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Articles from 2016 In May

Effective margin management begins with a thoughtful plan

Effective margin management begins with a thoughtful plan

Many hog operations have expressed quite a bit of concern about the future outlook of the market given expectations for increased hog slaughter and pork production later this year against a backdrop of questionable demand.  While year-to-date federally inspected pork production is currently running about 0.7% below a year ago, and the USDA’s most recent quarterly Hogs and Pigs report indicated reduced farrowing intentions for the March-May and June-August periods relative to 2015, there remains concern that the market will be potentially oversupplied this coming winter.  There has also been discussion that shackle space could become an issue given current slaughter capacity ahead of new facilities coming online in 2017. 

On the demand side, pork exports year-to-date have been strong and many have pointed to the disparity between the prices for hogs in the U.S. versus China; however, the outlook going forward is less certain.  There will be quite a bit of competition from cheaper beef and chicken as grills heat up this summer in the domestic market.  Meanwhile, the Federal Reserve appears committed to maintain their monetary policy of gradual tightening with further rate increases beginning as early as June which could rekindle strength in the U.S. dollar.  The hog market remains very sensitive to and dependent on pork exports, as over 20% of total production now goes to this market.  Renewed dollar strength in combination with slower global growth would certainly not be a welcome development.

Manage risk

Amidst all the uncertainty, hog producers remain exposed to risk that needs to be managed.  Looking at this risk from a margin perspective, the reality is that there has not yet been a favorable opportunity to secure attractive margins in Q4.  Projected returns for a model finishing operation have remained both below break even and below average from a historical perspective when looking back over the previous 10 years (see Figure 1)

From a profitability standpoint, there would not have been a financial incentive to protect Q4 risk yet as margins have not really triggered the call to action that would typically invite forward contracting or positions on the exchange.  What other factors may potentially trigger a producer to protect hog margins besides projected profitability?  One might take into account seasonal considerations.  For instance, when approaching risk from a margin perspective, are there certain times of the year that might prove more favorable for contracting compared to others – regardless of where forward margins are being projected?  Figure 2 displays the seasonality for Q4 margins over the past 10 years.  What this graph shows is that the early spring period from March to mid-April tends to correspond with a seasonal high for Q4 margins ahead of a gradual deterioration into the summer.  A producer factoring this consideration into their margin management plan may therefore wish to establish some protection for Q4 in this time frame, regardless of the actual level of margins being projected.

For Q4 2016, while projected margins back in the spring would not have triggered a producer to establish protection based on profitability projections or historical percentiles, our clients nonetheless did choose to protect margins in this timeframe as their comprehensive margin management plans incorporate seasonality in the decision making process.  As it turns out, Q4 margins have deteriorated since then due entirely to rising feed costs as Q4 hog prices have held relatively steady since early March.  This brings about another point.  Much has been made recently and attention focused on risk to hog prices based on the aforementioned factors.  Less attention has been paid (until quite recently) to the cost of feed in the margin equation.  Very few people were able to foresee the 50% rally in soybean meal prices that has unfolded since early April.  Corn prices likewise are about 50 cents above their lows to go along with the $100/ton plus increase in meal prices. 

The fact of the matter is that no one knows where the market is going or what factors may contribute to margin deterioration; however, a good comprehensive plan incorporates all aspects of a producer’s risk including input costs.  A thoughtful plan also allows for other considerations besides historical percentiles or nominal margin levels to define the decision making process.  With any plan, it is also important to stay consistent in your approach.  This helps smooth our year-to-year volatility so that you can achieve your goals and objectives over the long-term.  

Holiday trade dulls hog market action

Holiday trade dulls hog market action

According to Ron Plain, University of Missouri agriculture economist, the peak in hog prices may come early this year. Hog slaughter is running under the level implied by the March Hogs & Pigs report. Plain says, “If those smaller-than-expected marketings turn out to be delayed marketings, then summer hog slaughter may be heavier than expected and prices lower than hoped for.”

Last week was the typical light volume, holiday trade lacking excitement in the hog market complex. The weekly export report from the USDA shows pork exports slowing down. However despite the bearish news, the futures rallied with July and August contract climbed to their 40-day moving averages whereas the June has already closed above this mark last Friday. Higher future settlement in front of holiday is constructive for the hog market complex, explains Dennis Smith, Archer Financial Services.

In April, pork packer margins were excellent however as the calendar turned to May they have drifted lower but remain positive.  Last week, the pork packer margins turn a corner, showing improvement.  Cash hogs recorded their eighth day of losses while cash pork is close to its peak for the year. As result the gap between cash hogs and cash pork is widening significantly. Increasing value of byproducts is one reason packers are paying up for hogs.  As long as margins remain positive, packers will buy hogs aggressively. 

Cold Storage report

Overall, total red meat supplies at the end of April were up slightly from the previous month but 8% lower than last year.   “The report indicated that supplies of meat in cold storage remain plentiful and should help keep meat price inflation in check over the summer months”, writes Steve Meyer and Len Steiner in the Daily Livestock Report.

The monthly USDA Cold Storage report shows total frozen pork stocks for the end of April in line with the normal trend at 635.4 million pounds, 9.4% lower than previous year.  The only negative number was ham inventories.  Total hams in cold storage penciled at 130.2 million pounds, 35% higher than previous month and 4.4% above last year. As Meyer and Steiner points out, the larger inventory of ham is probably a reflection of the early Easter Holiday.  Pork bellies frozen stocks also grew 11.6% from the previous month levels.  Meyer and Steiner states, “The increase in belly stocks appears to have been a precursor of the value erosion we observed in May and indicates that packers are finding demand for bellies a bit softer than they expected”.

In comparison, total pounds of beef in freezers were down 3% from the previous month and down 7% from last year. Total frozen poultry supplies on April 30, 2016 were up 4% from the previous month and up 4% from a year ago. Total stocks of chicken were up 2% from the previous month and up 5% from last year. Total pounds of turkey in freezers were up 8% from last month and up 1 percent from April 30, 2015, reports USDA.

Livestock groups focus on TPP, GIPSA at hearings

Livestock groups focus on TPP, GIPSA at hearings

The outlook for the livestock, dairy and poultry industries was the focus of the Senate Agriculture Committee and the House Agriculture Livestock Subcommittee hearings last week. The witnesses representing the pork, beef and poultry industries focused on which policies and legislation offered opportunities and challenges for the various sectors.

The Trans-Pacific Partnership and USDA’s potential Grain Inspection, Packers and Stockyards Administration rule were at the top of the list. The National Pork Producers Council said that government policies can either offer opportunities or pose challenges to pork producers. NPPC said the TPP trade agreement could provide positive opportunities for pork producers, representing for the U.S. pork industry the biggest commercial opportunity ever negotiated and urged Congress to quickly pass TPP.

A major concern of NPPC is USDA’s plans to move forward on the GIPSA rule. NPPC is very concerned that USDA’s GIPSA rule will be “too expansive, limiting farmers’ ability to sell animals, dictating the terms of private contracts, making it harder to get farm financing, raising consumer prices and reducing choices, stifling innovation and leading to more vertical integration in the livestock industry.” USDA’s 2010 proposed GIPSA rule would have cost the U.S. pork industry $330 million annually, according to NPPC.

The National Cattlemen’s Beef Association urged Congress to pass TPP to help level the playing field. Currently Australia has a 10% tariff advantage in the Japanese beef market. The Japanese tariff for U.S. beef is 38.5% and the tariff rate for Australia is 28%. With the passage of TPP the tariff rate would be the same for both countries and would continue to decrease to 9% over 16 years. If the United States fails to pass TPP, the tariff rate advantage for Australia would continue to grow. According to NCBA, TPP would increase beef exports by nearly $1 billion.

NCBA opposes USDA’s GIPSA proposal saying it would take away a producer’s ability to market cattle the way they want to and would make USDA the “ultimate arbiter” of how cattle are marketed. However at the Senate hearing, the U.S. Cattlemen’s Association said that the Packers and Stockyards Act needs to be modernized. 

House committee passes child nutrition bill with block grant pilot program

House committee passes child nutrition bill with block grant pilot program

On a party-line vote, the House Education and Workforce Committee passed the “Improving Child Nutrition and Education Act of 2016” which reauthorizes child nutrition programs including school breakfast, school lunch and summer feeding program.

The bill tightens the “community eligibility” provision that allows all students in high-poverty areas to receive free school meals. It would require USDA to conduct an immediate review of school meal standards including whole grain standards and the limits on sodium. This review would be conducted every three years.

One of the most controversial items in the bill is a block grant pilot program for school meals in three states. This provision is strongly opposed by the School Nutrition Association which said, “The block grant pilot is the opening salvo in an aggressive, alarming attack on the future of school meals. The provision opens the door to a broader effort to block grant school meal programs nationwide.”

According to the NSA, the block grant program would reduce funds for school meal programs and nullify federal mandates, including student eligibility rules for free and reduces meals and nutrition standards. The administration has threatened to veto the bill. If the bill passes the House it will not meet success in the Senate in its current form. The Senate Agriculture Committee earlier this year passed a bipartisan child nutrition bill that received support from the SNA, American Heart Association and the administration.

USDA makes $130 million available for viable plant and animal production systems

USDA makes $130 million available for viable plant and animal production systems

USDA announced that it is making $130 million in funding available for education, research and Extension projects to support sustainable, productive and economically viable plant and animal production systems.

The funding allocations for the various research areas are:

► $31 million for animal health and production and animal products;

► $33 million for plant health and production and plant products;

► $19 million for food safety, nutrition and health;

► $14 million for bioenergy, natural resources and environment;

► $11 million for agriculture systems and technology; and

► $17 million for agriculture economics and rural communities.

Secretary of Agriculture Tom Vilsack said, “Investing in agricultural research ensures that our farmers and ranchers have innovative, safe and sustainable management practices to meet the food needs of the rising world population. In addition, studies have shown that every dollar invested in agricultural research now returns over $20 to our economy.”

The funding is made available through the Agriculture and Food Research Initiative which is administered by the USDA’s National Institute of Food and Agriculture.

House, Senate are on Memorial Day recess

The House and Senate are in recess this week. 

Porcine parainfluenza virus type 1: Member of the porcine respiratory disease complex?

Porcine parainfluenza virus type 1: Member of the porcine respiratory disease complex?

Respiratory disease is a major health concern in swine production in the United States. Several viruses play a role in the porcine respiratory disease complex including porcine reproductive and respiratory syndrome virus, influenza A virus and porcine circovirus type 2, although infections often involve more than one of these respiratory pathogens.

The Iowa State University Veterinary Diagnostic Laboratory received submissions of respiratory disease from pigs demonstrating lethargy, coughing and sneezing with microscopic lesions consistent with bronchointerstitial pneumonia. Lung tissue also exhibited bronchiolitis with bronchiolar epithelial necrosis, a common lesion caused by infection with influenza A virus.

Lung tissue, nasal swabs and oral fluids were polymerase chain reaction-negative for pathogens commonly associated with respiratory disease in pigs prompting further investigation. Additional diagnostics using broad genus-level PCR assays detected a sequence with genetic similarity to a porcine parainfluenza virus type 1 reported in Hong Kong suggesting an association between this Paramyxovirus and respiratory disease in swine.

Paramyxoviruses are pathogens known to infect humans and livestock species including swine. The proposed porcine parainfluenza virus type 1 belongs to the genus Respirovirus in the subfamily Paramyxovirinae within the family Paramyxoviridae. In 2013, PPIV-1 was reported in nasopharyngeal samples collected from slaughterhouse pigs in Hong Kong, China. Yoon reported finding cases in the United States in March 2013 using a broad genus-level PCR assay.

Although diagnostic laboratories have detected PPIV-1 in diagnostic samples, information regarding the epidemiology, transmission, lesions and clinical disease associated with PPIV-1 is lacking. However, the utility of metagenomics and next generation sequencing has increased our ability to detect unknown viruses and accumulate sequence information to improve diagnostic capabilities.

PPIV-1 has been detected in oral fluids, nasal swabs and lung tissue by PCR. The ISU VDL recently performed PPIV-1 PCR testing that was done on samples collected in February-to-April of 2016 and found that 38% of samples tested were positive for PPIV-1 (Figure 1).

The vast majority of these samples are oral fluids and nasal swabs. Most of the samples did not have the ages included, but a visual assessment of the data would indicate that most of the positive samples were found anywhere from 2 to 15 weeks of age. This would seem to corroborate published and anecdotal reports of finding PPIV-1 late in lactation (nagging cough in the piglets in the last week of lactation) or early in the post-weaning phase where influenza A virus has been ruled out, but had lesions that would be consistent with influenza.

Figure 2 shows the distribution of states where the PPIV-1 PCR positive samples were found, and it clearly shows that the virus appears to be widespread throughout the swine industry, since it was located in 22 states in this small dataset. Although the virus appears to be fairly prevalent, an analysis of the cycle threshold values do not seem to indicate the virus is present in high quantities (high CT values), although this would certainly be influenced by the sample type (Figure 3).

A recent report from Kansas State University used in situ hybridization to demonstrate PPIV-1 genetic material in nasal turbinate and to a lesser extent in trachea suggesting the virus replicates in the upper respiratory tract. Unfortunately, clinical disease and lung lesions associated with PPIV-1 have not been thoroughly reported due to the lack of controlled experiments. Attempts to isolate the virus have been unsuccessful to date precluding the ability to evaluate PPIV-1 through experimental infection. However, detection of the virus by PCR in diagnostic submissions suggest the virus is widespread in the swine population.

Remember why you get Monday off

Memorial Day is the unofficial start of summer, the time to hit the lake and to make the grill work overtime. This weekend I hope you are able to enjoy it by grilling up some hot dogs, pork chops, and OK, even a burger, since May is Beef Month. Just be sure to throw on a couple strips of bacon to top off that burger — it is a holiday after all.

While we’re all enjoying the long weekend, let’s not forget the real reason that we get Monday off (of course, hog farmers never get a day off). We get Monday off because some people, all too many, took off for lands far away and gave the ultimate sacrifice, their life for the ol’ red white and blue.

I’m fortunate to not have lost any friends to war, and the only family member I’ve lost was my grandmother’s brother Bud during World War II, the second war to end all wars. Though I never knew Bud, and have not lost anyone closer to me, I still hold Memorial Day in high regard.

The true meaning of Memorial Day has been lost over time. To many it’s a Monday holiday that kicks off summer. To many retailers it is a chance to pull out their red, white and blue buntings to promote great sales.

Memorial Day originated in the years after the Civil War, and was originally known as Decoration Day to pay homage to the men and women who died while serving in the U.S. military. May 30 had been set aside as the day of remembrance until 1971 when the last Monday in May became the official federal holiday. I think we should get an extra day off since this year’s Memorial Day meshes the historical and the more-modern day of observance.

Our family always marked Memorial Day by taking flowers to the graves of my great-grandparents and my brother, so I thought the day was set aside to remember all who have passed on. Though it is important to always remember our loved ones who have gone before us, it is most important to remember and honor the memory of those who wore a military uniform to protect our country.

Giving their lives so we can take a day off in late-May deserves more than a cookout or a 45% off sale. Remembering our fallen, family or not, should not be taken lightly. Their ultimate sacrifice allows us to have those liberties of a Monday afternoon grilling session and a relaxing boat ride.

Enjoy your freedom this long weekend, and thank a soldier who made it all possible. 

Maschhoffs respond to alleged abuse video

Maschhoffs respond to alleged abuse video

Swift and strong action is the best way to offset a negative situation, and the Maschhoffs did just that in the aftermath of a video released earlier this week by the Animal Legal Defense Fund that depicted alleged animal abuse in one of the company’s Nebraska sow farms.

“As animal caregivers with a long-standing history of excellent animal welfare, we are appalled by the level of animal care depicted in the video at this sow farm,” says Maschhoffs President Bradley Wolter in a statement issued today. “We are aggressively implementing improvements that will help to ensure excellent animal care every day and on every farm, and prove our ongoing commitment to the responsible and humane care of our animals.”

The Maschhoffs has zero tolerance for any abuse or intentional mistreatment of its pigs, and is dedicated to achieving high standards of care consistently and without exception at its farms.

In Friday’s statement, the company outlined actions addressing the situation to ensure all standards of animal care are being met across its network of Nebraska sow farms. Specifically, the company:

► Has terminated the employment of the farm manager at the sow farm in the video;

► Is conducting a series of independent audits at its Nebraska sow farms to ensure all animal care standards are being met;

► Is immediately conducting extensive re-training on proper animal care and handling practices across the company’s entire farm network, with specific focus on the Nebraska area;

► Is launching an intense, internal communications effort to ensure all employees fully understand their obligations to adhere to as well as report any instances of animal abuse and neglect; and

► Has done an exhaustive review of the video and its animal welfare records from the facility to identify issues and critical improvements.

Combined, the company believes these efforts will help ensure that its high standards of animal care are being met on every site across its network of farms. The company is concurrently increasing internal control measures and third-party audits to validate its high standards of care.

“We are committed to achieving high standards of animal care consistently and without exception at our farms – for the benefit of our animals and customers,” Wolter says in the statement.

The video in question was released May 25, and that same day, Hormel Foods which receives hogs to be processed from The Maschhoffs, issued a statement suspending that supply chain.

In the statement, Hormel Foods said, “Hormel Foods has a strict supplier code of conduct and policies relating to animal care. We will not tolerate any violation of these policies. As such, we have issued a suspension of all the Maschhoffs LLC Nebraska sow operations while a thorough investigation is completed. Hormel Foods Corp. has dispatched certified third-party auditors to these Nebraska farms and to additional Maschhoffs sites to verify our animal care requirements are being adhered to. We expect, and have been assured, that the Maschhoffs LLC will cooperate with authorities in any criminal investigation or prosecution.”

According to The Maschhoffs website, the company is the largest family owned hog producer network in North America, headquartered in Carlyle, Ill. The company has more than 100 years of experience in hog production, with about 218,000 sows and associated market hog production in 10 states. The company, which has approximately 1,300 employees, focuses on creating environmentally and economically sustainable hog production systems by networking with nearly 550 other independent farm operations.

Agriculture Secretary Vilsack to make first official visit to Puerto Rico

USDA Secretary Tom Vilsack will make his first official visit to Puerto Rico next week
<p>USDA Secretary, Tom Vilsack, will make his first official visit to Puerto Rico next week.</p>

Agriculture Secretary Tom Vilsack will make his first official visit to Puerto Rico where he will highlight the USDA’s ongoing commitment to addressing food security and rural opportunity in the Commonwealth. While in Puerto Rico, Vilsack will meet with various officials from the Commonwealth; visit a National Forest research station; engage local farmers and ranchers; convene a group of financial leaders focused on finding opportunities for rural investment; and make several important announcements to address food security and rural development.

Vilsack is the latest senior Obama administration official to travel to Puerto Rico, following visits from Secretary of the Interior Sally Jewell, Secretary of Health and Human Services Sylvia Burwell, Secretary of the Treasury Jack Lew, Secretary of Transportation Anthony Foxx, Secretary of Veterans Affairs Robert McDonald, Secretary of Housing and Urban Development Julian Castro and Secretary of Education John King earlier this year to urge action by Congress to provide Puerto Rico with the tools it needs to address the crisis, restructure its debt, support reform and enable growth.

While in Puerto Rico, Vilsack will meet with staff from seven USDA agencies working in the Commonwealth: Animal and Plant Health Inspection Service; Agricultural Research Service; Farm Service Agency; Food and Nutrition Service; U.S. Forest Service; Natural Resources Conservation Service; and USDA Rural Development. Since 2009, USDA has invested more than $20 billion in Puerto Rico across various programs, including nutrition, infrastructure, housing, farming and ranching, conservation and forestry, and research.

On June 1, Vilsack will meet with Gov. Alejandro García Padilla, Senate Majority Leader Eduardo Bhatia, and Speaker of the House of Representatives Jaime R. Perelló Borrás. Later that day he will tour the U.S. Forest Service Sabana Field Research Station and El Yunque National Forest to highlight USDA’s key research initiatives in the Caribbean Climate Sub Hub. USDA has established a network of seven regional Climate Hubs and three Sub Hubs to support applied research and provide information to farmers, ranchers, advisers and managers to inform climate-related decision making and region-specific adaptation strategies.

On June 2, Vilsack will highlight Puerto Rico’s growth potential and announce a series of additional federal investments in Puerto Rico’s future. The day will begin with a meeting of farmers, ranchers, producers and agriculture-related businesspeople to gauge the needs and opportunities of Puerto Rico’s agricultural sector. Vilsack will then convene a meeting with a dozen investors, financial leaders, economists and entrepreneurs to discuss rural economic opportunity and the potential to leverage public and private resources in a more integrated and coordinated way in the Commonwealth to create a brighter future for its residents.

Since 2006, Puerto Rico and the 3.5 million American citizens who call the Commonwealth home have endured a decade-long recession and are facing a serious crisis that requires immediate congressional action. Fiscal conditions have contributed to record numbers of citizens leaving Puerto Rico for the mainland. The Obama administration has worked extensively with Puerto Rican officials to find solutions to the Commonwealth’s fiscal crisis. However, only Congress has the authority to provide Puerto Rico with the necessary tools to address the crisis and to lay the foundation for the Commonwealth’s recovery, and Congress must act now.