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Warm Welcome for Bush

Bush's visit marked the first time a U.S. president has attended the annual pork industry event.

Addressing the massive crowd in the tightly secured 4-H building on the Iowa State Fairgrounds, National Pork Producer Council (NPPC) President David Roper proclaimed, “I am honored to introduce to you a real friend of the American farmer and livestock producer. He has demonstrated his commitment to U.S. agriculture recently by signing a farm bill that will open foreign markets to U.S. pork exports, continue to ensure a safe food supply and (to) help livestock producers address their operations' environmental needs.”

President Bush stepped to the podium, prepared speech in hand, but he referred to his notes sparingly. He began by expressing his “great pleasure” to be out of Washington, a pleasure matched by the chance to visit agriculture's heartland. “I'm honored to be with the good folks who supply our country with food — and the good folks who live the values of the farm,” he said.

Tax Relief

Bush acknowledged that his visit marked the first anniversary of his signing of the tax relief bill, using it to segue into Congress' recent action to repeal the death tax.

“The United States Congress realized how unfair the death tax is to the people who make a living on the farm. Finally, we repealed the death tax,” he said.

But amidst the applause, Bush cautioned that two obstacles remain. First, the repeal isn't permanent. The death tax decreases in steps until 2010, when it is fully repealed, but he noted “a quirk in the law” reinstates it in 2011. Secondly, members of the Senate must be convinced to follow the House of Representative's lead and pass the bill to make the repeal permanent.

“It makes no sense to tax a person's assets twice,” Bush stated. “And, it makes no sense to have a tax that drives people off the farm. For the good of American agriculture, let's make sure that death tax is forever buried, and forever done away with.”

Ten days after Bush's speech, the Gramm/Kyl Amendment in the Senate fell six votes shy of those needed to pass and make the repeal permanent.

Strength in Agriculture

In the heart of the Corn Belt, President Bush grasped the opportunity to build support for an energy bill “that promotes renewable sources of energy such as ethanol and biodiesel.” Some skeptics apparently thought, “This guy's from Texas — he can't possibly mean what he says about ethanol.” But, Bush reassured, “It's in our national interest to have more forms of energy produced at home so we're less reliant on foreign sources of energy.

“In order to make sure this economy is strong, we've got to make sure that the agricultural sector of our economy is strong,” he continued.

Noting that he was governor of the second-largest agricultural state, he added, “I understand the need to be able to grow more food than we need — for the national security of the country as well.

“I also understand that when there's oversupply, it's a problem. And, one of the ways to deal with oversupply is to sell our pork to foreign markets. I need the trade promotion authority,” he stressed. “It's time to quit playing politics with trade promotion. It's time for the House and Senate to get together — and get a bill on my desk. My promise to you all is this: we're not going to treat agriculture as some second-class citizen when it comes to international trade agreements.

“I understand the importance of agriculture for our economy; I understand the importance of agriculture for job creation; and I understand the need to fight for foreign markets so that when we're good at something, we benefit. And, we're good at growing hogs and we ought to be selling our hogs all across the world,” he stated emphatically.

Farm Bill

Turning to the farm bill, the President said: “The farm bill I signed recognizes the importance of trade. In fancy Washington talk, it's what we call WTO (World Trade Organization) compliant. It means we've honored our trade agreements when it comes to agriculture.

“But it also recognizes (that) there needs to be a safety net for the American farmer. And, it also recognizes the need to promote conservation in America through the EQIP program (Environmental Quality Incentives Program), for example.

“I signed a good farm bill. It's good for the American farmer and it's good for the United States of America,” he stressed.

President Bush went on to talk about the need for terrorism insurance so that construction programs can move forward without fear of attack. He also discussed the war on terrorism and his proposal to create a new cabinet-level Department of Homeland Security, which would consolidate essential security functions into a single agency.

The President closed his address by encouraging all Americans to stay strong, yet consider the incredible power that acts of kindness can have in defining the “goodness and decency” of all Americans.

“I know we can rise to the challenge of showing the world that, in the face of incredible evil done to America, can come some great good. And it starts right with you. The gathering momentum of millions of acts of kindness and compassion will show the enemy and the world the true face of the greatest nation on the face of the earth. Thanks for letting me come by,” he said in closing.

For a full text of President Bush's address at World Pork Expo, go to:

USDA's Conservation Plan

Iowa pork producers Max Schmidt and Jon Caspers recall what the last EQIP was like. They say it greatly benefited crop producers, who had no size limitations. But it disadvantaged livestock producers, who were mostly shut out by the 1,000 animal unit restriction. An animal unit is equal to 2.5 pigs.

“The rules for EQIP before were targeted to just the small producer, and by the time they got around to applying for it, there would be another program that offered them more money,” recalls Schmidt, an Elma, IA, producer. Swaledale, IA, producer Caspers says he also could never qualify to use the EQIP program.

Schmidt charges that the previous EQIP was set up as a social program designed to limit participation, not a program to really protect the environment. Both agree the new EQIP should benefit producers in ramping up current conservation practices.

Secretary of Agriculture Ann Veneman concurs. Changes were needed to streamline and simplify participation in EQIP and the Conservation Reserve Program (CRP), she says.

“We are trying to cut the red tape to get the job done and enable producers to participate in our conservation programs in a timely manner,” she says. “This type of teamwork among USDA agencies is particularly critical as we implement the new farm bill.”

Program Funding

Kirk Ferrell, vice president of public policy, National Pork Producers Council (NPPC), explains the farm bill provides $11 billion in funding for EQIP (see Table 1). That includes $9 billion in new funding and $2 billion in reserve. Of that total, livestock producers get a 60% cut, or $6.6 billion for the 10-year life of the program. There is a $450,000 cap on livestock environmental expenditures for any individual or business enterprise.

That means Smithfield Foods would qualify for one allotment with a $450,000 cap, and their contract growers would also be eligible to participate.

Ferrell explains that based on NPPC's understanding of the EQIP rules, producers and/or companies found in violation of the Environmental Protection Agency's (EPA) Clean Water Act by a court of law, will be ineligible to qualify for EQIP funds.

The funds are targeted to improve conservation and environmental practices to comply with the EPA's new Confinement Animal Feeding Operation (CAFO) regulations. Those are due to be released by court order on Dec. 15, explains Ferrell.

“The goal is that rank-and-file professional pork producers will use this program to help lessen the environmental footprint their hog operations have on the nation's air, water and soil,” observes Ferrell.

EQIP is a cost-share program, estimated at 75% federal and 25% producer-funded. Ferrell urges producers to participate when the funding is made available.

“I can't imagine producers not participating in this cost-share program when they are going to be asked to raise the bar on environmental performance in their operations. It will help them develop a comprehensive nutrient management plan and help them build the waste nutrient structures that will be required of them under this CAFO and state regulations,” he observes. The federal CAFO rules are designed as a “floor,” meaning that states can impose additional regulations if they so choose, he notes.

Next Steps

USDA plans to roll out a comprehensive educational program to explain how the EQIP program will work, says Ferrell. County Natural Resources Conservation Service (NRCS) offices will have more program details.

To ensure accountability, NPPC is pressing NRCS/USDA officials to develop an index to document the environmental benefit of EQIP.

“We want to quantify how the environment is being enhanced with these EQIP dollars,” says Ferrell. That way, the groundwork will be laid for reauthorization of funding in six years in the next farm bill.

The EQIP funding was half the conservation puzzle for the pork industry, observes Ferrell. The other half is release of the new CAFO regulations. He says those federal rules will be tough. But he is confident EPA has revised them so that livestock producers are able to comply.

Table 1. EQIP Program Funding, 1996 vs. 2002

Provision 1996 Farm Bill 2002 Farm Bill Comments
Program Funding $200 million a year
$2 billion over 10 years
$400 million in '02
$700 million in '03
$1 billion in '04
$1.2 billion in '05 and '06
$1.3 billion in '07-'11
$11 billion over 10 years
The livestock and poultry community worked hard to secure the funds necessary to address the projected 10-year costs of federal, state and local mandatory manure management, water and air quality protection requirements.
Payment Limits $10,000 per year $450,000 from all contracts entered during the course of this farm bill. Livestock producers supported the use of a realistic payment limit over the size limits created in the '96 measure. A payment limit can effectively ensure that producers who really need this assistance can get it.
Funding Split Funds split evenly between livestock and row crop producers. 60% of funds reserved for livestock and poultry producers. Noting the needs of the livestock community, Congress reconfigured the funding ratio.
Total Funds
for Livestock
$1 billion over 10 years $6.6 billion over 10 years Funds will adequately address the needs of most independent producers.
Size Limits Funds limited to operations less than 1,000 animal units. No size limitation If family-owned or operated livestock operations were to remain economically viable addressing environmental concerns, it was imperative that access to financial assistance NOT be size-related.
Priorities Priority areas required USDA to determine need based on small geographic areas, like a watershed. Priority “areas” are eliminated. The Secretary of Agriculture is directed to prioritize animal waste management systems. There is a substantial number of high value, high priority conservation practices providing valuable environmental benefits that producers across broad parts of the country need assistance to implement. EQIP must place major emphasis on helping producers adopt conservation practices that are not defined on a geographical basis.
Available Cost-Share Up to 75% Up to 75%
Technical Assistance Allowed the Secretary of Agriculture to decide on the amount of EQIP funds to be used for technical assistance. Allows the Secretary of Agriculture to decide on the amount of EQIP funds to be used for technical assistance. A well-developed and well-funded program will be unsuccessful if technical expertise is not available to guide producers.
Contracts No limit on the number of contracts a producer can have. Contract available from 5-10 years. Limits contracts to one structural practice. No limit on the number of contracts a producer can have. Contract shall be one year longer than it takes to install the conservation practice(s). Allows contracts involving one or more structural practices. Allows producers flexibility under the payment limit to address needs at more than one location, and to not have a contract any longer than necessary to ensure the practices are installed and up and running properly.
Purpose of EQIP Carries out a program that maximizes environmental benefits in: protecting soil, water, grazing lands, wetlands and wildlife habitat and assists producers in complying with environmental laws. Promotes agricultural production and environmental quality as compatible goals; optimizes benefits by helping producers comply with environmental laws. Adds “air” to the list of protected resources. Meets livestock's number one goal of ensuring adequate EQIP funds are available to help producers deal with environmental laws and regulations; includes “air” as a top resource to be protected by EQIP; eliminates cumbersome and unworkable 1996 requirements.
Means Testing Other than the prohibition against allowing “large” livestock operations (defined by the Secretary of Agriculture as 1,000 animal units), there is no means testing in the 1996 bill. $2.5 million means test; Any producer with an adjusted gross income exceeding $2.5 million and who receives more than 25% of their income from a non-agricultural source is not eligible for participation in any federal farm program. Requirement is designed to help ensure that EQIP funds are going to producers who are almost exclusively dependent on farming for their income, and not to producers with the means to otherwise bear the costs of these conservation practices.

Voluntary Dime Program Announced at Expo

The National Pork Producers Council (NPPC) returned to its organizational funding roots by introducing a new voluntary contribution program at the World Pork Expo.

The Producer Consent Program provides pork producers with an opportunity to contribute funds through participating packers. This voluntary effort was set in motion last March at the organization's annual meeting when delegates passed a resolution calling for development of the voluntary program.

A 15-member Producer Consent Program task force was appointed to develop an enrollment form and plans for contacting producers and markets. “The form authorizes participating markets to deduct 10¢/$100 value and to send those funds on to NPPC where they will be split 50-50 with the states,” explains task force chairman Jon Caspers.

The NPPC board of directors approved a producer consent form just before World Pork Expo. About 100 producers signed up during the event. The official kick-off date for voluntary contribution program is set for Sept. 1, although some states will likely initiate the program before that, Caspers says.

“So far, all of the major packers have been contacted,” he continues. “And the response has been supportive. NPPC is working with the state organizations to contact additional packers and markets.”

“Producer consent funds will be used to proactively defend pork producers in legislative, regulatory and legal defense issues,” explains Pat McGonegle, vice president of state relations and resource development at NPPC. “These are all areas that cannot be addressed using mandatory checkoff dollars collected by the National Pork Board,” he explains.

Caspers says the NPPC is hopeful that the 10¢/$100 value will be collected on half of the hogs and pigs sold annually in the U.S. For ease of calculation, he notes that 50 million hogs worth $100 each would generate $5 million.

“We have more and more challenges in the pork industry by activists all of the time,” adds Caspers. “Their level of activism is infinitely greater than it was just five years ago. That's why this voluntary contribution is so critical.”

Producers interested in making contributions through the Producer Consent Program must first complete the consent form. Their name will then be shared with the packer(s)/market(s) they have authorized to deduct the contribution. Additional information about the program is available through state pork producer organizations or by calling NPPC at (515) 278-8012.

Livestock Law Deemed Producer Friendly

In early July, Ohio was scheduled to implement livestock environmental rules that were hammered out by a 24-member bipartisan committee.

The committee was unique in that it was comprised of all major state agricultural and fringe farm groups, plus government, environmental and health group officials, says pork producer representative Pat Hord of Bucyrus, OH.

The diverse committee worked diligently, but often disagreed on the smallest points, recalls Hord. It took from June through December 2001 for the group to work out the general framework of the proposed rules that are based upon legislation (Senate Bill 141). It's taken 1½ years since then to iron out the details, culminating in 55 rules and 250 pages of regulations, he says.

Ground rules set by the Ohio Department of Agriculture (ODA) kept things on track. The committee was bound to develop science-based guidelines, says Hord.

The rules are “something I feel good about, our industry can live with and allows us to grow in Ohio,” he adds. Hord Livestock is a seven-member family operation which owns several thousand sows, farms 3,500 acres and has contract finishing arrangements with 30-35 area growers.

Transfer of Authority

When the rules become final, all farms with more than 1,000 animal units (2,500 hogs or more, 55 lb. or heavier) at one site under common ownership will need a state permit to install (PTI), providing assurance of proper building and site design, and a state permit to operate (PTO), for assurance of development of best management plans, explains David White, executive director of the Ohio Livestock Coalition, a member of the committee. PTI's are effective for as long as they are needed. PTO's must be renewed every five years, he says.

Those operations that currently hold permits from the Ohio Environmental Protection Agency (EPA) will be reviewed and certified. Their permit will be transferred to the ODA, where they will apply for a PTO, notes White.

ODA is assuming jurisdiction for livestock permitting, except for a few animal operations that are permitted to discharge directly into state waters, he adds. These operations will come under the jurisdiction of the ODA once it is granted authority for issuing National Pollution Discharge Elimination System permits from the EPA.

Rules Rundown

White provides a brief rundown of some of the new environmental rules:

  • If a concentrated animal feeding facility (CAFF) of more than 1,000 animal units (AU) is using a solid manure handling system (over 20% solids), it cannot be sited closer than 500 ft. from the nearest neighboring residence not under the ownership of the producer. The bill defines a major CAFF as an operation that exceeds 10,000 AU. The separation distance is doubled for this group.

  • For liquid manure systems (20% or less solids), which would include most properly managed swine lagoons and deep-pit hog barns, the siting distances from the facility are doubled, says White.

  • For setbacks, manure injection application can take place no closer than 50 ft. from a neighboring residence. For surface application followed by incorporation within 24 hours, the setback is 100 ft. For surface application not followed by incorporation within 24 hours, the setback is 300 ft.

  • Manure management plans must be developed that minimize water pollution and protect state waters. An emergency response plan is mandated for quick and efficient cleanup of manure spills.

  • A mortality management plan must include best management practices for livestock disposal. Approved methods are burying, burning, rendering or composting.

A first in the nation, the Ohio law also requires an insect and rodent control plan, says White. To understand just how serious this issue is, the maximum penalty for water pollution violations is $10,000/day. The maximum penalty for insect or rodent control violations is $25,000/day.

This provision was hatched from a large egg farm's nuisance suit won by citizens. “It is a good idea to develop a program of best management practices designed to minimize these populations and their potential impact on your neighbors,” explains White.

Judge Blocks Beef Checkoff

A federal district court judge in South Dakota has ruled that the beef checkoff is unconstitutional and must end by July 15, 2002. Judge Charles Kornmann ruled the checkoff violates cattlemen's First Amendment constitutional rights.

Montana Stockgrowers Association Executive Vice President Steve Pilcher says the industry is “looking forward to a speedy and successful appeal of the decision.”

Agriculture Secretary Ann Veneman responds that the beef checkoff has helped beef demand and exports and has been supported by the majority of cattle producers. She said USDA is consulting with the Department of Justice to determine a course of action.

Rethink Your Market Strategy

Spring and early summer market prices have many in the pork industry feeling more than a little uneasy.

As of late June, hog slaughter running at least 5% ahead of the same 11-week period a year ago has everybody — hog futures analysts, packers, wholesalers and producers — in a funk about price prospects for the balance of the year.

Some argue that hog numbers, based on farrowing intentions and sow numbers, were off all along. Others are convinced that the near ideal growing conditions throughout hog country so far in 2002 may have pulled some pigs forward. Indisputably, there were more hogs going to market and they were a few pounds heavier than the same spring-early summer stretch last year.

If marketings continue at a similar pace, commercial hog slaughter in the fourth quarter could climb as high as 27.8 million head — roughly 200,000 more than we saw in the fourth quarter of '98. I'm pretty sure I don't need to remind you what happened to prices during that painful stretch.

What Are the Choices?

There are two options here — sit back and take your licks or move marketings forward to take the pressure off the fourth quarter. Veteran hog market prognosticator emeritus Glenn Grimes and fellow economist Ron Plain at the University of Missouri have laid out a step-up, step-down marketing plan that goes like this:

If all producers would speed-up marketings by 4-5% during July, August and September, it would pull 2-3 days of slaughter from the fourth quarter into the third quarter. So, if you normally market 100 hogs/week, Grimes and Plain suggest you sell 104-105/week during those months. By late September, their plan should also pull average market weights down by 4-5 lb from what they would be without action.

Then, reverse the plan. Reduce your marketings from October through December by 4-5%. Instead of marketing 100 hogs weekly, cut back to 95-96/week.

The Missouri economists say the plan should put hog slaughter in the fourth quarter at around 27 million head, just 2% above last year, but more importantly, much closer to our slaughter capacity.

And, they agree, regardless of the June pig crop report, the plan will make marketings more uniform the second half of the year.

This Is a Test

It's a test of your will. Are you willing to make this small marketing adjustment to hopefully avoid a market free-fall?

It's also a test of the “real” commitment of packers to their suppliers. If they truly want to keep all pork producers in business, they will accept these slightly lighter pigs without penalty.

Truth is, some major retailers have made it clear that they don't want the heavy hams and loins so common with modern, heavyweight hogs.

This is a pet peeve of mine. Sure, the heavier weights improve slaughter plant efficiency, but what does it do to finishing efficiency, not to mention consumer attitudes? Unless you've been baling hay or sorting pigs in a newly populated wean-to-finish barn all day, who really needs a 9-sq.-in. pork chop for supper?

Consumers and processors don't need, nor want, these excessively large loins and hams. Now is a good time to pull weights down to a more reasonable level. Today's modern genetics and nutritional programs can give you better quality, excellent primal cuts at more moderate weights.


Here are a couple of other practical reasons why this moderated marketing plan makes sense:

Emptying a finishing barn a few days early buys a little more time to wash it down and let it sit a couple of extra days. That'll give you a couple more days to fix gates and feeders, clean fan blades, check and replace waterers. Heck, you might even take a day off to go fishing. Imagine!

Also, it's common knowledge that lean growth and feed conversion rates level off around 125-150 lb., depending on genetics and environmental factors, then gradually decline. Performance the last four to six weeks is the least efficient. Sure, feed's cheap, but doesn't it make sense to trim off the least efficient segment of a finishing period?

I know, I know — the packer wants heavier hogs. He'll penalize you if you come in with a load under his “preferred” weight. How does $8 hogs sound as a penalty? Besides, packers are just as much a part of this proposal as you are.

The cooperative spirit of this industry will be tested this fall. We're headed for a tough stretch — no doubt about it. The question is — are you up to helping yourself and your pork producing brethren or are you going to simply sit back and take what comes without rethinking your production and marketing strategies?

The 1998 market free fall exceeded most everyone's worst-case scenario. The scars were deep and painful. The Grimes-Plain plan may or may not work. But, isn't it worth a try?

Ten Ways To Get More Pigs

Don't shortchange your sows. Too often, producers think they can skimp early on and make it up later.

“What you do now is going to affect how she performs later,” reminds Lee Johnston, swine researcher at the University of Minnesota West Central Research and Outreach Center at Morris. “If you cheat her now, she will cover for you, but she is going to get you later,” he says.

Remember, there are no magic bullets to improving sow reproductive performance. It's more a case of “putting the pieces of the puzzle together and making sure you do all the basics well,” he points out.

Johnston's top 10 list of getting more pigs from your sows assumes that the nutritional requirements of the sows are being met. Presented at World Pork Expo, they include:

  1. Maintain proper gilt development. There are very few controlled studies on gilt development with modern genotypes. Based on a few feeding regimens that Johnston reviewed, his recommendation is to start early on a gilt development program, feeding those young females very much like the breeding herd.

    “That means feeding elevated levels of calcium, phosphorus, vitamins and trace minerals in that gilt development diet, then restricting gilts once they are selected for the breeding herd,” says Johnston. “We want to keep them growing, developing lean and fat tissue, but at a more moderate rate.”

    Flush gilts to get them back to a normal level of ovulation. Flushing increases energy intake 150-200% and should be implemented about 14 days prior to anticipated breeding.

  2. Manage post-mating feeding levels to increase embryo survival and litter size. Johnston stresses that Canadian research shows feeding levels should be returned to normal, with 4.5-5 lb. of a corn-soy diet, within one day of mating. The trials report an 85% embryo survival rate. Waiting three days after breeding to drop feeding levels cuts embryo survival rate by 10%.

  3. Encourage mammary development. The key period is the last 75 days of gestation when most mammary growth occurs. Avoid excessive energy levels in the diet which inhibit growth of the mammary gland. Restricting energy intake helps increase milk yield in the next lactation.

  4. Control weight gain during gestation to improve sow longevity. Since most fetal growth occurs in late gestation, it is important to feed sows the proper nutrients. But controlling weight gain improves sow longevity and encourages higher feed intake during lactation. University of Nebraska research during the last 40 days of gestation compares ad-lib feeding to a 4 lb. corn-soy diet. Feed intake of sows fed very liberally in late gestation lagged throughout lactation.

  5. Encourage high feed intake throughout lactation. University of Minnesota research compared feeding 11 lb./day of a corn-soy diet to 5 lb./day, during a three-week lactation period. Sows on the high level diet bred back in 7-8 days. Sows on the low feeding levels took more than 20 days to breed back. Even when sows were only fed the restricted diet the first week of lactation, they never recovered and still lagged in time to breed back.

  6. Wean sows in good condition. When sow weights are maintained, they are in better body condition and the wean-to-estrus interval drops.

  7. Control heat stress. For every one degree increase in temperature above 65° F, sow feed intake is depressed 0.2 lb. Try wet feeding or feeding smaller meals more often. Keep feeders clean. Provide the proper water flow rates. Keep sows healthy.

  8. Increase nutrient density of feed. If efforts to increase feed intake are not successful, feed up to 10% added fat, but watch for rancidity problems. In 16 of 19 studies, added fat depressed feed intake but increased energy intake.

  9. Use feed additives to boost performance. Data has shown adding 200 ppb of chromium increases litter size, reduces sow death and improves rebreeding.

  10. Feed fiber to gestating sows. Early work points to improved litter size, lactation feed intake and possibly health and welfare advantages.

Can We Dodge Another Market Crisis?

Clearly, no one has forgotten the hog market crash of '98-'99. Pork producers have shown considerable restraint in rebuilding the breeding herd, remarks University of Missouri agricultural economist Glenn Grimes.

However, that restraint has nearly been offset by the growth achieved by U.S. productivity gains and large increases in Canadian feeder pig and slaughter hog imports.

Those actions, coupled with large pork stocks in inventory (estimated at 31% above a year ago in April), unexpectedly drove hog prices well into the $30s/cwt. this spring.

Positive Signs Evident

Grimes expressed some market optimism as slaughter hog prices crept back to the mid-$30s at the time of his press conference address during World Pork Expo in Des Moines, IA.

Granted, slaughter capacity will be tight heading into the fourth quarter, he says. On the plus side, though, no packing plant is expected to close this year. Chances are good that strong efforts will be made to keep all facilities running at least through this year.

Another positive sign is that unlike 1998, there doesn't appear to be near the momentum for growth in the U.S. pork industry this year, Grimes observes. “Remember, we increased production in '98 around 11% over '97, and that carried over into '99, so that we actually had a larger slaughter in '99 than in '98.”

Grimes is hopeful that slaughter can be kept to his projection of 27.3 million hogs for the fourth quarter. If producer reaction is fast enough, there is population growth and a projected increase in exports, slaughter in 2003 may be held to 100 million head, no larger than in '98, says the long-time Missouri analyst.

Fourth Quarter Prices

Grimes says with minimal slaughter capacity problems, market hogs in the fourth quarter should average $26 to $29 at the terminal markets, and $2 higher for 51-52% lean hogs on the Iowa/southern Minnesota market.

But if fourth quarter production continues the oversupply situation seen this past spring, fourth quarter commercial slaughter will surely cause slaughter capacity problems, he projects.

“If we overrun the numbers in October-December as much as we have in April-May, then we are talking about slaughter numbers at 27.8 million head, about 200,000 head larger than in the fourth quarter of '98,” he explains.

“If that happens, we don't know how low hog prices will go. And if it lasts long enough, it could get to the point that producers would have to pay packers to take their hogs,” Grimes cautions.

In Figure 1, University of Missouri agricultural economist Ron Plain lists supplies and prices for 1998, and compares them with projections for the second half of 2002. His data is based on the assumption that June-December hog slaughter will be 5% above 2001 (hog slaughter has been up over 5% from 2001 for the last nine weeks through mid-June).

Producer Action Needed

Grimes suggests producers should seriously consider several steps to curb overproduction.

First, don't be heroic in efforts to save every pig that is born in the second quarter of the year.

Second, if there are prolonged periods of hot weather, weight gains will be reduced. Take advantage of this, selling lighter slaughter hogs in the third quarter instead of holding them for the fourth quarter.

Market Weight Impact

John Lawrence, Iowa State University agricultural economist, warns that although lowering market weights does reduce supplies, a large number of producers must participate in order to achieve an impact on price.

“A 10-lb. reduction from 265 to 255 lb. is a 3.8% reduction in total pork supply,” he says. “All else equal, we might expect a 10-11% price increase from such a reduction in total pork supply, about $3.50/cwt. in a $35 market.”

However, producers often act in their own self-interest and by what they have control over.

To help producers determine best slaughter weights, Lawrence has developed a model. Read about adjusting weights by going to Plug in your own weights and numbers at this Web site:

Probing Slaughter Capacity Complications

Thirty years ago, most hog slaughter plants operated on a single-shift basis. When numbers got tight, plants could simply add a shift or a few hours to a shift.

Today, U.S. packing plants don't have that flexibility. They work double shifts six days a week.

“There is very little time in the week to increase capacity,” remarks Jon Caspers, Swaledale, IA, National Pork Producers Council president-elect.

“We tried back in '98 running plants on Sundays, but the problem was if you ran them on Sundays, no-body showed up for work on Mondays,” he says. “So legitimately in this country, there are not a lot of ways to expand capacity.”

Canada, Mexico

Realizing limitations of the U.S. packing industry, producers are looking to their North American trading partners for help.

Caspers is a member of a producer committee that meets with Canadian and Mexican counterparts several times a year to discuss mutual interests. U.S. producers met with Canadian pork leaders at World Pork Expo.

National Pork Producers Council trade lawyer Nick Giordano says both sides are working with their producers and government to avoid a slaughter logjam.

National Pork Board Director of Economics Steve Meyer says Canada may have some flexibility in their slaughter capacity. He says many plants are single shift and operate five days a week. He estimates plant capacity could be increased 10-15% by adding extra weekday hours and some Saturday shifts. Current estimated Canadian slaughter capacity is 438,000 head per five-day work week.

As to why Canadian production is growing at such a rapid rate while U.S. producers have slowed herd growth, Giordano says Canadian producers are trying to add numbers before new environmental regulations are completed. It's the same action U.S. producers took prior to 1998.

Giordano also expressed concern about the impact of subsidies on Canadian hog growth.

Mexico has had an anti-dumping order prohibiting the importation of U.S. market hogs for several years, says Giordano. The order has recently been lifted for regular slaughter hogs, and traders report sending some shipments.

However, Mexican officials have yet to lift the order on lightweight U.S. market hogs. These hogs are valued in Mexico, but heavily discounted in the U.S., he points out. If not resolved soon, the case may be heard before the World Trade Organization.

Do You Want This Market?

Within a few years — and I have no idea of the time frame — European pork consumption might be looking for a bit of help. The European Union (EU) has a larger population than the U.S. and Europeans eat a lot more pig meat than Americans do.

At present, the EU is comfortably self-sufficient in pork. The Danes, with their customary energy and marketing flair, are a good example of how to export more than three times Denmark's domestic market share. But the signs on the horizon are that it won't always be so.

Americans' first reaction is often, “We hear that welfare constraints are hampering your productivity and profit.”

They are. But, accepting the impositions of very strict welfare codes and regulations already undertaken by Britain and Sweden, and likely to be similarly burdensome to the rest of the EU countries by 2008, is not the major problem likely to reduce our intrinsic livestock production in northwest Europe (Britain, Ireland, Netherlands, Brittany, Denmark and Germany). No sir, it is pollution!

If you stand back from the intricacies of pig, poultry and dairy production in countries like the Netherlands, France, Britain, Ireland, Denmark, northern Italy and northern Germany, which is where our intensive livestock production is concentrated, several things stand out:

  • Tourism is predominant

    These areas of Europe are beautiful, tend to be small, have a high human population density and enjoy an important tourist and foreign visitor trade. The recent Foot-and-Mouth Disease (FMD) outbreak in Britain rammed this fact home. It will probably cost our tourist industry three dollars to every dollar lost to livestock agriculture — through no fault of their own either.

    At the same time, most of our livestock production is crowded into these beautiful tourist-favored areas. In parts of Northern Ireland, Yorkshire (England), Brittany (France) and nearly all of Holland, you can, at times, get a distinct whiff of pigs!

    Politicians, alarmed at the prospect of sullying the goose that lays the golden tourist eggs — let alone the loud protests from our own residents in terms of smell, polluted watercourses and food sources — are hurriedly passing pollution-constraining legislation. This effectively limits the number of livestock a farmer can own. Restrictions are dependent on the land area available to dispose of the effluent (restricted to certain times of the year when the soil or the crops can absorb it).

    Whole areas are being designated NVZs (Nitrate Vulnerable Zones) where such restrictions are already underway. There is also a phosphate limit and, soon to come, trace mineral limitations. Indeed, there is talk of rural Britain eventually becoming one huge NVZ.

  • Reduction in size

    Personally, I cannot but forecast a reduction in the size of our traditional hog production areas in the foreseeable future. It is already happening in the Netherlands. In Britain, such constraints as Integrated Pollution Control looks like the straw that may break our already over-burdened back. The problem is going to get a lot worse.

    We are a too small, too beautiful, too overcrowded, too tourist-attractive part of the world for our largely urban politicians to ignore the impending threat to a large slice of Gross National Product. “After all,” they say, “food can always come from somewhere else.”

Two Alternatives

If our traditional hog-producing areas in Europe are to diminish, where will we look to fill the pail?

First, other areas not too far away like Spain (hot), Poland and the Eastern bloc (no money) and the Russian steppes (disorganized, unreliable) are options. All these current drawbacks are solvable given time, investment and training/expertise.

Second, North America has the expertise, a low-cost industry in place and the marketing will to succeed. Your present disadvantages are distance (which is solvable) and an apparent failure to recognize what the EU market is demanding now and into the future. That is, pigs produced in a certain way that do not infringe our current and proposed EU welfare and drug-use constraints. Weaning age, no antibiotic growth promoters for example, no gestation stalls, full traceback, bedding provision, hospital pens and a further crop of tiresome do's and don'ts. Yes, these are annoying, but they are law now, or will be soon.

Take-Home Message

If you want a share of this future market, then you should experiment with producing pigs this way. Your pork will not get into our market unless you do. See what extra it costs you, what the difficulties are. The sensible Canadians are starting to do this. I'm not implying you are not sensible — just maybe a bit slow off the mark? Think about it!