National Hog Farmer is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Sitemap


Articles from 2014 In June


Market Responds to Bullish Hogs and Pigs Report

The United States Department of Agriculturersquos June Hogs and Pigs report was bullish and that bullishness was clearly reflected in Monday39s futures market with Lean Hogs contracts from August through May 2015 up the daily limit and June through August 2015 contracts up 280 or more
<p>The United States Department of Agriculture&rsquo;s June Hogs and Pigs report was bullish, and that bullishness was clearly reflected in Monday&#39;s futures market with Lean Hogs contracts from August through May 2015 up the daily limit and June through August 2015 contracts up $2.80 or more.</p>

The United States Department of Agriculture’s June Hogs and Pigs report was bullish, and that bullishness was clearly reflected in Monday's futures market with Lean Hogs contracts from August through May 2015 up the daily limit and June through August 2015 contracts up $2.80 or more.

USDA’s numbers were almost all lower than analysts expected in pre-report surveys and I still fear that some of the market inventory numbers may not be low enough. Figure 1 shows the June 1 data for this year, last year and the actual and expected year-on-year changes.

Of particular note are the figures that are bolded in Figure 1. All of them have some significant connotations.

FIGURE 1

  • The June 1 breeding herd was estimated to be 5.855 million head, 0.5% lower than one year ago. Analysts had expected, on average, a healthy increase of 1.6% in the herd relative to last year based, I presume, on the fact that profit margins have been superb and hog producers have never been able to suffer such good times for long. Computations such as my margin estimates based on Iowa State University’s production parameters and futures prices say those margins have indeed been huge.

The trouble is that a lot of hogs were hedged at much lower — but still quite profitable — prices this summer, leaving things not quite as rosy as many believe. Those short hedges have tied up a lot of capital, at least for the short run. Add in that it’s probably hard to think of expansion when pigs are dying by the truckload and one can see why I expected much more modest expansion and am really not surprised much by the slight reduction. Regardless of your pre-report expectation, though, this number and no surefire solution to porcine epidemic diarrhea virus (PEDV) suggest that production will not grow much, if any, by mid-2015. That conclusion might very easily be true for all of 2015.

  • Under-50 and 50-119 lb. inventories were found to be nearly 6% lower than last year. First I note that the -5.9% figure for the under-50 category fits well with the -5.4% for the March-to-May pig crop. One “smell check” passed. Those pigs weighing less than 120 pounds were born from mid-February through May. PEDV case accessions peaked in mid-February and declined through that time period but were still at monthly peaks in February and March. My computations showed double-digit year-on-year reductions for February and March and nearly 8% reductions for April. Allowing for lower porcine reproductive and respiratory syndrome virus losses and some double counting, the USDA’s numbers may be close but I still think slaughter will be hard-pressed to match those 5.9% year-on-year declines in August and September for sure – and perhaps October.
     
  • March-to-May farrowings of 99.7% agree closely with the breeding herd on June 1 and on March 1 so another internal consistency check gets a passing grade. Ditto for June-to-August intentions at 100.1. Close enough. But September-to-November at 103.6% of 2013 appears to be a stretch. A third of those sows were already bred by June 1 and how can there be enough sows in a “down 0.5%” breeding herd to gain that much in farrowings? 
     
  • Even the March-to-May farrowings’ number is curious since those 2.797 million litters would constitute the largest December-to-February to March-to-May reduction since 1974. Did we really reduce sow numbers and farrowings that much? I think it is possible simply because of the disruptions that PEDV has wrought on so many farms. Anecdotal evidence says upward of 2 million sows did not nurse a litter of pigs since May of last year, meaning their reproductive tracts had probably not recovered completely from carrying that previous litter. Some sows did not recover from PEDV itself very well. Historical comparisons are not likely to be as dependable or useful in light of the major changes driven by PEDV.
     
  • The number of pigs saved per litter increased a bit from December-to-February but is still 5% below one year ago. This was as expected, however. The shock came from the farrowings’ number that will put fourth quarter hog supplies somewhat lower than last year. 

So where will supplies go from here? I still believe that the large number of PEDV cases among suckling pigs this past spring resulted in higher death losses than the USDA has been able to find in its survey. It appears that the USDA is picking up more of that impact but the question for the rest of 2014 and into 2015 is “What will the year-on-year change in litter size look like?”

I’m assuming that the decline will get smaller but still be about 3% for the rest of this year. Recall that the USDA picked up virtually no impact in the June-to-August 2014 quarter and only a small impact in last year’s September-to-November quarter. Once we get to the coming December-to-February quarter, we should see litter size make only small negative impacts on year-to-year hog number comparisons.

My weekly slaughter forecasts appear in Figure 2 along with those based strictly on the USDA report data. The biggest differences between the two are in the third quarter. Those get smaller in the fourth quarter. My fourth quarter and first quarter 2015 forecasts assume that litter sizes remain 3% below year ago. My second quarter 2015 forecast differs from the USDA only because I think it is unlikely that the fourth quarter 2014 farrowings can grow by 3.6%.

FIGURE 2

It appears that my second quarter price forecasts from the March report are going to be about $6 lower than the actual price for this quarter. I will increase all of my forecasts for the remainder of this year by about that amount, putting third quarter national net negotiated prices in the $124-$130 range and fourth quarter at $100-$106.

With projected first quarter 2015 slaughter only 3% lower than this year and second quarter slaughter very close to this year’s levels, I expect prices in those quarters to be lower than in 2014 due to higher carcass weights. The second quarter prices will also be compared to the unusually high prices of March and April this year. 

My quarterly compilation of analysts’ forecasts will appear in next week’s Preview.

Corn Condition Improves in Latest Report

Corn condition continues to improve and soybeans look better too as the 2014 season progresses
<p>Corn condition continues to improve, and soybeans look better too as the 2014 season progresses.</p>

The latest USDA Crop Progress Report has good news for feed grains and fall supplies. The report issued Monday shows that the 2014 corn crop is actually getting better with a bump up to 75% good to excellent condition. About 5% of the crop is silking, which is behind the five-year average, but not a key issue for final yield at this time of year.

Key corn producing states report the crop in good condition. Illinois reports corn is 80% good to excellent; Iowa is at 79%, Nebraska at 70% and Indiana at 75%. States hard hit by rain still report that corn in the ground has a good percentage rated good to excellent - including Minnesota (65%), South Dakota (79%) and North Dakota (81%).

For soybeans, the news is good too. The overall crop is on schedule for emergence matching the five-year average of 94%. As for condition, 72% of the crop is rated good to excellent compared with 72% last week. Key soybean producing states show a healthy crop is thriving this season. Here's a look at some key top-producing soybean states and the percentage of the crop rated good to excellent - Iowa (75%); Illinois (74%); Indiana (70%); Ohio (74%) and Nebraska (71%).

The soybean crop is progressing well with 10% blooming, which is right on schedule for the five-year average as well.

USDA released figures today showing that corn acres are down 4% from last year and the lowest since 2010, but still the fifth highest corn acreage since 1944. The agency reported that 91.6 million acres of cropland was planted to corn.

Soybean acres are up 11 percent in the latest report with area for harvest at 84.1 million acres, and will be a new record high acreage for the protein crop. States that will plant record high acreage for soybeans include Michigan, Minnesota, Nebraska, New York, North Dakota, Ohio, Pennsylvania, South Dakota and Wisconsin, the agency reports.

Coalition Urges Congressional Direction on COOL Ruling

A broadbased coalition of ag and nonag groups is pushing Congress to take action if the World Trade Organization rules against the Country of Origin Labeling requirements as a trade barrier issue
<p>A broad-based coalition of ag, and non-ag, groups is pushing Congress to take action if the World Trade Organization rules against the Country of Origin Labeling requirements as a trade barrier issue.</p>

A broad-based agricultural coalition of 61 agriculture and food organizations has sent a letter to the House and Senate agriculture committees’ leadership stating their concern regarding the pending outcome of the World Trade Organization’s (WTO) ruling on the U.S. Mandatory Country of Origin Labeling (COOL) rule.

The coalition urged Congress to direct United States Department of Agriculture to indefinitely suspend the rule if the WTO rules in favor of Canada and Mexico. The coalition said, “We respectfully submit that it would be intolerable for the United States to maintain, even briefly, a rule that has been deemed non-compliant by the WTO. With little potential for quick Congressional action after a WTO final adjudication, we request that Congress authorize and direct the Secretary of Agriculture to suspend indefinitely the revised COOL rule for muscle cuts of meat upon a final adjudication of non-compliance with WTO obligations.” 

Like what you’re reading? Subscribe to the National Hog Farmer Weekly Preview newsletter and get the latest news delivered right to your inbox every week!

Those signing the letter included the U.S. Chamber of Commerce, American Bakers Association, American Soybean Association, Animal Health Institute, The Coca-Cola Co., Corn Refiners Association, General Mills, National Association of Manufacturers, National Corn Growers Association, PepsiCo, Wine Institute and a number of livestock and meat companies and associations. 

Canada and Mexico have stated they will retaliate against the U.S. if the WTO rules in their favor. In November of 2011, the WTO ruled against the U.S. on the earlier version of the COOL rule. The WTO informed the U.S., Canada and Mexico over the weekend of its initial ruling but it has not been made public at this time.

Act Would Strengthen FSIS Recall Authority

Congresswomen Rosa DeLauro (D-CT) and Louise Slaughter (D-NY) introduced legislation – the “Pathogens Reduction and Testing Reform Act” – that would strengthen the United States Department of Agriculture’s (USDA) Food Safety and Inspection Service’s (FSIS) authority to recall meat, poultry or egg products contaminated by pathogens associated with serious illness or death or are resistant to two or more critically important antibiotics for human health.

In introducing the bill, the Congresswomen said, “The USDA has failed to recall meat contaminated with antibiotic-resistant pathogens because they do not believe they have the legal authority to do so.  This bill would ensure there is no confusion.”

Food and Water Watch and the Center for Science in the Public Interest (CSPI) support the legislation. The bill was introduced in part because of the outbreak of antibiotic-resistant Salmonella Heidelberg from chicken produced at Foster Farms. 

Legislation Introduced to Stop EPA’s ‘Waters of the U.S.’ Rule

Sens. Pat Roberts (R-KS), John Barrasso (R-WY), David Vitter (R-LA), Mike Enzi (R-WY), Roy Blunt (R-MO), Mike Johanns (R-NE), and Ted Cruz (R-TX) have introduced legislation – the “Protecting Water and Property Rights Act of 2014” – to prevent the Environmental Protection Agency (EPA) from implementing its proposed “Water of the U.S.” rule which would allow the EPA to take over “all private and state water” in the U.S.

The EPA and the Army Corps of Engineers in March of 2014 released their proposed rule redefining “waters of the United States” under the Clean Water Act. According to the senators, the proposed rule would provide the EPA, the Corps and environmental groups with a “powerful tool to delay and prevent development and land-use activities” on property owned by homeowners, farms, small businesses and municipalities. The House agriculture committee subcommittee on Conservation, Energy and Forestry recently held a hearing on the proposal where a number of members in a bipartisan manner stated their strong concerns with the proposal and the expansion and overreach of the EPA’s jurisdiction.

A group of 40 agricultural organizations wrote the subcommittee stating their concerns and asked that the proposed rule be withdrawn. Those signing the letter included the American Farm Bureau Federation, National Cattlemen’s Beef Association, National Corn Growers Association, National Cotton Council, National Council of Farmer Cooperatives and National Pork Producers Council.

Doherty Appointed FSIS International Coordinator

Jane Doherty has been appointed to serve as the Food Safety and Inspection Service’s (FSIS) international coordination executive. Doherty will deal with all FSIS international matters including audits, equivalence, import and export coordination, inspections and strategic planning. 

Prior to joining FSIS, Doherty served as the sanitary and phytosanitary director and USTR.

Cochran Makes Comeback to Win Republican Nomination

Sen. Thad Cochran (R-MS) made a strong comeback to win the Republican Senate nomination in Mississippi. Cochran was forced into a run-off after failing to win 50 percent of the vote in the earlier primary. He was a major target of the Tea Party. Cochran is the Ranking Member of the Senate agriculture committee and former chairman of the Senate agriculture committee and appropriations committee.

He played a key role in the Senate in getting this year’s farm bill passed.

Quarterly Hogs and Pigs Report Raises Questions

Quarterly Hogs and Pigs Report Raises Questions

Initial reaction to the United States Department of Agriculture’s (USDA) Quarterly Hogs and Pigs Report, released June 27, is that of disbelief. Kevin Bost, president of Procurement Strategies at Des Plaines, IL, didn’t believe the USDA numbers showing a decline in farrowing numbers from last winter to this spring.

“I have the utmost respect for the USDA and their comprehensive look at the numbers, but I don’t believe their numbers,” he said. According to Bost, only once going back to 1975 have the December-to-February to March-to-May farrowings declined this much. “We knew they would be down, but not by this much.”

The inventory of all hogs and pigs in the United States on June 1 was 62.1 million head. This was down 5 percent from June 1, 2013, and down 1 percent from March 1, 2014. Breeding inventory, at 5.85 million head, was down slightly from last year, but up slightly from the previous quarter. Market hog inventory, at 56.3 million head, was down 5 percent from last year, and down 1 percent from last quarter.

A big reason for the disbelief in the lower breeding numbers is that producers should be upping production to ride the wave of profitability spurred by lowered feed costs thanks to the lower corn grain prices.

“PED (porcine epidemic diarrhea virus) is not under control, even in the warmer weather, and that is being reflected in the small numbers of lighter weight hogs,” said Chris Hurt, Professor in the Department of Agriculture Economics at Purdue University in West Lafayette, IN.

Even with PEDV lurking, Bost, Hurt and Victor Aideyan, senior analyst with Hisgraiincommodities.com of London, ON, Canada, feel the swine herd should be increasing. “We have been hearing ‘never before seen margins’ so producers should be looking at some serious hedging, at the very least over winter, Aideyan said.

Hurt brought some rationale into the equation for the lack of expansion. “Pork producers dug themselves a deep financial hole with expensive corn the last few years, so maybe some bankers were holding them back,” he said. “Now the cash flow will put them back in good strong standing. … producers should be getting in touch with their CPA to be discussing income tax consequences.”

See the latest Quarterly Hogs & Pigs Report here. 

Pork Output to Rise in 2015

Pork Output to Rise in 2015

For over a year, the U.S. hog market has wrestled with how many baby pigs are actually being lost due to porcine epidemic diarrhea virus (PEDV), and what that means for summer hog slaughter. The first wave of PEDV impacted the spring 2013 pig crop. The spring pig crop drives fourth-quarter hog slaughter. Fourth-quarter production is normally the largest of the year. If a few extra pigs from last year’s spring pig crop died, so what?

Reports of PEDV surged in November and December 2013, as cold, damp winter weather arrived, trimming the winter pig crop. Winter pigs come to slaughter in summer when slaughter supplies are typically tightest. The lowest hog slaughter of the year often occurs the week of July 4. It’s a short-slaughter week in the seasonally low slaughter period.

The day of reckoning is at hand. Current slaughter runs will confirm the magnitude of the winter pig-crop PEDV death losses.

Meanwhile, for much of this year, hog weights ran eight to sometimes 10 lb. heavier than a year earlier. Higher weights produce more pork per hog. That extra tonnage helps offset smaller slaughter runs. Summer heat settling in may reduce the year-over-year gain in weights.

Consumer Prices in Uncharted Territory

Tight supplies and perceived strong demand boosted spring wholesale pork cutout values to record-high levels. New record-high wholesale meat prices are fueling ample chatter about consumer resistance to paying those high prices.

Wholesale choice beef cutout values made two assaults on the $240 level from around $200 earlier this year. Pricy beef helped make pork look like a relative bargain.

Cattle slaughter typically rises seasonally into summer. Plus, year-over-year upticks in late-2013 and early-2014 placements suggest current beef supplies are relatively abundant. Beef supplies will tighten into autumn, which should provide support for both beef and pork prices through summer.

Assessing Consumer Pushback

In May, composite pork cutouts got volatile. Some primals — bellies, for example — saw double-digit daily price swings up and down.

As cutouts whipsawed, retailers stepped in to buy meat on breaks. Market bulls view buying the breaks as a sign solid pork demand rolls on. Those less optimistic, suspect end users are running on squeaky-tight inventories. They don’t want to get caught holding inventory consumers do not want to buy into a weakening market. As a result, end users are buying hand to mouth, which can create volatility when somebody gets caught out of position and needs product right away.

Meat sales volume for immediate shipment remains respectable. Sales for delivery later have waned. The fear is that consumers are pushing back harder against high prices than the industry expects.

Price Winter Hogs Now?

Going into summer, December 2014 hog futures and February 2015 futures traded $30 to sometimes more than $35 lower than summer contracts. Both seasonal and cyclical factors are driving those huge discounts.

Seasonally, hog slaughter typically rises into winter. More hogs coming mean packers need not bid as aggressively to get them. December typically has the highest monthly slaughter of the year.

Cyclically, surging profits as feed costs retreated from 2012-crop drought-reduced spikes, and pricy beef pulling hog prices higher will lure producers to boost production.

Spot-market iso-wean pigs skidded to $10 a head during the height of the 2012 drought. Spring-2014 feeder pigs sold at up to $90 a head at times. If producers are willing to pay $90 for a pig to finish, they make money. That all says profits will bring expansion.

However, feeder pigs are backing off from those lofty levels due to lower market-hog futures prices five months out.

Producers face a huge psychological stumbling block when contemplating selling hogs six to eight months out at prices $30 to $35 below current prices. But it may be the right thing to do. The market has reasons for the significant price discounts. Rising seasonal supplies is one. Cyclical expansion in response to recent profits is another. Some participants speculate that once PEDV has progressed all the way through the U.S. swine herd, its impacts will ease.

Producers should be penciling their profit margins regularly.

 

Watch Retailer Strategies

Cattle slaughter and beef supplies will tighten into fall. Futures point to sharply lower hog and pork prices. Logic suggests retail pork prices should drop fairly sharply.

Whether prices do drop depends on how retailers respond and how their competitors react. Retail meat prices are generally slow to rise in response to higher livestock prices. Retailers do not like to price-whipsaw their customers. Retailers will trim their margins in the short term to help maintain volume and keep customers.

Lower hog prices may stimulate higher retail pork sales volume if retailers pass those lower prices on to consumers. However, as livestock prices ease, retail meat prices are also slow to retreat, because retailers try to recover margins.

Beef supply will stay tight. Retailers may strive to capture wider margins on pork to avoid pushing retail beef prices into the stratosphere. So watch retail pricing strategies.

A Word About Broilers

Relatively cheap 2011 broiler prices, combined with the 2012 drought-induced feed-price shock, triggered a relatively rare reduction in broiler output in 2012. Broiler production has since rebounded.

USDA projects combined beef and pork production this year will be down 1.7 billion lb. That will overwhelm the 600,000 million-lb. hike in broiler production to trim 2014 output of the three species by about 1.1 billion lb.

Beef production in 2015 is projected down 250 million lb. Pork should be up about 655 million lb. Broiler output will be up about 850,000 million lb. Total supply of the three meats will rise about 1.25 billion lb. next year.

Both beef and pork need to keep an eye out for a flock of feathers flying up behind them.     

 

John Otte is farm management editor and follows livestock markets for Farm Futures magazine (a sister publication to National Hog Farmer).

Kevin Schulz Joins National Hog Farmer Staff

Kevin Schulz

Kevin Schulz joins National Hog Farmer as a senior content specialist after a long career as the editor of The Land magazine, an agricultural-rural life publication based in Mankato, MN.

During his tenure at The Land, the publication grew from covering 55 Minnesota counties to encompassing the entire state, as well as 30 counties in northern Iowa. Covering all facets of Minnesota and Iowa agriculture, Schulz was able to stay close to his roots as a southern Minnesota farm boy raised on a corn, soybean and hog finishing farm.

One particular area where he stayed close to his roots is working with the FFA organization.

Covering the FFA programs stayed near and dear to his heart, and he has been recognized for such coverage over the years. He has received the Minnesota FFA Communicator of the Year award, and this year was honored with the Minnesota Honorary FFA Degree.

Schulz attended South Dakota State University, majoring in agricultural journalism. He was also a member of Alpha Gamma Rho fraternity and now belongs to its alumni organization.

His family continues to live on a southern Minnesota farm near where he grew up. He and his wife, Carol, have raised two daughters: Kristi, a 2014 University of Minnesota graduate, and Haley, who will be enrolling this fall at the University of Wisconsin-River Falls.

When not covering the pork industry on behalf of National Hog Farmer readers, Schulz enjoys spending time traveling with family, making it a quest to reach all 50 states— 46 so far — and three countries. He also enjoys reading, music, photography, playing basketball, and enjoying nature and campfires with friends and family.

In his new role, Schulz will be writing and editing stories for National Hog Farmer magazine in addition to covering news for the nationalhogfarmer.com website and National Hog Farmer’s Weekly Preview and Weekly Wrap Up newsletters.