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Articles from 2009 In June


No Relief in Pig Crop Report

Last Friday’s quarterly Hogs and Pigs report did little to allay fears that the North American pork industry is in for another year of economic difficulty. As has been the story in most recent reports, any reductions of productive capacity being made by U.S. producers are being almost simultaneously offset by rising productivity.

The key numbers from the USDA report appear in Table 1. Note that virtually all of the numbers are very close to analysts’ pre-report estimates, published last week per a survey by DowJones. Anything within 1% is usually deemed “as expected” and likely to be neutral for Lean Hogs futures. Early trading on Monday indicates that the market was a bit surprised by the size of the fall pig crop (down only 0.1%) and somewhat disappointed that the breeding herd was not lower – even though I don’t know how current data could have suggested a significantly lower breeding herd.

The only numbers that were a bit of a surprise relative to expectations were the 180-lb.-plus inventory figure at 99.9% of last year and the March-May average litter size of 9.61 pigs, up 2.5% from last year.

I was not surprised at all by the 180-plus number since it agrees quite well with June slaughter after adjusting for fewer Canadian market hogs. I thought the average pre-report estimate was low all along as it did not agree with June slaughter.

Litter Size Continues to Climb
The magnitude of the growth in litter size has been truly amazing over the past two years. Figure 1 shows average litter size on a quarterly basis from 1984 to present. As can be seen, the past eight quarters have seen the fastest growth on record, rivaled only by litter size growth in 1994 through 1997. The difference in these two time periods, of course, is that the mid-’90s growth was driven by massive structural change in the U.S. industry. More efficient, specialized and generally larger sow units were replacing geographically dispersed farrowing operations that were, in many cases, parts of diversified farming operations. Sows from specialized maternal lines under fulltime, professional management simply performed better than sows from traditional rotational breeding systems managed by producers who had to divide their time, expertise and talents among several, often-competing, enterprises.

From what I hear from some of the industry’s leading consulting veterinarians, it is no accident that the recent increase in litter size coincides with the advent of circovirus vaccines. Even with the periodic porcine reproductive and respiratory syndrome (PRRS) outbreak or a bout with true swine influenza, hog herds are simply healthier than they have ever been – and it shows. In addition, the ton or so of feed that a sow consumes each year now costs 20 to 30% more, providing a stronger incentive to save more pigs. Finally, the move to later weaning ages led to larger subsequent litters. Add it up and the increases in litter size are offsetting much of the reduction in the breeding herd – and pig survival rates are more than offsetting the remainder of breeding herd reduction.

Price Forecasts
Tables 2 and 3 show forecasts for supplies and price based on Friday’s report – and the picture is not pretty. Modest reductions in slaughter are coming, but much of it is driven by fewer imported market hogs and feeder/weaner pigs from Canada. At present feed costs (and those implied by corn and soybean meal futures), none of the quarterly prices in Table 3 are profitable. Q2-’10 Lean Hogs futures are very close at present, but this report will, perhaps, put more pressure on summer 2010 futures.

Some of the forecast numbers have likely changed since this survey was done in early June. The first 10 days of June saw a huge selloff in Lean Hogs futures and the continuing struggles of pork cutout values and cash hog prices finally, I think, got some producers thinking seriously about cutting sow numbers or exiting the business. Cull sow prices have fallen by 30-40% as sow offerings have increased.

Sow processors are taking more sows, but the pace of the reduction will be dictated by how well sow products like breakfast sausage, brats, etc. move to consumers. Prices of these products will decline some, but remember that many of these are branded, value-added products whose prices carry significant quality connotations. One doesn’t destroy many years of value-building by using fire sale prices, so these companies will be careful about how to use price to sell more product regardless of how badly some of us may want to ship some sows.




Click to view graphs.

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

Losses Continue to Mount

I looked back at some of my previous columns that I had written for National Hog Farmer’s Weekly Preview, and I find myself growing tired of even writing about the continued losses that the industry is experiencing. When the price for hogs is sitting at close to $57/cwt., carcass, pork producers are receiving about $114 a head for their hogs, while their cost to raise hogs is close to $140 a head. This equates to a $25 per head loss, and as you look forward, there are no profits in sight on the futures market until the middle of 2010.

In addition, pork cutout value is actually running below that of cash prices. Cutout value on June 24 was at $53.44, almost $2.50 below the cash price for that date. There’s no doubt that everyone in the pork industry is in need of some financial relief – but so far there does not seem to be any sign of relief in sight.

PRP – Sow Liquidation
The PRP or Producer Relief Program came to an end last week due to a lack of people willing to fund the program. Unfortunately, with the current economic stress facing the pork industry today, most producers are not willing to part with any cash because of the need for them to preserve every ounce of liquidity for their operation. I absolutely understand this position and respect producer’s decision of not wanting to fund the PRP at this time.

There is a common belief in the pork industry today that the sow liquidation will occur automatically and thus, rectify the current situation. I think it is wise to spend some time in this week’s column looking at currently sow slaughter data, showing where sow numbers are at today, and what the pork industry needs to do going forward to achieve a reduction of 300,000 sows in the United States.

Attached is a chart that shows the level of sow slaughter through the week of June 2, 2009. We are currently, for 2009, at 164,000 sows below a year ago. For the year, this equates to an average of 387,600 less sows being processed than a year ago. I do believe that we will see higher numbers going forward, but now let’s review some important numbers contained in the chart.

The top line in the chart represents 2008 sow slaughter numbers. During the last 30 weeks of 2008, we had very close to 1,987,000 sows that went to slaughter. That is an average of 66,260 sows per week. (There is also four holiday weeks in this equation) If everyone agrees that the pork industry needs to cull 300,000 sows in order to have an opportunity to return to profitability, that means producers would need to send 76,260 sows to slaughter per week (10,000 sows more than last year). I believe this is the number that the industry needs to look at and meet. My concern is that I am not sure if our packing industry can comfortably slaughter and process that many sows per week. I also just talked to a sow buyer this week who says he is actually short on sow slaughter numbers.

The bottom line is we in the swine industry have a supply problem – and it is not going to go away right away. The swine industry needs to address this issue and take bold steps to confront a two-fold problem. The first problem is an oversupply of hogs and the second problem is our product is undervalued.

Value Price for Pork – Prices on the East Coast
I just returned from a vacation trip to the Boston area and I went to the supermarket to look at where retail pork prices stand. There were no “big” specials on pork products anywhere. In fact, from a value standpoint for this week, chicken was being featured much more than pork. In looking at the prices, I saw baby back ribs at $2.99 a pound and boneless chicken breasts at $1.99 a pound. There were no other real specials on any other pork items.

In my view, it seems that retail margins for pork products in this store were very large. The question I have is: What are we doing to educate the retailer that this industry is under tough financial times, and what can we do to establish a much fairer value for our product to get people to eat more pork? This may have been an isolated incident, but when you see the large population that exists on the East Coast, and you see the prices at the supermarket, you start to ask yourself some questions.




Click to view graph.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com

Ag Agreement on Climate Change

Congressman Collin Peterson (D-MN), chairman of the House Agriculture Committee, announced an agricultural agreement on the climate change bill that the House of Representatives passed Friday night (June 26) by a vote of 219-212. Peterson worked out the agreement with Congressman Henry Waxman (D-CA), chairman of the House Energy and Commerce Committee. Peterson said, “The climate change bill will include a strong agriculture offset program run by the U.S. Department of Agriculture that will allow farmers, ranchers, and forestland owners to participate fully in a market-based carbon offset program. This agreement also addresses concerns about international indirect land use provisions that unfairly restricted U.S. biofuels producers and exempts agriculture and forestry from the definition of a capped sector.” On indirect land use, the agreement postpones the RFS2 (Renewable Fuels Standard) rule provision on indirect land use for five years (three-year study, two years for determination), plus another year for implementation at the conclusion, if needed. The agreement gives the secretary of agriculture veto power over the determination.

American Farm Bureau President Bob Stallman says proposed climate change legislation “…continues to be seriously flawed. The bill’s provisions and omissions are very problematic for U.S. agriculture, our national economy and domestic energy security. Even after the stellar efforts of House Agriculture Chairman Collin Peterson and many rural members of Congress to win vital changes for America’s farm and ranch families – efforts that we strongly endorse and support – there are simply too many flaws in the underlying bill. Despite inclusion of Chairman Peterson’s hard-fought provisions to reward farmers for carbon offsets and to remove the phony indirect-land-use calculation, this bill should be amended further or defeated.”

Agricultural Appropriations — The House Appropriations Committee passed the fiscal year 2010 agriculture appropriations bill. The bill is similar to the agriculture appropriations subcommittee passed bill that provides $20.4 billion for discretionary funds. The bill provides additional funding for nutrition programs and food safety. It terminates four programs including the National Animal Identification System (NAIS). Some of the key provisions of the bill:

  • Nutrition for Women, Infants, and Children (WIC) – $7.541 billion which is an increase of $681 million above FY 2009. The bill provides funding to bring WIC participation to more than 10 million people.
  • Rural development – $2.825 billion, an increase of $92 million over last year, for USDA programs important to rural communities including rural housing, water projects, community facilities and economic development efforts.
  • Animal and plant health – $886 million to fund programs to protect American agriculture against animal and plant diseases. This is an increase of $4.3 billion.
  • Conservation programs – $980.3 million for the Natural Resources Conservation Service (NRCS). The bill restores cuts to the Resource Conservation and Development Program and the Watershed and Flood Prevention Operations Program. The committee rejected the administration’s proposed cuts in the Wetlands Reserve Program, Farmland Protection Program and Wildlife Habitat Incentives Program.
  • Food safety – Food Safety and Inspection Service (FSIS) receives over a $1 billion increase in funding.
  • MAP & FMD – fully funds the Market Access Program at $200 million and the Foreign Market Development program at $34.5 million. These programs have been used to promote and expand U.S. agricultural exports.
  • COOL – fully funds the costs to continue overseeing mandatory country-of-origin labeling (COOL).
  • Imported poultry products from China – prohibits USDA from moving forward with a rule to allow poultry products from China into the United States.
EPA Appropriations — A number of agricultural issues were debated during the House Appropriations Committee’s consideration of the fiscal year 2010 Interior Department and EPA appropriations bill:
  • Livestock manure – bars EPA from requiring the mandatory reporting of greenhouse gas emissions from manure management systems.
  • Greenhouse gases and livestock – blocks Clean Air Act regulations for carbon dioxide and other greenhouse gases that result from biological processes associated with livestock production.
  • Indirect land use – the committee defeated by one vote an amendment by Congresswoman Jo Ann Emerson (R-MO) that would have stopped EPA from considering the impact of indirect land-use changes when calculating greenhouse gas emissions from biofuels production.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.

Climate Bill Narrowly Passes House, Heads to Senate

After robust debate June 26, the House of Representatives passed cap and trade legislation by a narrow margin, 219 to 212. Over 40 Democrats voted with Republicans against the bill. Eight Republicans crossed the aisle to vote for the 1,300-page bill, now headed to the Senate, where another close vote is expected.

The House bill passed only after lengthy negotiations between Rep. Collin Peterson, D-MN, chairman of the House Agriculture Committee, and Rep. Henry Waxman, D-CA, chairman of the House Energy and Commerce Committee. (For more, see House climate bill deal reached.)

Their joint efforts are likely only the first step in climate-based legislation this year with international negotiations for a new climate change treaty set to begin shortly.

A lengthy list of agriculture advocacy groups has credited Peterson with ensuring the farming community will be able to benefit from a carbon offset program and market while removing some of the more controversial aspects from play.

As it stands, the House bill exempts agriculture from greenhouse gas emission reduction requirements. It also establishes an agricultural and forestry offset program to be overseen by the U.S. Department of Aagriculture (USDA).

“The offset program run by USDA creates a new market opportunity for farmers, ranchers and forestland owners who can play an important role in efforts to reduce greenhouse gas emissions in the United States," Peterson says. "Farmers, ranchers, and forestland owners have been participating in conservation and carbon sequestration programs for many years, working to reduce greenhouse gas emissions, increase energy efficiency and support a thriving renewable energy industry.”

As for concerns with the legislation from biofuel manufacturers, the Renewable Fuels Association (RFA) said the House bill accomplished several things. Among them, according to an RFA press release:

  • The definition of renewable biomass was harmonized with the 2008 farm bill language for private lands. Environmental safeguards for public lands were preserved.
  • The Environmental Protection Agency (EPA) is prohibited from imposing the unfair penalty of international land use change on biofuels for five years while research is conducted to determine the validity of such a theory. After that period, the USDA, the EPA and the Department of Energy must jointly decide to accept or reject the findings. Additionally, Congress will have one year following that decision to act, if it so chooses.
  • Biodiesel facilities built before implementation of the 2007 energy bill will be grandfathered into the law in the same fashion as ethanol facilities of the same vintage.

“This is how sound science and good public policy can and must work together,” says Bob Dinneen, RFA president. “We believe that all fuel and energy sources should be treated equally with respect to measuring their carbon footprint. When this type of apples-to-apples comparison is made, ethanol and other renewable fuels will demonstrate remarkable benefits to our nation’s economy and energy security while helping tackle the challenges of climate change.”

Also of note, the American Farmland Trust – which urged passage of the House bill -- claims a late deal was struck in the House providing an additional $1 billion “for agricultural producers who engage in conservation and stewardship practices that reduce greenhouse gas emissions but do not qualify under the offset section of the climate change bill; or who were pioneering producers who began to reduce emissions or sequester carbon with projects prior to 2001.”

The Maschhoffs Expand Hog Holdings in South

The Maschhoffs, LLC, based in Carlyle, IL, announced it has recently completed the purchase of PPC of Alabama, Inc’s 50% ownership interest in GK/MW, LLC.

The transaction included the assumption of contracts with five sow farms in Georgia and Alabama.

Terms of the agreement were not disclosed.

GK/MW, LLC was a swine production joint venture between The Maschhoffs, LLC and PPC of Alabama, comprising about 12,500 sows and related market hog production.

The Maschhoffs manage one of the largest family-owned pork production networks in the United States and work with more than 320 other family farmers throughout the Midwest.

More information on The Maschhoffs.

Pork Checkoff Requests Input On Crafting New Strategic Plan

With the long list of challenges confronting pork producers today, the National Pork Board is seeking producer input to help shape the future of the U.S. pork industry.

The goal of the series of meetings is to find new solutions to the economic, social and scientific challenges facing the pork industry.

The July regional meetings are open to all pork producers and to others with an interest in the future of the pork industry and the role of the Pork Checkoff. The meetings will be from 9 a.m. to 2 p.m. as follows:

July 23 in Omaha, NE, at the Holiday Inn Convention Center, 3321 S. 72nd St.;

July 24 in Indianapolis, IN, at the Indiana Pork Producers office, 5722 W. 74th St., and

July 27 in Clinton, NC, at Sampson Community College, 1801 Sunset Ave.

In 2010, the National Pork Board will celebrate the 25th anniversary of the creation of the national Pork Checkoff. The strategic planning process is motivated in part by a desire to look at the role of the Pork Checkoff with fresh eyes, just as the pioneering producers who created the Pork Checkoff did 25 years ago, says National Pork Board Chief Executive Officer Chris Novak.

For Novak, the big questions to be addressed are: “What are the industry’s needs, concerns and priorities now, and what will they be five years from now and even 25 years from now? And what should the National Pork Board be doing to address these needs through the Pork Checkoff?”

At the regional meetings, producers will hear a brief overview of the National Pork Board, its role in the industry and its statutory obligations. There will be a progress report on the planning process, and then producers will have the opportunity to offer ideas and discuss others’ ideas. The best of those ideas will go to the task force of producer leaders who are working with the Pork Board to craft a new plan for the future. The board is expected to approve a new strategic plan by the end of 2009.

Producers unable to participate in the regional meetings can provide their ideas to their state office or to state leaders attending the meetings, Novak says. They also will have the opportunity to participate in an online survey that will be available at National Pork Board.

Lunch will be provided at the regional meetings. To assist with meal planning, anyone planning to attend should call (toll-free) the Producer Service Center at the National Pork Board, (800) 456-7675 before July 17, 2009. Customer service representatives will provide details and directions to the meeting sites.

 

Purdue University Hosts First Nutrient Management Workshop

The first Nutrient Management Plan Development Workshop hosted by Purdue University’s Department of Agronomy will be held July 21-22 at the Beck Agricultural Center at the Purdue Agronomy Center for Research and Education near West Lafayette, IN.

“This is an interactive workshop for participants of all experience levels interested in developing a nutrient management plan,” says Brad Joern, Purdue Extension nutrient management planning specialist.

The development of nutrient management plans (NMPs) will focus on the use of software. “The software tools that we will use in this workshop are designed to streamline the NMP development process as much as possible,” Joern says.

The first tool for discussion is the Missouri Clipper Web site where planners can download aerial imagery and spatial and tabular data needed to start the planning process.

The second software tool to be discussed is Map Windows Geographic Information System, used to draw field boundaries, application setbacks, sensitive features and conservation practices based on data retrieved from the Missouri Clipper Web site.

The third software tool to be discussed is the Manure Management Planner, covering soil erosion and other risk management calculations. It can be used to create a nutrient management plan or a Comprehensive Nutrient Management Plan to meet national planning requirements.

Manure Management Planner is the only software that meets the nutrient management plan requirements of both the Environmental Protection Agency and the Natural Resource Conservation Service. It’s currently available in 34 states and can be downloaded free.

Workshop enrollment is limited and the $125 registration fee is due by July 1. If room is available after July 1, registration will be $150. View a downloadable registration form and agenda.

Industry Leaders Intensify Plans To Solve Hog Economic Crisis

As the hog industry’s financial crisis deepens, a number of leaders announced steps that are being taken to address the issue in a teleconference call with journalists June 23.

Defining the crisis, National Pork Producers Council Chief Executive Officer Neil Dierks says the industry has endured 22 consecutive months of losses dating back to September 2007.

At that time, producers enjoyed a high level of equity in their hog operations. But there has been a significant erosion of producers’ equity as the hog crisis has lengthened. By the end of March 2009, that equity had plummeted to an average of 40%, and Dierks says agricultural lenders reported that by the end of May equity levels had further deteriorated to 32-35%.

The crisis stems from continuing improvements in production efficiency at a time of reduced product demand. The H1N1 flu outbreak virus hurt consumer demand, and coupled with increased hog productivity and reduced pork exports, resulted in essentially 7.5% more pork on the U.S. market today than what would have been anticipated without the flu issue, says Chris Novak, chief executive officer of the National Pork Board.

Even though pork producers reportedly cut about 3% of their sows so far this year, productivity gains have approached 2.5%, nearly wiping out any gains, Dierks says. “Producers say they are really focused on productivity.”

National Hog Farmer

New Production Improvement Director For The Western Operations

It is a pleasure to announce that Dr. Chris Rademacher has been hired as the new Production Improvement Director for the Western Operations. Chris will plan to start his new responsibility on July 13, 2009.

Chris was raised on a diversified farm in Minnesota. He attended the University of Minnesota and received a Bachelor of Science degree in Veterinary Science in 1996 and his Doctorate of Veterinary Medicine in 1998.

Chris has worked for New Fashion Pork as the Director of Health Strategies since graduation. He was responsible for developing overall animal health program for over million market pigs annually. He has also been responsible for designing, implementing, and executing disease eradication programs which included 25,000 sows for PRRS. He also was responsible for developing an internal bacteriology laboratory, overseeing production of boar studs, and conducting field research tests.

In Chris’ new position within the Western Operations, he will be responsible for the following:

• Developing and implementing the production system improvements.

• Leading health improvement strategies.

• Providing technical coordination among the veterinarians.

• Working as part of the management team to set the direction and strategy.

• Coordinating relationships with key suppliers and academic collaborators that will enhance operations’ profit potential.

Chris and his wife, Melissa, have three children. They plan to relocate to Iowa in the next several weeks.

Please join me in welcoming Chris to the Western Operations of Murphy Brown LLC.

National Hog Farmer

TODD BECKWITH JOINS AGRICAPITAL ADVISORS

tbeckwith.jpg

New York, NY June 15, 2009. Todd Beckwith, a veteran food and agribusiness banking executive with over 25 years experience, has joined AgriCapital Advisors, AgriCapital's team of executives and professionals that provide deep industry knowledge. He will serve the special needs of cooperatives and privately-held agribusiness companies, and will strengthen AgriCapital's capabilities in growth and renewal financings.

Mr. Beckwith has served in the financial services industry for over 25 years specializing in the Food and Agribusiness sector. He has dealt with both agribusinesses and producers. His experience includes time with KeyBank, NA, TelMark, Inc, and CoBank ACB for 20 years. Mr. Beckwith’s experience ranges from traditional financings, merger and acquisitions, to turnarounds and strategic planning. He understands the supply chain logistics in the food and agribusiness sector from the farm gate to the food plate. Mr. Beckwith has worked with both senior management and board of directors as they develop their strategic plans and assisted in implementation. In addition to his banking experience, Mr. Beckwith has been co-founder of three entrepreneurial projects including CFO of a start-up air cargo/air taxi service. With AgriCapital, Mr. Beckwith’s focus will be on cooperatives, and privately-held agribusiness companies.

RB Halaby, Chairman of AgriCapital, commented: “We are happy to have Todd on board, his strong background in banking will complement our efforts to meet the investment banking needs of American agribusiness.”

AgriCapital is a specialized investment banking firm focused on agribusiness. Since 1983, AgriCapital has provided advisory services related to mergers, acquisitions, and divestitures; private placements of debt and equity; and corporate finance consulting.

Contact: RB Halaby, Chairman

212-944-9500