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National Hog Farmer

Dave Smidt Joins DFS

dave.jpg NEWELL, Iowa – June 1, 2009 – Dave Smidt has been named director of nutritional services for the Strategic Nutrition business unit of DFS, Inc.

“Dave Smidt is a great fit for our team,” says Dave Kier, president of DFS, Inc. “Dave’s career experience as a veterinarian and a swine production operations manager has allowed him to be intimately involved in all aspects of today’s hog production. He’s well aware of how each component of the production system needs to work in order to optimize animal performance. DFS is deeply committed to delivering not only the best nutritional package we can, but also providing the best advice to assist our clients in optimizing animal performance. We’re glad to have Dave lead our new strategic nutrition initiatives.”

As director of nutritional services, Smidt will lead DFS efforts to determine current client herd and ration performance, track changes made in nutrition and assist clients in establishing performance bench marks. He will also assist producers and swine production managers in identifying obstacles that may be inhibiting their barn and facility performance levels.

Smidt earned his degree in veterinary medicine from Iowa State University and has a master of arts in Biblical studies from the Dallas Theological Seminary. He and his wife live near Spirit Lake, Iowa.

DFS, Inc., headquartered in Newell, Iowa, is a privately-owned provider of high-quality nutrients and knowledge to the pork and turkey industries. DFS has earned a national reputation for its exacting quality standards, aggressive innovation and unwavering commitment to exceed its client’s expectations. Today, the company’s 60 plus employees annually produce and deliver more than 600,000 tons of custom-formulated feed for integrated and independent swine and turkey producers throughout northwest Iowa, eastern Nebraska, southeastern South Dakota and southwestern Minnesota.

Stuff Happens!

One of the big advantages of the new Weekly Preview publication schedule is that readers will get fresh data on prior week supplies and prices (see attached table). You will now see Friday’s week-ending data on the following Monday morning. Except for this Monday morning for any of you who are particularly interested in Canadian data and prices. I apologize, but the Agriculture and Agri-Food Canada website from which I download these data was not operational over the weekend. Hopefully, they will have the problem corrected by next week.

If any readers are now ruing the day they either a) listened to or b) agreed with my conclusion back in March and April that a seasonal price rally was coming and it would bring with it better pricing opportunities for summer and fall hog sales, please realize that I am ruing the days I said it even more so. But I have no idea how I or any other analyst could have come to any other conclusion or could have in any way foreseen the havoc that has been caused by the H1N1 influenza virus. Stuff happens and this stuff happened at just about the worst possible moment.

My concerns are growing, though, because we are not rebounding from the worst of the price impacts. Figure 1 shows that negotiated base prices got hammered the week of May 10, but then rebounded sharply the week of May 17. But the past two weeks (with last week’s observation being the average through Thursday’s trade) have each seen negotiated prices fall by over $3/cwt., carcass. Not exactly a summer rally!

Figure 2 shows the same data for national net prices for all purchase methods. It paints a somewhat different picture, however, since this price series includes the prices of hogs sold on contracts. Both feed cost-based contracts and those tied to lean hogs futures have paid producers much higher prices than has the spot market for some time. But more importantly, these contract prices were not impacted by the influenza scare.

The ability to price hogs apart from the spot/negotiated daily market is one of the big reasons some producers like marketing contracts. Properly structured, they can provide stability not found in spot markets or in contracts tied to spot markets.

The question now is: “Can we see a rally?” I think the answer is “yes,” but demand has to be strong enough to sustain it. Figure 3 shows that 2002 was the last year that saw little or no spring/summer hog price rally. That year was characterized by higher year-on-year slaughter (from 4 to 8%) for much of the spring, plus a Russian chicken embargo in March. It is not perfectly analogous, due to this year’s lower slaughter and production, but it did have its own demand challenge and prices rallied $11/cwt., carcass, from the end of May to the end of June. That would be good news indeed should it happen again this year!

Sharing the Pain
Finally, no matter how unfairly pork producers feel they have been treated by fate and the media in the H1N1 influenza virus fiasco, we have to feel bad about what is happening to cattle feeders and packers. Figure 4 shows the weighted average cutout value for Choice and Select beef carcasses. I don’t think it is a coincidence that the major rally we had seen in wholesale beef markets ended abruptly at the same time that the first H1N1 issues hit the pork market. And if pork producers were not at fault, the beef sector certainly was not!

What about chicken? The 12-City Composite broiler prices went from $77.14 the week of April 25 to $86.09 the week of May 23. That’s a gain of nearly $9/cwt. or 11.6%. Both Tyson and Sanderson Farms say their chicken production units are now back in the black.

Stuff happens, doesn’t it?



Click to view graphs.

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

The Swine Industry is at a Crossroads

The H1N1 Influenza A virus has caused even more financial pain for the industry for the month of May. Hog producers today are receiving prices in the range of $110-$115 a head with cost of production at $140 per head. It is estimated that the average producer has lost an additional 5% of their equity in the last 60 days. The average owner equity today would be below 40% and this downward trend cannot be sustained forever. I spoke to a group this past month and they brought to my attention their concerns about the industry and how it has the potential to become much more integrated. I challenged this group and encouraged them to think out–of-the-box and come up with a solution.

Recently, a program has been formed, called the Producer Retirement Program and the Program representatives will be at the World Pork Expo next week. Their location will be in the Varied Industries Building at booth number 737. They are attempting to come up with a proactive way for producers, who have decided to retire all/part of their herd, to receive more than slaughter prices for their sows. I would encourage those of you who will be at WPX to stop by and get more details from them if you have interest. Below are some facts concerning this organization:

Producer Retirement Program

The Producer Retirement Program (PRP) is a non-profit Iowa corporation whose voting members will be producers that own sows in the United States.

The formation and operation of the PRP is in the public interest. Sow producers today who elect to sell all or part of their herd cannot, for disease management reasons, sell sows to other sow producers; as a result, there is an impediment to producers selling all or part of their herd. Producers are, therefore, forced to either remain in business or take slaughter prices for their herd; in either event, the business operates inefficiently.

The PRP will be an inclusive endeavor, inviting all U.S. sow producers to participate. Voting will be one member, one vote, so no single member or group of members will be able to dominate the organization.

Producers participating in the PRP will pay $20 per sow into the PRP. The PRP will use the membership payments, together with a loan against payments to be made, to create a fund that will be used to help compensate producers for sows that they elect to send to slaughter.

The PRP is not intended to raise prices – there will be no agreement among producers as to the premium to be obtained by any given producer. Producers who elect to retire all or a portion of their herd will submit bids to the PRP, and seek a premium for unrealized reproductive value over the slaughter price for the sows. The premiums paid to producers who voluntarily elect to retire all or part of their herd will not be determined through any agreement among producers. Instead, the premium that any given producer obtains will be determined through individual bids and administered by independent management firms – Insight Enterprise Consulting (general management and policy services) and Value Added Science & Technologies (administrative and recordkeeping services).

The PRP will only retire sows owned by members of the PRP whose owners have elected to participate in the program. The PRP places no restrictions on the land underlying the sow operation, except that producers receiving funds under the program must designate a particular facility to be retired and not use that facility for sow production within a two-year period.

There is no requirement that any producer participate in the organization. As for producers who elect to participate, there is no requirement that they retire all or any part of their herd at any time, nor is there any restriction on their expanding their operations. For those producers who participate and who retire part of their herd, they can continue in business with the balance of their herd.

Congress, the U.S. Department of Agriculture, and State Agriculture agencies will be informed of the program – there is no intent to shield the organization's activities from public knowledge.

For more information about the PRP, please visit our website at: www.producerretirementprogram.org. We look forward to seeing you at the World Pork Expo in Des Moines this week."

Contract Limitations

Contract Limitations — Senators Mike Enzi (R-WY), Chuck Grassley (R-IA), Byron Dorgan (D-ND) and Tim Johnson (D-SD) have introduced the Livestock Marketing Fairness Act. According to the sponsors the bill would:

  • Require that forward contracts for livestock (cattle, hogs and lambs) be traded in public markets where buyers and sellers can witness bids as well as make their own offers. This ensures the market is open to multiple offers.

  • Require marketing agreements to have a firm base price derived from an external source. This ensures that local contract prices are not subject to manipulation by packer-owned herds.

  • Exempts producer-owned cooperatives, packers with low volumes and packers who own only one processing plant. This exemption targets the source of price manipulation and ensures that the business practices of small family-owned processors are not impacted by the law.

  • Ensures that trading is done in quantities that provide market access for both small and large livestock producers.
This legislation would limit swine contracts to 30 head per contract and beef contracts to 40 beef per contract. Similar legislation was introduced in the previous Congress.

Trade Sanctions Reform with Cuba — Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, and 15 other senators introduced legislation, the “Trade Sanctions Reform and Export Enhancement Act,” to ease restrictions on agricultural exports and allow U.S. citizens to travel to Cuba. In 2000, legislation was enacted to allow U.S. agricultural products to be sold on a cash basis to Cuba. However, in 2005, the Bush administration tightened the “cash-in-advance” requirement. The Bush policy requires payment when products leave the United States, which severely restricted trade with Cuba. Prior to 2005, payment was required before the goods arrived. The Baucus legislation would restore the pre-2005 definition of cash in advance and allow U.S. banks to receive payments directly from Cuban banks. USA Rice Federation said, “While we continue to urge Congress and the administration to lift the U.S.-imposed embargo, this bill would allow rice producers, millers, merchants and allied industries to begin to reclaim the costly ground lost over the last four years.”

Food Safety Working Group Website — The White House Food Safety Working Group launched a website to provide information about the group’s activities and progress. According to USDA, the website, foodsafetyworkinggroup.gov/Home.htm will be a resource for people who want to learn about the current food safety network as well as stakeholders and organizations that are working to upgrade America’s food safety system.

Congress Returns Next Week — Congress will return this week from its Memorial Day recess. Fiscal year 2010 appropriation bills will be a priority for the House of Representatives. A number of House committees, including agriculture, will begin its work on the climate change bill passed by the House Energy and Commerce Committee last week.

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