college students who want to know how to become owners.”

The conference is free to those who register by March 28 by calling IPIC at (800) 808-7675. There is a $20 charge the day of the conference.

Market Weight Tape Improves Marketing

Kansas State University (KSU) researchers have developed a marketing tape for producers to use to market hogs at the correct weight and capture the most dollars at slaughter.

Estimating market weights visually is very difficult for even the most trained eye, says Mike Tokach, KSU swine Extension specialist.

Weigh scales are the best answer but are cumbersome to move from barn to barn.

“We developed a Market Pig Weight Tape to aid producers in determining the average weight of a group of pigs,” he remarks.

“The weight tape should not be used to determine the weight of an individual pig, because there can be an error of as much as 20 to 30 lb. in the measurement of a single pig,” explains Tokach.

Rather, if you measure from flank to flank on 20 to 30 pigs, the measurement becomes quite accurate. “The tape will allow you to determine the average weight of a group of pigs,” he adds.

The two best ways to use the tape:

Take the flank measurement on the 20 heaviest pigs in the group to determine whether they are ready to market; or

Take the flank measurement on 30 randomly chosen pigs to determine the average weight of pigs in the barn before starting to market pigs.

Tokach points out that if average pig weight is 220 lb. or greater, 10-11% of the barn will be 30 lb. greater than the average weight, and 4-5% will be 40 lb. greater than the average weight.

For example, if a group of 600 pigs weighs an average of 245 lb., around 66 pigs will weigh more than 275 lb., and 30 of those pigs will weigh more than 285 lb.

To use the flank tape, follow the same basic procedures for using the tape for gestating sows. Take the measurement from the bottom of the flank on one side of the pig over the highest point of the back, to the bottom of the flank on the other side. The tape should be loosely placed over the back and not pulled down tightly. Tapes can be ordered from KSU by e-mailing Lois Schreiner at [email protected] or by calling Schreiner at (785) 532-1267.

CDC Clears Hogs of MRSA Allegations

Claims that food-producing animals such as pigs are increasingly the source of methicillin-resistant Staphylococcus aureus (MRSA) bacteria in humans are greatly overstated, according to information from the Centers for Disease Control and Prevention (CDC).

The CDC says if transmission of MRSA from livestock to people occurs, “it likely accounts for a very small proportion of human infections in the United States.”

Studies in Canada and the Netherlands that found MRSA in pigs and pork producers on some farms have been used to link pigs, pork products and the use of antibiotics in livestock and poultry with the recent rise in MRSA cases.

“Statements connecting pork products and MRSA and linking the bacterial infection to the use of antibiotics in pigs are seriously misleading,” states Jill Appell, Altona, IL, pork producer and president of the National Pork Producers Council.

Dutch scientists conducted a risk assessment and concluded that MRSA present in pigs is not a food safety threat.

The CDC has conducted numerous investigations of community-based MRSA outbreaks, and “in none of these investigations has animal exposure been identified as a risk factor for infection.”

Research funded by the pork industry is studying whether MRSA is present in U.S. pigs. The industry has also established a panel of U.S., Danish and Canadian researchers to coordinate research efforts on MRSA in pigs.

MRSA is a common bacterium found throughout the environment and carried in the nasal passages and on the skin of more than 30% of the population. More serious forms of MRSA are found in hospitals, while less virulent forms are commonly found throughout the general population and on animals. A third, less-invasive form than the health care-associated forms of the bacteria, was recently discovered on some swine farms in the Netherlands and Canada.

Groups such as Keep Antibiotics Working are urging Congress to pass legislation to ban the use of subtherapeutic antibiotics in livestock because they claim it produces a proliferation of drug-resistant “super bugs.”

U.S. Pork Forecast to Lead Global Export Market

The United States is expected to be the global leader in pork exports in the coming decade, increasing its share of global pork trade from 28% to 32% in 2017, according to 10-year projections released recently by the U.S. Department of Agriculture (USDA).

Despite predictions that U.S. pork production will decline in 2009, 2010 and 2011, USDA expects pork exports will continue to grow steadily due to strong global demand and the weak U.S. dollar.

USDA is calling for a 16% increase in U.S. pork exports in 2008 based on China’s domestic production issues and market access restrictions, recovery of exports to Mexico and continued growth of the Russian market.

Exports will rise 4-5% in 2009 through 2014, according to Erin Dailey, U.S. Meat Export Federation (USMEF) manager of research and analysis. That prediction assumes approval of the South Korea/United States free trade agreement in 2009 and steady growth in pork exports to Japan.

Overall, USDA forecasts 39% growth in U.S. pork exports over the next 10 years, or an additional 1.18 billion lb., for total exports in 2017 of nearly 4.2 billion lb., up from an estimated total of 3 billion lb. in 2007.