Nutrients on the Side

At Home on a Hog Farm

Pig Crop Report Revisited

First, a correction to the Hogs and Pigs special report you received on Monday. Table 1 (attached) has the correct figure of 28.387 million head for the Dec.-Feb. pig crop last year. That means that the most recent Dec.-Feb. pig crop is 99.4% as large as last year – a number that fits much better with the 97% breeding herd and 102.6% litter size. The error did not affect my weekly slaughter forecasts since I use actual inventory numbers from the weight categories in those computations.

Tables 2 and 3 show my quarterly compilation of slaughter and price forecasts from Iowa State University (Dr. John Lawrence and colleagues), the Livestock Marketing Information Center (a cooperative data and analysis effort of over 30 land-grant universities), and Glenn Grimes and Ron Plain at the University of Missouri. Both tables show some differences of opinion regarding the slaughter and price implications of last week’s Hogs and Pigs report.

Projected quarterly slaughter numbers are generally lower than those following the December report. My forecasts and those of the Missouri crew show much more quarterly variation than do the others. In addition, I and Missouri have rolled the year’s largest year-on-year declines forward one quarter. Recall that both of us had Q2 down well over 5% after the December report, based on the report’s low Sept.-Nov. pig crop. This report indicates that Q2 slaughter will not be as low, but cumulative impacts of lower pig crops and reduction of imports from Canada will push Q3 slaughter down over 5%.

I think it is safe to say that these analysts expect slaughter to be 3-4% lower in 2009.

There is considerably less agreement regarding price levels (Table 3). It appears that I am the optimist of the group, while the Mizzou crew is the most pessimistic. The real challenge here is factoring out last year’s export-driven hog price bubble. Just where would prices have been had exports been “normal”? That’s a tough question because it is a road we did not travel – and thankfully so!

The national net negotiated price that I forecast averaged over $85/cwt., carcass, in the third quarter of 2008. If slaughter is 5% lower this year, one would expect that price to increase 10-15%, if all other factors are constant. That would clearly put prices above $90 this summer if all of those factors were still present.

Of course, they will not be. Exports will almost certainly not duplicate last summer’s robust performance. Most analysts have them pegged at 10-15% lower for the year, and that will probably include Q2 and Q3 shipments that are 30-40% lower than last year. The impact will not be zero, but when you start computing downward from the $90s, you could still end up with a pretty good price this summer. So mid-$70s is my story and I’m sticking to it. For now, I reserve the right to observe the No. 1 rule of price forecasting: Forecast often.

One conclusion is pretty solid, though: Chicago Mercantile Exchange (CME) Group Lean Hogs futures are not priced nearly as well relative to our fundamental-analysis (i.e. supply and demand analysis) price forecasts as they have been over the past 2-3 years. Futures pricing decisions are not near as easy as they have been. I still expect cash markets to carry futures upward and provide some pricing opportunities in late April and early May. They will not likely be as obvious as they have been, however.

Canadian Plant Off the Market
Maple Leaf Foods announced this week that its Burlington, Ontario plant was no longer for sale. It was sort of an “at least for now” announcement based on the poor economy and credit availability, according to the company. Those are good reasons, but I suspect that more Canadian pigs staying home for feeding and slaughter were perhaps just as important. Canadian packing plant utilization has been very high since exchange rates have shifted and mandatory country-of-origin labeling (COOL) has impacted movements of pigs southward.

Is this positive for Canadian capacity and a foreteller of woe for U.S. capacity? It could be, but I don’t think U.S. pig supplies will fall far enough, long enough to force a plant to close here. While small, the closure of Meadowbrook Farms’ plant in Rantoul, IL, does relieve a bit of pressure, which may be enough to keep others above water.

This shift of pigs and capacity is an outcome of COOL that I and others have predicted since day one. The ultimate outcome is that we will compete less with Canadian pigs and more with Canadian pork – either here in the U.S. market or in Japan, Korea or some other export market.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

What's the Real Cost of Swine Erysipelas?

Opportunities for nickels and dimes have greater impact when profit margins are tight. For example, occasional lameness in finishing pigs and discounts at slaughter are common realities that sometimes seem beyond our control. However, recent research suggests that we could still improve diagnosis and control of an “old disease” – erysipelas.

Erysipelas continues to affect pigs worldwide, with economic losses stemming from disease outbreaks or animals being condemned at slaughter. It is estimated that 30-50% of swine harbor Erysipelothrix rhusiopathiae, the causative agent of swine erysipelas. Pigs carrying E. rhusiopathiae, shed the organism and are thought to be the source of infection for acute outbreaks of erysipelas, which often follow a stress-inducing event.

Pigs can be infected with erysipelas without signs, or can suffer clinical disease ranging from lameness, septicemia, skin lesions, or they can suddenly die without signs of disease. Herd or barn outbreaks of erysipelas are typically due to acute bacterial septicemia, which may include fever, decreased feed intake, depression, reluctance to move and often the classic rhomboid skin lesions (diamond skin disease). Lameness (arthritis) and inflammation of the heart valves (endocarditis) are more chronic forms of the disease.

Economic losses occur from increased numbers of acute deaths, treatment costs, vaccination costs and slow growth of diseased pigs. In addition, there is economic loss from slaughter condemnations or trimming that is often unexpected, yet economically significant. It is frustrating for both producers and veterinarians when disease or slaughter condemnations occur despite implementation of vaccination and control strategies.

Carcass Condemnations
Data collected from the United States Department of Agriculture (USDA) and USDA’s Food Safety Inspection Service (FSIS) is summarized in Figure 1. Swine erysipelas continues to be associated with condemned swine carcasses, and ranks in the top 10 causes for swine condemnations from 2003-2008, continuing previous trends. Furthermore, it is unknown how many of the slaughter condemnations classified as septicemia or arthritis are actually due to swine erysipelas.

A visual diagnosis of swine erysipelas can be challenging for inspectors at slaughter plants as several diseases can manifest with similar signs. Interestingly, over the past 10 years, trends show that when erysipelas condemnations increase, condemnations due to septicemia and arthritis increase as well (Figure 2). This suggests the full economic impact of erysipelas to the swine industry perhaps is underestimated.

There are many potential causes for septicemia, arthritis or skin lesions. Some of the differentials for clinical signs of erysipelas may include: Actinobacillus suis, Haemophilus parasuis, Staphylococcus hyicus, Streptococcus suis, Mycoplasma hyosynoviae, osteochondrosis, fungal agents, porcine dermatitis and nephropathy syndrome, rickets, and a host of others.

Recent work at the Iowa State University Veterinary Diagnostic Laboratory (ISU-VDL) has expanded the diagnostic capabilities available to veterinarians and producers. By revisiting and modifying some previously described methods, the ISU-VDL has increased the ability to detect, isolate and identify cases of swine erysipelas, either from field cases or from specimens from slaughter facilities.

Improved Diagnostics
The ISU-VDL has recently improved diagnostic methods for isolating the organism from affected organs (spleen, liver, kidney, lung, heart, skin, lymph nodes, joint fluid) by using a modified enrichment process. Immunohistochemistry can identify the organism in formalin-fixed tissues (skin, synovium, kidney, spleen, liver, heart, lungs). Serotyping and polymerase chain reaction (PCR) can also be used to determine the specific characteristics of an Erysipelothrix isolate. Some isolates and types are known to be more pathogenic than others.

Diagnostic data from the ISU-VDL data warehouse indicates the incidence of swine erysipelas to be relatively constant throughout all seasons with no clear seasonal effect. Erysipelas is not just a late spring/early summer disease, but is detected year-round. (Figure 3).

Submitting Samples
When clinical signs are suggestive of swine erysipelas, samples can be submitted to a veterinary diagnostic laboratory for confirmation. Tissue submissions from suspected acute outbreaks of erysipelas should be from non-medicated pigs and include: lung, liver, heart, spleen, kidney, skin lesions, tonsil and joint fluid. Multiple tissues should be submitted because E. rhusiopathiae is not always present in all organs and other types of insults need to be ruled out.

In the more chronic cases of swine erysipelas, lameness may be more prevalent and the entire affected joint along with the other tissues mentioned for acute disease are recommended for submission to a laboratory. In either case, both chilled (not frozen) fresh, as well as formalin-fixed tissue samples, should be included from non-treated animals. If tonsil is included, it should be placed in a separate specimen bag. E. rhusiopathiae can be present on the tonsil of normal swine and isolation of E. rhusiopathiae from tonsil will confirm infection, but does not confirm disease (erysipelas).

Control is Key
Despite being one of the oldest and most recognized diseases in the swine industry, erysipelas continues to be a challenge to control, in part because E. rhusiopathiae is ubiquitous in the environment and is carried by several different animal species (birds, fish, rodents). These features of the bacteria complicate prevention and make eradication nearly impossible. Herd losses can be quantified based on cost of prevention, treatment, and death loss, but it is difficult to quantify losses associated with full or partial slaughter condemnation. Prevention is best achieved through implementing reliable management practices and through use of commercially available vaccines.

Click to view graphs.

Joe Bender and Darin Madson, DVM
Iowa State University Veterinary Diagnostic Laboratory

Corn & Soybeans Acres on Par with Last Year

USDA released its crop planting intentions report for 2009, indicating that crop farmers plan to plant 76 million acres of soybeans compared to 75.5 million in 2008. This would be the third-largest planted area on record. However, many trade analysts had expected higher numbers. Producers also intend to plant 85 million acres of corn, down 1% from last year. This would be the third-largest acreage since 1949. Wheat acres are expected to decline 7% from last year to 58.6 million acres. Cotton acres are expected to be at the lowest level since 1983 at 58.6 million acres.

Higher Ethanol Blends — A group of 59 food, livestock and others sent a letter to the Obama administration opposing any increase in the current cap on the amount of ethanol permitted to be blended in gasoline. The groups said they oppose any effort to raise the blend until “independent and comprehensive testing has been completed that indicates that such mid-level ethanol blends (whether E12, E15 or E20) will not pose a risk to all gasoline-powered engines, to public health, to the environment and to consumers.” Those signing the letter included American Bakers Association, American Beverage Association, American Meat Institute, Friends of the Earth, Grocery Manufacturers Association, National Chicken Council, National Restaurant Association, National Turkey Federation and Sierra Club.

USDA Extends Sign-Up for DCP and ACRE — USDA announced the sign-up deadline was being extended to Aug. 14, 2009 for both the Direct and Counter-cyclical Program (DCP) and the forthcoming Average Crop Revenue Election (ACRE) Program. Secretary of Agriculture Tom Vilsack said, “Extending the DCP and ACRE sign-up deadline will help ensure that America's farmers have enough information and time to determine whether to participate in the ACRE Program. The DCP and ACRE programs play a critical role in the farm safety net and it is vital that we act to support the hard work of the farmers we depend on.”

FDA Fails to Trace Products — The Office of Inspector General (OIG) for the Department of Health and Human Services (HHS) did a review on the Food and Drug Administration’s (FDA) ability to trace products. In a study, OIG found that only five of the 40 products purchased could be traced through each stage of the food supply chain back to the farm or border. The ability to trace the remaining food products through each stage of the food supply was limited because:

  • “Food facilities often did not maintain lot-specific information;
  • “Some products were labeled with lot-specific information, and
  • “A number of food facilities mixed raw food products from a large number of farms.”
Pork Producers on Capitol Hill — Over 150 pork producers from throughout the country were on Capitol Hill this week visiting members of Congress on key issues of importance to the pork industry. Some of the items addressed were antibiotics, child nutrition, food safety, trade, and the economic crisis that producers are experiencing.

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

Bullish and Bearish Numbers

USDA’s quarterly Hogs and Pigs report, released on Friday, was once again a mixture of bullish and bearish numbers with market supplies a bit bearish and breeding herd numbers a bit bullish in the long run. The key numbers in the report appear in Table 1.

Some highlights of the report are:

  • Sharply higher reproductive performance. The 9.48 pigs saved per litter for Dec.-Feb. is the highest ever for that quarter, the fourth highest since 1983 and the highest mark since June-August 1996. The increase continues a string of seven quarters of year-on-year growth of 1.8% or more with the Dec.-Feb. 2.6% increase being the largest. The increases coincide with two major changes in the U.S. industry. First, producers began late in the process of moving to later weaning ages on many farms. That change had two main benefits: Higher quality pigs and larger litters in subsequent litters due to allowing the sow a bit more recovery time. It appears to be paying off. The other change was, of course, circovirus vaccines. While most of the impact has been felt at the grow-finish level, the vaccines have had a positive impact on sow units as well. As Figure 1 shows, litter sizes have been going up more quickly, matching the pace set back in 1995-1997, a time of major structural change in the industry.

  • A smaller-than-expected U.S. breeding herd. USDA estimates that the herd is at 6.011 million head, 3% smaller than last year. But will this reduction result in fewer pigs? Given the growth of average litter size, that is the question. Dec.-Feb. farrowings are right in line with the breeding herd, so adding 2.6% from larger litters would drive pig numbers close to last year, right? Wrong! The Dec.-Feb. pig crop is pegged at 97.4% of last year in spite of 97% as many litters and litter size at 102.6%. Those figures don’t fit, but we usually charge on using the pig crop number which implies lower June-Aug. farrowing intentions. But we will make a note to follow up on these figures in future reports.

  • Somewhat larger-than-expected middle-weight market hog inventories, implying that the “shortage” of pigs this spring may not be as large as I thought last fall. Recall that the Sept.-Nov. farrowings were sharply lower (down 6%) than those of 2007 and that the Sept.-Nov. pig crop was 3.7% lower than one year earlier. However, this report says that the two weight categories comprised of those pigs are only 2.5% smaller than last year. Those are 1.3% larger than analysts expected, so that may take some luster off the May, June and July contracts on Monday (March 30). We will watch closely over the next few weeks to discern whether slaughter follows the December report pattern more or less than this pattern from the March report.

  • Summer farrowing intentions that are reasonably in line with the sow herd, but lower than analysts’ predicted. These could be bullish for deferred contracts.
Canadian Imports Hold the Key
The trick for predicting supplies using this report has nothing to do with the report. It is how far imports of Canadian pigs will decline this year vs. last year. Market hog imports will impact slaughter immediately, while reduction in weaned/feeder pigs imports will reduce slaughter 20-24 weeks later. I use 21 weeks, realizing that it may not be 100% accurate.

Figure 2 shows my forecasts for weekly slaughter levels using reductions of from 2% down to 0.4% down for lower market hog imports through year’s end. I also reduced future slaughter by 2% starting in early August when early March imports would be ready for market. My feeder pig import reduction falls gradually to 0.4% in Q1-2010.

The net impact of the March report is to increase my forecast for 2009 federally-inspected slaughter marginally to 110.5 million head, 3.5% lower than that of 2008. Those numbers compare to my December forecasts of 110.456 million head, 3.6% lower than in 2008.

If the March report is correct, then the quarterly patterns will change a bit, though with Q2 being higher and Q3 being lower. I expect Q2 slaughter to be 3.4% lower while Q3 slaughter is 4.9% lower. Q4 slaughter will be 3.6% lower, but will still amount to 28.498 million head.

As predicted in December, the first quarter of 2009 has indeed been a tough one. National weighted average net price averaged $56.91/cwt., carcass, through last week, about $2/cwt. lower than my Q1 forecast coming out of the December report, which in spite of Q1 slaughter, has been about 1% lower than I expected.

I now expect the average national weighted average net prices for both Q2 and Q3 to be in the range of $74 to $78/cwt., carcass. I expect Q4 prices to be in the $61-$64/cwt., carcass, range bringing the forecast range for the 2009 annual average to $66 - $69/cwt., roughly $1 lower than I had forecast in December.

Watch this week’s North American Preview for my normal table including the slaughter and price forecasts of several noted analysts.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

Pig Crop Projections and Long-Term Trends

This afternoon, USDA will release its estimates of U.S. hog and pig inventories on March 1. Watch your e-mail on Monday for a summary of the report and its implications for supplies and prices through the first quarter of 2010.

Figure 1 (attached) contains the results of DowJones’ quarterly survey of analysts for their pre-report estimates. The expectations are obviously for more reductions in supplies over the next two quarters, but those heavyweight pig inventories are larger than were suggested for the same pig groups in the December report. In addition, analysts’ expectations of farrowings and litter sizes for the rest of this year suggest supplies near year-earlier levels for Q4-09 and Q1-10.

Long-Term Trends
Where is U.S. pork supply headed on a long-term basis? That question is being asked by many observers and market participants as we head into this report and the 2009 crop-growing season. To explore an answer, let’s consider some history.

Figure 2 shows long-term annual U.S. pork production back to 1930. To that actual data I have added two trend lines. The solid black line represents the trend for the entire time period. Beginning in 1930, this trend says that U.S. pork production has grown at an average rate of 1.27% -- at least that is the rate that results in a line with the best fit to all of the data points.

But note that this line has fallen farther and farther behind actual production levels for the past 11 years. Now those data points are part of the computations that go into the 1930-2008 trend line, but they are outweighed by that 65 or so years of data that covered a slower-growth period from 1930 to 1997.

So, what is the growth trend of the “modern” U.S. pork production system? I went back to 1984 and computed a linear trend line (the blue diamonds) that grows at a rate of 1.8%. I chose 1984 because it marked the end of the wild fluctuations in pork output that followed the major shifts of grain prices and inflation in the early 1970s. It also marked the beginning of some major technology shifts – climate-controlled buildings, gestation stalls, advanced nutrition concepts, artificial insemination and others.

Finally, it marked a new era in hog and pork trade. Pig imports from Canada began to grow quickly in the late 1980s (remember the countervailing duty that was then in place to offset the Canadian Tri-Partite support system?), and U.S. net imports of pork reached their largest levels in 1985-1987 at roughly 1 billion pounds. The remainder of the time covered the period that U.S. pork exports were growing – often dramatically.

But the clear lesson is this: The output growth of the past two years is not sustainable. A less clear lesson is very likely. The output levels of the past two years may not be sustainable either.

The 2007 observation exceeds the “new trend” for U.S. production by 539 million pounds or 2.45%. That is a pretty large number considering the U.S. per capita consumption has been basically constant for 50 years.

But the 2008 number is pretty shocking. It exceeds the “new trend” by 1,558 million (or 1.558 billion) pounds – nearly 6.7%. If we could see exports grow by 50% every year, that level of output and growth may be okay. But 50% growth when exports are now taking 20% of our production is very, very unlikely.

Trim Sow Herd Another 3-5%
Will the numbers in Figure 1 get this done? No. U.S. sow numbers have fallen – but only by 163,000 head (2.6%) since the most recent peak in December 2007. Canadian numbers have declined more (229,100 head or 14%) since their all-time high of 1.634 million head in January 2005. But the major contributor to the surge of output in 2007 and 2008 is a dramatic increase in productivity. Circovirus vaccines were the most important driver of that increase, but genetics and management are playing big roles as well in realizing larger litters.

The expected “hole” in marketings this spring is no indictment of your productivity efforts. The productivity piece driving the December report’s estimate of a short pig crop last fall is litters per sow – primarily because we culled and slaughtered a good number of pregnant sows last summer when corn prices skyrocketed.

How many less sows do we need to return to “reasonable” profit levels? That depends on one’s definition of “reasonable,” but 3% would be a good start and 4 to 5% would be even better, given that at least a third of the reduction will be offset by productivity gains. The trouble is that financial losses this year may not be large enough to get much of that done – especially if my long-predicted spring rally finally arrives.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

Meat Demand is Risky Business

I remain very concerned about meat demand, in general. I have believed for some time that this is far and away the largest risk factor for the U.S. pork industry in 2009. So far, I have seen nothing that would change my mind.

The current data is rather mixed. This week’s production and price tables suggest that demand is indeed soft – especially for beef and chicken. Note the shaded cells in this week’s table (see North American Pork Industry Data attached). The year-on-year percentage changes in slaughter and production are almost all negative. Lower output and constant demand would suggest that prices should be higher. But the vast majority of product prices are actually lower than last year. Lower output and lower wholesale prices can only mean lower wholesale meat demand.

Does that mean retail demand and hog demand are lower? No. These relationships do not always change at the same time and the hog slaughter (down from last year) and hog price (up from last year) suggest a roughly stable hog demand. Professor Glenn Grimes at the University of Missouri reports that retail pork demand was actually higher for the period from November through January, the most recent three months for which we have all of the necessary data. Preliminary calculations indicate that the year-on-year change for December through February will be positive as well. February cold storage stocks will not be available until this afternoon.

But wholesale markets are very important. Checkoff-funded research conducted in 2000 by Kansas State University indicated that the wholesale market was the primary point of price discovery for pork and hog prices. One reason is that all of the players – packers, retailers, foodservice operators, and exporters – are involved in that market and all of them bring information, needs, knowledge, etc. to the table. This is not to say that producers aren’t “players,” but producers take part in the wholesale market only through packers and both are only involved on the supply side of this process in the short run.

Exports a Bright Spot
We did get one piece of positive information this week when the Department of Commerce and USDA released January export data. Product-weight pork exports were 4% lower than in January 2008, but were 2% higher in total value at $295.8 million. Quantity is important, but value is what pays the bills, so this increase is very important.

Exports to Japan increased 18% vs. last year, while shipments to Mexico were up 65% from last year. The latter was inflated a bit by the fact that January 2008 was at the tail end of a period of very soft shipments to Mexico. Still, the size of January shipments was surprising given the near-50% devaluation of the peso since Oct. 1, 2008.

Shipments to Canada (-9%) and Korea (-8%) were marginally lower, while those to China/Hong Kong and Russia were sharply lower at -66% and -70%, respectively. A chart of carcass-weight equivalent exports, by destination, appears in Figure 1.

I have also included an updated version of the monthly pork export graph I used in the March 5 edition of North American Preview. Note that the January observation, though lower than one year ago, is above the 2004-2007 trend line. As I noted in the March 5 edition: If 2009 exports can stay near that longer-term trend, I think it will be a victory in spite of the fact that 2009 exports will be about 15% lower than last year.

Be Ready for a Rally
Finally, Chicago Mercantile Exchange Lean Hogs (LH) futures are endorsing the idea of a spring rally. Every contract has gained $4 to $6 from the spike lows of Feb. 24, and has stayed consistently above the 10-day moving average. In addition, every contract for the remainder of 2009 has penetrated the 50-day moving average and every contract from June onward has closed above the 50-day moving average – normally a strong confirmation of a trend change.

Based on Iowa State University’s Estimated Costs and Returns parameters, this week’s corn and soybean meal futures prices put breakeven costs for the rest of 2009 in the $66 to $69/cwt., carcass, weight range. LH futures are offering profits from May through August at those cost levels, with October and December getting closer.

Selling into a rally is hardly ever a bad idea, especially if the prices are profitable. But, I still wouldn’t get in a hurry. Historical seasonal patterns suggest that this rally will continue into late April or early May. But be ready to pull the trigger when your return-on-investment goals are met or when the charts indicate that the rally has run out of steam.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

Patience – Spring is Coming!

It has been a long, cold winter — made considerably colder and longer for hog producers by a constant flow of red ink. The losses are mounting, putting some producers at odds with lenders. Both groups are weary of losses that have persisted for virtually all of the past 20 months, draining an estimated 40 to 50% of producers’ equity over that time period.

The entire situation has made everyone quite testy, wondering why the spring rally is taking so long? There is a simple answer to the question — it’s not spring yet! I know it is difficult to be patient when doing so has such a large price tag, but patient you must be.

Figure 1 shows weekly national negotiated base prices for the entire history of the mandatory price reporting system. We are working on our eighth year of these data and they become more useful every year because it adds historical context.

The data show that not much happens until April 1. There are exceptions, of course. Prices increased $20/cwt. from January 1 to April 1 in 2004. But the rule is for sideways prices during the first quarter of the year.

The average price increase from April 1 to June 15 for the past seven years is $11.77/cwt., carcass. That average includes a $1.37/cwt. increase in 2002 and a $2.23/cwt. increase in 2005. Average the other five years and you get $15.75/cwt. Add that to last week’s observation and you get prices in the low $70s. And, remember, these are base prices. Add $2 or so to get net prices and you have pigs fetching near $150/head. When that happens, there will likely be some money left over after you pay the bills.

Cash is Still King
What may be more important is that cash is king and a cash rally will, barring a very negative March Hogs and Pigs report (which I do not expect), carry Lean Hogs futures upward, as well. Historical patterns suggest that summer contracts peak out in early May. While fall contract sometimes peak later in the year, that peak is usually not much higher than the level of the May rally. Producers need to study those histories and develop plans now to manage their hog margins for the remainder of 2009.

Corn-Use Projections
USDA’s March Crop Production report and World Agricultural Supply and Demand Estimates, released this week, contained no new news on corn supplies, but they did contain some changes in corn usage. USDA increased projected ethanol use by 100 million bushels — that after they had reduced this usage category from October through January. The new USDA number, 3.7 billion bushels, will produce almost precisely the amount of ethanol needed to meet this year’s 10.5 billion renewable fuel standard requirement. That fits with data from the Renewable Fuels Association (RFA) that says 193 ethanol plants are now operating at an output rate of 10.36 million gallons/year — 16% below their rated capacity. RFA also says there are 23 more plants being built or remodeled and that these plants will add another 2 billion gallons to capacity. These figures agree almost exactly with last year’s forecasts by Iowa State University.

USDA also decreased U.S. corn exports by 50 million bushels with the net impact being a reduction of projected year-end stocks to 1.74 billion bushels — 14.5% of projected usage. Neither of those numbers is particularly low, but the usage rate is now a solid 12 billion per year. Getting that much corn produced each year requires plenty of acres and good yields. We still can’t stand a drought — and we’ve now gone 20 years since the last widespread one in 1988.

USDA increased their prediction for the range of national weighted average farm prices from $3.65-4.15 to $3.90-4.30. The mid-point of that range, $4.10, will be only $0.10/bu. lower than last year on 1.8% increase in year-end stocks/use ratio. Those price and quantity changes suggest steady corn demand.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.