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USDA Bans Downer Cows

The Agriculture Department has announced a ban on cattle too sick or injured to walk from entering U.S. slaughterhouses.

The move comes months after the largest beef recall in American history.

Following a 60-day enhanced surveillance period of how packing plants treat and handle cattle, Agriculture Secretary Ed Schafer announced May 20 that USDA will begin working on a proposed rule to prohibit the slaughter of all disabled non-ambulatory cattle. He says it means the end of exceptions to the so-called “downer rule,” enacted in 2004 after the first U.S. case of bovine spongiform encephalopathy led countries to ban U.S. beef imports.

Current USDA rules allow the slaughter and processing of some downer cattle if they had passed a pre-slaughter inspection.

On April 22, The American Meat Institute (AMI) along with the National Meat Association and the National Milk Producers Federation petitioned USDA to end the option to have a second inspection that could allow healthy but non-ambulatory cattle to enter the food supply.

AMI President J. Patrick Boyle told reporters, “Allowing the current rule to remain in force could ultimately undermine the confidence of U.S. consumers and foreign customers, in markets that are proving difficult to reopen in the first place.”

Pork Industry to Benefit from Farm Bill

The 2008 farm bill – the Farm, Nutrition and Bioenergy Act – approved last Wednesday by the House of Representatives contains numerous provisions beneficial to the U.S. pork industry, according to the National Pork Producers Council (NPPC).

“Our goal going into the farm bill process was to maintain the competitiveness of the U.S. pork industry, which meant increasing funds for vital programs and keeping out any mischief,” explains NPPC President Bryan Black, a pork producer from Canal Winchester, OH. “We accomplished that goal, and the 2008 farm bill is good for producers.”

NPPC supported provisions that will:

  • Change the mandatory country-of-origin labeling law to include four new label categories for meat, including one to address Canadian feeder pigs by allowing flexibility in labeling to help producers and packers reduce sorting losses. The law was also relaxed for verifying an animal’s country of origin by permitting the use of existing records, such as business records, animal health papers and import or custom documents.
  • Require a study to look at the costs and impacts on pork producers and consumers of requiring packers to report wholesale pork cut prices and volumes.
  • Authorize a voluntary national trichinae certification program to certify that exported pork is trichinae-free to help expand pork export opportunities.
  • Approve a Sense of the Congress for the pseudorabies eradication program, recognizing the threat of feral swine to the domestic swine population and establishing continued support for the swine surveillance program.
  • Authorize the U.S. Pork Center of Excellence, which coordinates research, teaching and Extension for the pork industry on a national scale.
  • Authorize research grants to map the swine genome.
  • Authorize research and education grants to study antibiotic-resistant bacteria, including the movement of antibiotic-resistant bacteria into ground and surface water, and to study the judicious use of antibiotics in veterinary and human medicine.
  • Increase funds for the Environmental Quality Incentives Program and make it easier for pork producers to qualify for the cost-share conservation program.
  • Increase funds for the Conservation Security Program to allow more acres to be enrolled, and restructure the program to provide conservation stewardship payments that encourage producers to follow additional conservation practices.
  • Permit the use of manure and manure biogas for advanced biofuel and renewable biomass production.
  • Provide incentives for expanding production of advanced biofuels made from agricultural and forestry crop-associated waste materials, including animal manure and livestock and food processing waste.
  • Give producers the right to cancel production contracts within three days of signing.
  • Allow producers when they sign a contract to opt out of using arbitration and instead use the courts to settle contract disputes.
  • Give producers the right to settle disputes involving production or marketing contracts in the federal district court in which production occurred.
  • Allow contracts between entities in different states to specify which state’s laws apply when disputes arise, unless the laws in the state in which production occurs take precedent.
  • Boost funding for the Market Access Program and the Foreign Market Development program.
  • Direct the Grain Inspection, Packers and Stockyards Administration to give Congress an annual report of the number and resolution of livestock cases brought under the Packers and Stockyards Act.
  • Allow interstate shipment of state-inspected meat and poultry from packing plants that have state inspection programs equal to the federal program.

Provisions of the bill that may have proven harmful, which NPPC opposed and kept out of the legislation included those that would have:

  • Banned packers from owning livestock.
  • Added some unnecessary costs and provisions to what could be included in a swine contract.
  • Established an Office of Special Counsel within the U.S. Department of Agriculture to investigate livestock competition issues, replacing the U.S. Department of Justice’s role in enforcing competition and antitrust matters.
  • Permitted hiring private attorneys to investigate and prosecute livestock competition cases rather than the U.S. government.
  • Eliminated as a defense against lawsuits over alleged unfair competition “justifiable business practice” for pork producers who make rational business decisions based on cost, quality and efficiency.
  • Required onerous on-farm food animal handling and production practices.

The farm bill also lowers the ethanol blender’s credit from 51 cents/gal. to 45 cents/gal. and extends the import tariff on ethanol to Dec. 31, 2010 from Dec. 31, 2009.

NPPC pointed out that extending the 54-cent import tariff on corn-based ethanol further inflates high feed costs affecting pork producers.

“NPPC supports ethanol production,” says NPPC’s Black. “But pork producers still have concerns about corn costs and availability, both of which are affected by ethanol production and about our ability to compete for corn on a level field with the subsidized ethanol industry.”

President Bush is expected to veto the bill because he says it excludes reforms to various farm programs and includes budgetary gimmicks and tax increases.

Expect Congress to Override Farm Bill Veto

It appears that we now have a 2008 farm bill approved by both houses of Congress. The president has promised a veto, but the majorities in both houses were far beyond the levels required to override a veto. Some Republicans may switch sides to support the president, but observers think the override is a certainty. See last week’s North American Preview at www.nationalhogfarmer.com for details on hog marketing impacts.

USDA announced yesterday that it would publish the final rules for the reauthorization of the Livestock Mandatory Reporting Act of 1999 (the enabling legislation for the mandatory price reporting system) on May 15, and that the mandatory reporting systems would once again be in effect in July. Pork packers have reported all of the required data on a voluntary basis since the law expired in September 2005. Kudos to them for doing so, as that has prevented market disruptions and provided us with a usable, continuous series of price and volume data.

The bad news is that we are now 2-1/2 years into a five-year reauthorization. Get set to do this all over again in September 2010. Anyone want to bet on whether any lessons have been learned in Washington?

Pork Exports Stay Strong
Last week’s export data were another shot in the arm for the U.S. pork industry. See Figure 1 for carcass-weight-equivalent export data by destination. Note that Japan returned to its spot atop the list of U.S. pork destinations with a record-high month. March shipments totaled 122.2 million pounds – 23.3% higher than one year ago. It takes a very big number to account for a 23% year-over-year change in shipments to Japan! Year-to-date (YTD) shipments to Japan are up 7.7%.

Exports to China/Hong Kong cooled a bit from their torrid paces of January and February, but were still nearly three times larger than they were in March 2007. YTD shipments to China/Hong Kong are over four times what they were just one year ago!

Russia is the other fast-growing market for U.S. pork – at least in percentage terms. March exports to Russia were 107% higher than last year and YTD shipments now stand at +141%.

Pork trade with Mexico continues to recover. March shipments were 11% larger than last year, leaving YTD trade fractionally higher. Should business with Mexico just remain stable for the next few months, it will be a marked improvement over last year when the volume of shipments plummeted as corn prices rose. It will not take much in terms of performance to improve upon last year from here on out!

Figure 2 demonstrates the role that the weaker U.S. dollar has played in our recent export performance. It shows the U.S. pork cutout value in terms of the Canadian dollar and the Euro.

Relative to these two major competitors, the U.S. cutout value has fallen by nearly 50% since 2004. Part of that decline is comprised of the drop in actual cutout value from $81.89 on May of 2004 to $65.55 in April 2008, the last observation in the graph. That decline, though, is only 20%. The remainder is accounted for by the change in currency value.

It doesn’t take a Ph.D. economist to know that selling something is a lot easier when the price is lower. U.S. producers and packers are definitely benefitting from that fact now. The challenge will be to use this opportunity to build business relationships to the point that they will endure on the day when the dollar strengthens and we no longer enjoy such an advantage.

When will the dollar strengthen? Probably when energy prices abate. Note, I did not say, “When energy prices go back to where they were,” since I doubt that is ever going to happen. Some decline in oil prices, though, would mean far fewer dollars flowing out into the world economy and, thus, would increase the value of the dollar relative to other currencies. A reduction in the federal budget deficit would also help, but I don’t hold out much hope of that regardless of who wins the White House this fall.

On May 3, Warren Buffet told the annual meeting of his investment firm, Berkshire Hathaway, that he expects the dollar to remain weak for most of the next decade. I was a bit shocked by that, but I have to admit that Warren has been right many, many times in his career. I respect track records greatly, so I have to put some credence in his statement.

If true, Buffet’s prediction is good news for pork producers and not very good news for anyone planning foreign vacations.




Click to view graphs.

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

Colorado Bans Sow Stalls

In a move that was reportedly supported by the state’s livestock industry and animal welfare groups, Colorado Gov. Bill Ritter signed into law SB 201 on Wednesday, May 14.

The legislation phases out stalls for gestating sows over 10 years and stalls for veal calves over four years.

The measure won overwhelming support with the House approving it 59-4 and the Senate approving it unanimously.

“This legislation is proof that humane groups and agriculture interests can work together to find common ground and move toward better treatment of farm animals,” observes Bernard Rollin, distinguished professor of philosophy at Colorado State University.

The Humane Society of the United States has withdrawn a ballot initiative petition on the same subject, which would have also phased out the confinement of egg-laying hens in battery cages.

For its part, the Colorado Pork Producers Council (CPPC) announced last December its members would voluntarily begin to phase-in group housing for pregnant sows on their farms over a 10-year period.

There are 750 swine operations in Colorado and more than 90% of the sows in the state will be affected by these animal management changes, according to Ivan Steinke, executive director of the CPPC.

PRV Detected in Michigan Is Under Control

The pseudorabies (PRV) virus has been diagnosed on a game ranch in Saginaw County, MI, according to the Michigan Department of Agriculture (MDA).

The virus was detected as a result of laboratory testing. No clinical signs have been detected. No commercial facilities were known to have been exposed to the virus and depopulation of the game herd is underway.

Feral swine adjacent to the game ranch have also been confirmed positive for PRV. As a result of these findings, the MDA has instituted circle testing of swine within a five-mile radius of the outbreak.

MDA encourages Michigan residents to shoot feral swine and to have MDA test the carcass for disease.

Michigan is expected to retain its PRV-free status as long as commercial operations remain free of the virus.

Pork’s Part in the Farm Bill

The 2008 farm bill continues to slog through Congress. The bill is still in conference committee where conferees from both houses are trying to work out the differences between their two versions. If and when those differences get ironed out, the conference report will go back to both houses for an up-or-down vote with no amendments allowed.

There are still some substantial differences in the two versions, primarily revolving around funding and what many view as “juggling the books” to make the costs and revenues work. It does not appear that the Bush administration is buying much of that. A veto threat still hangs over the entire proceedings.

The farm bill contains several features directly related to hog and pork markets and marketing. They include:

  • Changes in mandatory country-of-origin labeling (MCOOL).

    • Provision for a multi-country label that would cover animals that originate in Canada and are slaughtered in the United States. Product from any animals born in Canada, whether they were fed in Canada or in the United States would be labeled “Product of Canada and the United States.” There is some flexibility in how the rules (i.e. the actual operating instructions of the law) will be written, so it is not completely clear what the labels will say or just how much flexibility will be provided for packers, processors and retailers.

    • Provisions for a “May contain product from ____“ label on ground meat, where all of the countries from which product may reasonably come are listed. This is a big deal for ground beef.

    • MCOOL verification records limited to those kept in the “normal conduct of business.”

    • A hard date to establish animals from which product may be labeled “Product of the United States.” The trouble is that this currently reads Jan. 1, 2008. It is very likely that conferees will change this date – probably to July – due to the delays in getting the bill through.

  • A provision to fund a study of mandatory reporting for wholesale pork cuts. The small percentage of pigs (around 10%) for which prices are negotiated each day has driven interest in improving the quality of USDA hog cutout value – which is based on wholesale pork cut prices. The problem is that the voluntary system for wholesale pork reporting has resulted in low reporting of an already thinly traded market. The Secretary of Agriculture has the authority to do this. The Farm Bill just calls for a study. Many in the industry think this should be used to lay the groundwork for a system similar to that being used for beef.
There were also a couple of items that were omitted in the Senate version of the bill. Most notable is the deletion of the ban on packer ownership, which has long been championed by Senator Charles Grassley (R-IA). Producers have differing opinions on this topic, but I believe a large majority opposed it due to the very real possibility that the provision would have been used to outlaw marketing contracts. This is the second time that Senator Grassley and his colleagues in the Senate have put the provision in a Farm Bill and the second time that it has been taken out in conference.

The second item deleted was a change to the mandatory price reporting system that would have delayed the afternoon reports. The idea was promoted as a way to capture a larger proportion of the hogs priced on a given day in order to reduce the possibility of manipulating prices, especially on formula-priced pigs. No one knows just how much the delay might have accomplished, but I believe the gain would have been small.

Rules to enact the mandatory price reporting system changes made in 2006 will apparently finally be published – maybe. The system was reauthorized in October 2006 for a 5-year period, so by the time the rule is published, the effective period will be down to less that 2.5 years. The deadline for packers to report prior-day slaughter data will be changed from 7 a.m. to 9 a.m. No change will be made for prior-day purchase data since those data are more critical for knowing the current market situation. In addition, the definition of a pork packer will be changed to expand the coverage of those that slaughter sows and boars.

John Reddington, vice president of the American Meat Institute (the meat packers’ trade association) told attendees at the National Pork Board’s Pork Management Conference that the export situation with Russia might get worse. Russia delisted four U.S. plants the week before last for allegedly excess residues of tetracycline. The announcement came the day before Russian officials left on Easter holiday. They will return on Monday and there are rumors that up to 12 more plants will be delisted.

One problem is that U.S. officials do not know the levels of tetracycline actually found by Russian inspectors as no one has been in Moscow to tell them. Russia’s tolerance level for tetracycline is very near zero. All we currently know is that some greater level was apparently detected.

I commented last week that I wasn’t worried about this situation unless it spread to more plants. Delisting four plants leaves plenty of opportunities to ship pork to Russia. Delisting 16 plants will be much more problematic. We need exports to keep humming along!



Click to view graphs.

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

The 2008 Masters of the Pork Industry

The Masters of the Pork Industry are a special, hand-picked group of pork industry visionaries.

Their personal stories and business philosophies provide insight into their respective segments of the U.S. pork industry.

They are professionals, entrepreneurs, industry leaders and family men. Their visions for this dynamic industry will inspire young and old.

Each shares the life experiences, the bumps and bruises, the inspirations that have carried them forward in a pursuit of excellence.

Randy Stoecker
The Waldo Family
Philip Bradshaw
Larry Rueff
James McKean
Gary Machan
Wayne Singleton

Coping with High Feed Costs

Years of operating in a hot cash grain market may have helped prepare Strawn, IL, pork producer Art Lehmann to better cope with today's high input costs.

“Because we've had higher-priced corn than in areas like western Iowa all along, I think we've learned to adapt to a little higher feed cost,” he says.

Lehmann trims costs by packing finishing rations with grain alternatives such as distiller's grain, bakery waste, pet food, granola bars, cereal — “whatever we can get our hands on,” he says.

But before a prospective ingredient makes it into a ration, Lehmann's nutritionist (and son-in-law) Matt Steidinger analyzes each item on a cost-and-nutrient basis. “It has to be economical and it has to be nutritionally sound,” he says.

Lehmann has also dropped his target market weight for hogs by about 10 lb. in recent months in an effort to improve feed efficiency. And he is also culling more aggressively. “We are trying to eliminate any poor pigs early so we are not wasting feed,” he says.

Using the futures market to hedge prices is another protective measure. “We are paying more for corn than we'd like to pay, but we aren't paying the cash-quoted market prices because of our hedges,” Lehmann says. “Likewise, we are not taking the price being offered for hogs right now, because we've got hogs forward contracted and sold on the futures market and the futures market has offered some higher prices.”

But Lehmann is also aware that the benefits of hedging could diminish unless pricing forecasts change. “We are 100% hedged for 2008 and 2009, but the (hog) futures market doesn't offer the attractive pricing opportunities today that it offered a couple of years ago,” he says.

Growing Number of FFA'ers Want to Farm

An increasing number of Iowa Future Farmers of America (FFA) members actually want to farm, raise livestock and live and work in Iowa after completing their education.

A survey of 586 FFA'ers, conducted by the Coalition to Support Iowa's Farmers (CSIF), emphasizes the drawing power of agriculture in helping Iowa retain skilled young people, while reinforcing the importance of high school vocational agriculture programs.

In the survey, students said they want to farm after completing their education; that's up 11% from 2006.

Of those respondents, 45% said they want to both grow crops and raise livestock, while 22% want to raise livestock in conjunction with off-farm employment. Seventeen percent want to manage a full-time livestock farm.

“The number of FFA members wanting a career in agriculture is significant, considering that nearly one of every three students who participated in the survey don't live on a farm,” says state FFA advisor Dale Gruis. “Yet they see farming or an ag-related career as an exciting career opportunity. That bodes well for Iowa.”

Startup costs were the biggest concern (44%), followed by risk and price volatility (26%), labor requirements (12%), regulations (8%) and fear of opposition to growth (7%).

Illinois profile

Despite some dips in production during the last few decades, Illinois showed a bit of a resurgence in recent years and retained its 4th ranking in U.S. pork production.

There were 2,900 hog farms in Illinois last year, based on March 2008 USDA data. The rise in sow numbers is depicted in Figure 1 below.

Illinois sold 7.9 million market hogs in 2006.

Illinois currently has 1,191 producers and allied industry partners, says Illinois Pork Producers Association Director of Public Relations Tim Maiers.

The state ranks second in corn and soybean production, based on statistics for 2006. Illinois hog production alone uses 70 million bushels of corn each year.

Pork contributes $1.9 billion to the State's economy. Pork generates more than $136 million in taxes. Pork supports the creation of 7,833 jobs in Illinois and 800,000 jobs across the United States.

Read more about Illinois pork producers and industry partners in the following pages.