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Articles from 2009 In August


National Hog Farmer

Roy Holland Founder of agriCAREERS, Inc. in 1968 Died of Cancer.

roy.jpg Obituary:

Roy T. Holland, 65, New Hampton, IA died August 18, 2009 at his home of cancer.

Roy Holland, founder of the first agricultural recruiting firm, agriCAREERS, Inc. in 1968 with offices in New Hampton and Massena, IA. He served as Chairman of agri-CAREERS, for 41 years. Roy was raised on a farm near Dexter, Iowa, graduated from Iowa State University, and served in the United States Army.

Services were held on Saturday, August 22, 2009 at Conway-Kolbet Funeral Home in New Hampton.

In 1968, Roy Holland, after being in management with a Fortune 100 corporation, became a pioneer in the industry by founding AGRIcareers, Inc., the original agricultural personnel recruiting firm in the United States. He served at the helm as Chairman and CEO of the corporate office in New Hampton, Iowa, directing the marketing of our services to employers nationwide. Roy was instrumental in meeting and testifying with the Iowa Legislature to allow employer paid fees and was the first recruiting firm to do so.

Judy Meyer, President and Judy Bruening, Treasurer are co- owners of the agriCAREERS, Inc., New Hampton office. Tammy Jensen and Gary Maas, Jensen Maas and Associates dba agriCAREERS, Inc. are owners of Massena office .

National Hog Farmer

Farm Financial Standards Council Elects New Leadership

Bloomington, IL (Aug. 21, 2009) -- Phyllis Parks, CPA, CVA, an accountant from Danville, IL, was elected to serve as the president of the Farm Financial Standards Council when the group held its annual meeting and conference here recently. She succeeds Alan Miller, a professor at Purdue University, who will now serve as immediate past-president on the organization’s Executive Committee.

Prior to assuming the top leadership position with the group, Parks had served as the group’s vice president.

Elected to new vice president status is Owen Thompson, regional credit team leader with AgStar Financial Services, ACA, based in Mankato, MN. Thompson had previously served as the organization’s treasurer. He will succeed Parks at the group’s meeting in 2010.

Elected to serve as treasurer of the Council is Kathy Rancour, CMA, accounting manager for Christiansen Land and Cattle Company in Kimball, SD. She had previously been chairman of the Council’s communications committee.

New board members elected to three year terms with the Council are: Dr. Paul Gorman, South Central College, North Mankato, MN; Everett Chambers, Kalmika Consulting, Tomah, WI; Brenda Duckworth, Johnson Miller & Co., Hobbs, NM; Michael Peachey, Miller & Miller CPAs, LLP, Lancaster, PA; and, Thomas Murphy, Thomas Murphy and Associates, Western, NE.

The Farm Financial Standards Council is a non-profit organization consisting of professionals representing producer groups, banking, the Farm Credit System, accounting, insurance companies, academics and others involved with agricultural production and finance.

-30-

Carroll E. Merry

262-253-6902

cmerry@countryside-marketing.com

Ten-year Budget Deficit to Reach $9 Trillion

The Obama administration has announced it expects the 10-year budget deficit to reach $9 trillion. This is approximately $2 trillion more than was estimated earlier this year. The administration said the deficit is a “result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projections.” Congressional members were raising concerns earlier this year about the increasing deficit. This could have an impact on the health care debate when Congress returns after Labor Day.

Farm Storage Facility Loan Program — USDA announced changes to the Farm Storage Facility Loan (FSFL) program as a result of the 2008 farm bill. This will allow producers of eligible commodities to obtain low-interest financing to build or upgrade farm storage and handling facilities. The maximum principle amount of a loan through FSFL is $500,000. Participants are required to provide a down payment of 15%, with the Commodity Credit Corporation (CCC) providing a loan for the remaining 85% of the next cost of the eligible storage facility and permanent drying and handling equipment. Loan terms of 7, 10 or 12 years are available depending on the amount of the loan. Interest rates for each term rate may be different and are based on the rate which CCC borrows from the Department of the Treasury. Corn, grain, sorghum, rice, soybeans, oats, peanuts, wheat, barley or minor oilseeds harvested as whole grain are the commodities that are eligible for the program.

Governors Ask Support for Pork Industry — Governors from key pork states are asking President Barack Obama to take action to assist the U.S. pork industry. The governors in a letter to the president stated that the “pork industry is facing an economic crisis that is catastrophic in nature. In 2008, producers suffered their second-worst financial year ever.” The governors are asking the administration to: 1) support at least an additional $50 million of pork purchases for government feeding programs; 2) remove the spending cap on the Section 32 program so that additional purchases of surplus agriculture products can be undertaken by USDA using funds already appropriated for this purpose; and 3) work to have China to quickly lift the H1N1 ban and eliminate other barriers to U.S. pork exports. Governors signing the letter were Bill Ritter (CO), Pat Quinn (IL), Chet Culver (IA), Steven Beshear (KY), Jennifer Granholm (MI), Dave Heineman (NE), Bev Perdue (NC), Brad Henry (OK) and Jim Doyle (WI).

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

When Will the Hog Market Get Better?

I can’t tell you how many times I have been asked this question over the past 12 months. In 2007, the industry had strong profits and strong balance sheets. That was a long time ago.

The bottom line is this – if demand remains sluggish, it could take until 2011 for the pork industry to be consistently profitable again. We will eventually get supply down, but it will take a while longer for this to occur.

In our last severe downturn (1998-99), a good portion of the industry could exit the business and turn back to crop farming. Some actually became a contract grower for someone else. The current issue is the swine industry has become more specialized. The top 30 producers represent almost 70% of the industry. Pork production is their livelihood. If they decide to get out of the business, it’s likely they do not have another option to turn to. This is why it’s taking so long for the industry to contract. The swine industry is very good at producing 115 million pigs. However, with current demand, we only need 105-107 million pigs – a reduction of 5-7%. We will get there, but unfortunately it will be a slow and painful process.

A Challenge to All Pork Producers – I have spoken to several groups this past year and every time I have urged people to become an advocate for the industry. I believe this is our biggest Achilles heel. We are great at production, but we need to do a much better job of “rebranding” our industry. We need to take steps to make the industry better – not only from a profitability standpoint – but also from a public perception standpoint. We can no longer set back and just raise pork. Here is my challenge for each of you:

• Communicate with your congressmen and senators regarding the pork industry. Educate them on how our pork is raised and help them understand the current economic crisis we are facing.

• Communicate with your state and local elected officials regarding the pork industry. Address how many jobs the pork industry provides, the tax dollars we pay, and the economic impact we make to local rural economies. We recently met with our state officials and they had no idea the swine industry was hurting financially.

• Finally, help officials understand the economic impact your hog operation has on your local communities and your neighbors. Emphasize our priorities of raising animals in a humane way and let them know that pork is a safe and nutritious product. Perhaps you are reading this and thinking, “I have bigger issues that I am facing at home and I don’t have time to address these other issues.” I completely understand that. However, since very few people understand our industry, all of us must work on educating people, everyday, about all of the positive things the swine industry provides. Others have misrepresented our story for too long – and it’s time to stand up and set the record straight. We must all be an advocate of our industry, not just producers of pork. The National Pork Board and the National Pork Producers Council can only do so much, so I urge all of you to start telling our story. Our future success depends on it!

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

Sow Slaughter Finally Takes Upward Path

U.S. federally inspected (FI) sow slaughter finally went above year-ago levels the week of Aug. 15. That’s one of those occurrences that is hoped for and lamented at the same time. It means we may have turned the corner to the liquidation that is needed to restore profitability to our business. But it also means that some friends and perhaps neighbors will not be in the business to see those profitable days.

Figure 1 shows weekly sow slaughter for 2008 and 2009 as well as the weekly averages for 2003-2007. August 15 marks only the third week this year in which U.S. sow slaughter has been larger than one year ago. The others were the weeks of Jan. 10 and July 25.

The same pattern holds true if one considers sow slaughter as a percentage of the breeding herd, which is probably a better measure of sow herd change, since we should expect lower numbers of slaughter sows with a smaller breeding herd. The week of Aug. 15 was the second-highest percentage of the breeding herd (1.16%) this year, second only to January 8 (1.18%). Through Aug. 15, 26.6% of the breeding herd has been slaughtered thus far in 2009, compared with 29.6% in 2008.

Sow Slaughter in Canada
Canadian sow slaughter which at around 1,500 head/week only accounts for 2-3% of the U.S.-Canadian total, has been lower than one year ago every week so far in 2009, and is substantially lower than the 2,500 head/week that was the average from 2003 through 2007. This decline is quite understandable considering the reduction in the Canadian breeding herd from 1.634 million in 2005 to 1.38 million in 2009. You can’t slaughter them if they aren’t available!

Gilt Slaughter Data
The other component of female slaughter, of course, is gilt slaughter. While the Livestock Mandatory Reporting Act of 1999 required USDA to gather separate barrow and gilt slaughter numbers, USDA has never seen it necessary to abide by that law so we have no “official” gilt slaughter numbers. Professor Glenn Grimes and Dr. Ron Plain at the University of Missouri have gathered gilt slaughter percentages for several years through a cooperative project with midwestern packers. Those data indicate that the percentage of gilts in barrow-gilt slaughter has averaged 49.9% for the year where 49.2% to 49.4% is equilibrium. The gilt percentage has exceeded the equilibrium level 24 weeks out of 32 this year and has been greater than 50% in 12 of 32 weeks.

As an aside – the reason packers report and USDA publishes steer and heifer slaughter data separately has nothing to do with regulations or requirements. It is really just a matter of tradition. Packers have always reported it that way and so they still do so. That tradition, of course, is partly dependent on historic price differentials between heifers and steers.


Weekly Sow Purchases
Figure 2 shows another piece of data that may be helpful in gauging changes in the sow herd and doing so on a more “real-time” basis. It shows weekly sow purchases as reported to USDA under the mandatory price reporting (MPR) system. That system covers only about 60% of sow slaughter capacity, so the total numbers reported (just over 50,000/week for the most recent two weeks) runs 15,000-17,000 head lower than total slaughter. But the data seem to be predicting the direction of change reasonably well and are available two weeks earlier than are slaughter data.

The purchase data may become more useful as we gain a better perspective with year-over-year comparisons. USDA rules were changed in mid-July 2008 to reflect MPR system changes in the 2007 Farm Bill. We just now have a full year of these new data and are now comparing “apples to apples” from a seasonal standpoint. That’s good. What is not so good is sow “purchases” had been higher than “apples-to-apples” data one year earlier for four weeks before actual slaughter went above year-ago levels. There may still be some quirks in these data or they may turn out to not be very accurate in making these predictions. We won’t know until we have more experience with them and that just comes with time.

Sow Cull Magic Number
How many sows need to be cut to get the industry back to profits? I still think the number is around 400,000 from last fall’s level. Tyson and Smithfield have accounted for nearly 50,000 of that. “Normal” sow slaughter would be a short 1% of the breeding herd each week – about 60,000 head. Slaughter in the 70,000-75,000 head level would mean that the reduction could be made in 23 to 30 weeks.

Sow slaughter capacity is not an issue. My April estimate says U.S. sow slaughter plants can handle 100,000 head/day. A good number of sow plants do not run five days/week, but there still appears to be plenty of shackle space to move these sows.

Profitably selling the products from these sows may be the biggest obstacle to higher slaughter levels. Just how much sausage and other “sow” products can companies sell at profitable prices? That question becomes a bit stickier when one considers that many of these products are branded and that price carries quality connotations. Sellers do not want to hurt their hard-earned quality reputations by slashing prices too deeply. Cooler weather, the beginning of school (and more breakfast eating), and football season tailgate parties will all help, but there is still a limit to just how many sausage patties and bratwursts can be moved at profitable prices. It is an issue we must keep in mind.



Click to view graphs.

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

Time Magazine’s Cover Article Draw Pork Industry Rebuttal

National Pork Board President Tim Bierman has sent a strongly worded letter to the editor of Time magazine for its recent cover story, “America’s Food Crisis and How to Fix It.

For starters, there is no food crisis in America, he says. “Americans have access to abundant, safe and affordable food that is the envy of the rest of the world. It is produced by caring farmers using methods that are supported by science and backed by experience,” Bierman responds.

“Unfortunately for Time’s readers, the food plate of the article’s author, Bryan Walsh, is half empty. He blames modern pork production for much of what he considers to be today’s environmental concerns. He says pigs eat too much corn-based feed, which in turn, relies on too much commercial fertilizer.

“Walsh fails to credit pork production for its contribution to a recyclable and completely organic system that provides animal nutrients for crops. He also fails to mention no-till cropping methods, greenways and the land set aside for erosion control and wildlife areas – all of which occur regularly on America’s farms and go a long way in preventing soil erosion and nutrient runoff,” he continues.

Bierman says if the author had bothered to contact the National Pork Board, “he quickly would have learned how pork producers – through their own programs as well as through governmental regulation – have made environmental stewardship a way of life.”

The magazine author also ignores pork industry programs that help keep pork safe, abundant and nutritious including We Care, Pork Quality Assurance Plus, Transport Quality Assurance and others.

“Instead of talking about any of those positive efforts, Walsh relied on the negative and tired agenda-driven talking points offered by predictable opponents of modern food production,” Bierman points out.

Walsh is also wrong on animal husbandry, using loaded terms such as “prison-like conditions” and inferring that modern livestock production is directly responsible for antibiotic resistance. Pork producers using antibiotics responsibly and together with their herd veterinarians follow time-tested management practices. “The pork industry’s We Care initiative, adopted last year, reiterates what producers have always done by focusing on superior animal care, herd health and technology to produce safe food. This is quantified by the more than 38,000 producers who have already been certified in the PQA Plus program,” Bierman states. View programs at www.pork.org.

Final statements by the author that consumers should eat more fruits and green, less meat, which are better for people and the planet, ignores balance and perhaps uncovers the author’s true agenda: to get Americans to stop eating all meat.

In response, pork producers “must continue to let the public know that we are working hard to produce safe, affordable, high-quality food in the most responsible way possible,” Bierman says.

Meat Institute Urges Action

American Meat Institute (AMI) President and CEO J. Patrick Boyle is urging state agriculture commissioners, secretaries and directors to contact the editors of Time magazine to express their disappointment with last week’s cover story, and to demand a balanced story written by an unbiased reporter.

“I’m sure you will agree this article makes a complete mockery of the modern miracle that happens every day in America’s agricultural sector and completely distorts a range of issues, including large-scale animal operations, food safety, nutritional data, ‘the hidden costs’ of corn, the use of antibiotics in livestock, climate change and the virtues of eating organic,” Boyle wrote in a letter sent Friday to members of the National Association of State Departments of Agriculture.

Boyle also took AMI’s opposition to the Time article to the airwaves in a radio feed on the National Association of Farm Broadcasters radio network, airing on dozens of radio stations across the country.

Losses Wear on Pork Producers

Dating back to late 2007, hog producers have been losing equity – and they are asking how long before the hog market turns and they can return to building equity again.

The amount of drain on equity is different with each operation and its financial position.

“On average, in the seven quarters of losses starting in the fourth quarter of 2007, a 10,000-head-per-year operation would have estimated losses of $315,000,” says Chris Hurt, Purdue University agricultural economist.

“By comparison in the 1998-99 disaster, a 10,000-head-per-year producer would have lost $213,000 in the seven quarters of loss beginning with the first quarter of 1998,” he says.

The current downturn is expected to last for three more quarters, through the first quarter of 2010, increasing accumulated losses to $396,000, meaning this downturn will be both longer and more severe than in 1998-99.

Hog producers have been reluctant to reduce the breeding herd in the current crisis.

“In the past two years, the U.S. breeding herd has dropped by just 3%. In contrast, from mid-1998 to mid-2000, the breeding herd was down 10%,” Hurt says.

He cites four potential reasons for the slower rate of liquidation.

“The first may be that this time the industry’s losses were primarily related to much higher feed prices. Perhaps producers were not convinced that feed prices would stay high after their acceleration in late 2007,” Hurt speculates.

The second reason may have been a misreading of the pork export surge in the spring and summer of 2008, primarily driven by China and a cheap dollar.

“That surge was the primary stimulus for live hog prices moving from $39 in March 2008, to $58 in May, and to highs above $60 in August. Prices that high meant $5-per-bu. corn was not as big a threat as earlier thought, and unfortunately this delayed breeding herd liquidation. Looking back, that export surge was a one-time unique event, as exports have returned to much lower, but more normal levels,” Hurt explains.

Third, the structure of the industry could have played a role in such a slow downward herd adjustment. The industry has never had to make such a large downward adjustment with such a concentrated set of producers.

“Finally, while the current string of losses has been large, profits and net worth accumulation were large in the generally profitable period from 2000 until the current downturn began in the final quarter of 2007,” Hurt says.

By the third quarter of 2007, the average hog producer had overcome the losses of 1998-99 and built up $1.45 million of profits. For farms in hog production since 1998, the current losses that may reach $400,000 in this downturn, may be coming from a high equity base.

That means all hog farms are probably not in financial trouble.

“Those most vulnerable to the current financial losses are those that have started production in the last three years, those that have had large expansions in the past few years, and those that diverted some of their hog earnings in 2000 to 2007 into assets such as stocks or residential housing that plunged in value as well,” he says.

Hurt expects the hog economy to finally turn around in 2010.

“I expect modest losses this fall, with live hog prices averaging about $40 to $42 and all costs near $45. For the winter, hog prices are expected to be in the low to mid-$40s with costs near $46. Profits may return in the spring of 2010 with prices rising to the higher $40s and costs remaining in the $46 to $47 range. For all of 2010, I expect a modest profit of $2 to $5 per head,” Hurt concludes.

For more information, visit our State of the Industry report.

Conservation Stewardship Program

Producers can now sign up for the new Conservation Stewardship Program (CSP). CSP is a voluntary program that encourages agricultural and forestry producers to maintain existing conservation activities and adopt additional ones on their operations. Eligible lands include cropland, grassland, prairie, improved pastureland, rangeland, non-industrial private forestland and agricultural land under the jurisdiction of an Indian tribe. Sign-up deadline is Sept. 30. More information is available at www.nrcs.usda.gov/new_csp.

Estate Tax Relief for Agriculture — Congressmen Mike Thompson (D-CA) and John Salazar (D-CO) have introduced H.R. 3524, the “Family Farm Preservation and Conservation Estate Tax Act.” This legislation will exempt working farm and ranch land from the estate tax, as long as the land is kept in production agriculture. If the land is used or sold for other purposes, a recapture tax would be imposed.

AVMA Issues Livestock Report--The American Veterinary Medical Association (AVMA) has widely distributed a report to Congress that questions the validity of a report from the Pew Commission. AVMA CEO Ron DeHaven wrote in a cover letter to U.S. House and Senate members that the Pew document is being used to support HR 1549 and S 619, the Preservation of Antibiotics for Medical Treatment Act (PAMTA). DeHaven told legislators to vote against PAMTA. “We question the methods and outcomes of the Pew Commission’s report on Industrial Farm Animal Production,” he wrote. AVMA’s concerns available at (www.avma.org/PEWresponse) question several sections of the 2008 PEW report (www.ncifap.org) on the sustainability of the nation’s food animal production systems. The AVMA’s response specifically criticizes the following areas:

• The Pew Commission’s process for gaining technical expertise in the Pew technical reports was biased and did not include the findings and suggestions of a significant number of scientists.

• The Pew report identifies antimicrobial resistance, the environment and animal welfare as key issues for veterinary medicine. But AVMA charges that Pew authors fall short of providing substantive information on how to execute a new plan or program.

• The Pew Commission’s recommendations to highly restrict the use of antibiotics in livestock have not been shown to benefit public health. When Denmark and the Netherlands attempted to impose less restrictive bans on antibiotics than those recommended by Pew, those countries found that even a small decrease in antibiotic use severely compromised animal health and welfare and failed to provide significant improvements in human health.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.

Maximize Total Born to Reduce “Per Pig” Costs

With the current state of the swine industry, to be a low-cost producer, it is important to recognize that “total pigs born” has a big impact on the cost of weaned pigs.

Looking at the Swine Management Services’ farm benchmarking database, we find some very interesting trends. For example, Table 1 shows the top 5% of the 607 farms in the database have the potential for 35.33 pigs born/mated female/year, which calculates to 14.53 pigs born/female farrowed. There are a few farms that top 15 pigs born/litter. Pigs born drops 5.48 pigs/mated female/year to 29.85 in the All Farms’ average, which brings the per-female-farrowed average down to 12.69 pigs.

Graph 1 is even more eye-opening as to the potential and variation in total pigs born/mated female/year. We see a normal bell curve variation with the top farms at 39 pigs/mated female/year, but the bottom end comes in at just 20 pigs/mated female/year – a 19-pig difference!

We did not expect to see such a large variation in potential. Following are some factors that can affect “potential” total pigs born/mated female/year.

• Genetics: Many genetic lines have the potential to farrow 36+ total pigs born/mated female/year

• Gilt development: Top farms have a section in their Standard Operating Procedures (SOP) manuals on gilt development and gilt breeding which includes exposing gilts to mature boars at approximately 200 days of age, recording gilts in heat, breeding after 1-2 recorded (skip) heats, exposing gilts to stalls before breeding, flushing before breeding, and making sure gilts weigh at least 300 lb. at breeding.

• Parity structure: Table 2 shows the top 10% units have an average parity of 2.62 litters. Each farm and genetic line will have an ideal parity structure. The key is getting Parity 0 females to have 12 or more pigs in their first litter, increasing the subsequent three or four parities by 0.50 to 0.75 pigs/litter and then keeping only the older parity females that have above average body condition, are mobile, and can wean 10+ pigs/litter.

• Feeding in lactation: Maximizing each sows’ feed intake while in the farrowing rooms – 7-9 lb./day the first seven days and average over 14 lb./day for an 18- to 20-day lactation period. Ad lib feeding is required to get these feed intake numbers.

• Feeding sows from weaning to breeding: To increase the number of eggs produced and shed, weaned females need to be fed extra feed after weaning. This involves feeding sows an extra 3-6 lb. of feed at a second feeding during the day until they are bred.

• Breeding/insemination: Develop SOPs that ensure sows are bred at least twice, females that return to heat after two services are culled, maintain semen quality by recording temperature of semen at delivery, and maintain a daily log of high/low temperatures in your semen storage cooler. If your production target is to wean 27+ pigs/mated female/year, your total pigs born must average 32+. Review your SOPs for handling, processing and managing large litters.

Remember, total pigs weaned affects the cost to raise a weaned pig. One more pig weaned/mated female/year will lower your breakeven on all pigs by over $1.00/pig.


Key Performance Indicators

Tables 2 and 3 (below) provide 52-week and 13-week rolling averages for key performance indicators (KPI) of breeding herd performance. These tables reflect the most current quarterly data available and are presented with each column. The KPI’s can be used as general guidelines to measure the productivity of your herd compared to the top 10% and top 25% of farms, the average performance for all farms, and the bottom 25% of farms in the SMS database.

If you have questions or comments about these columns, or if you have a specific performance measurement that you would like to see benchmarked in our database, please address them to: mark.rix@swinems.com or
ron.ketchem@swinems.com.



Click to view graphs.

Mark Rix and Ron Ketchem

Canadian Breeding Herd Cutbacks Begin to Slow

Canada’s breeding herd continued to shrink in the second quarter but it did so at the slowest rate since the fourth quarter of 2007. Statistics Canada’s Hog Statistics report, released on Thursday, showed the Canadian breeding herd numbered 1.3798 million head on July 1, down fractionally from the April 1 inventory of 1.383 million head and 4.6% lower than the inventory level on July 1, 2008. As has been the case for all of this large liquidation, the western provinces accounted for more of the decline (down 7.2%) than did the east (down 2.4%).

This reduction in Canada’s breeding herd, when combined with the 2.7% reduction in the U.S. herd on June 1, puts the Canada-U.S. herd at 7.347 million head, 3% lower than one year ago. The June-July count is 5.2% lower than the herd was at its peak of 7.752 million in October 2007. Several analysts, including me, believe that the combined Canada-U.S. herd will have to decline by about this same amount – 400,000 head – to balance supply and demand at price levels that will be profitable relative to higher costs.

Canadian producers intend to farrow 740,700 sows in the July-September quarter, 7.5% fewer than one year ago. Those intentions rise to 743,700 sows in the October-December quarter, only 2.5% lower than last year. Farrowing intentions in the eastern provinces for the two quarters are virtually unchanged (-0.5% and -0.6%) from last year, meaning virtually all of the future decline will come in the west.

Canada’s inventory of market pigs also continued to be smaller than that of one year ago. The count of “all other pigs” (meaning those not included in the breeding stock total) was 10.725 million, 7% lower than one year ago. In spite of significantly lower exports of weaned/feeder pigs to the United States, the stock of pigs weighing under 44 lb. was still down much more (-11.2%) than was the stock of heavier pigs (-3.7% and -7.4% for the 44-132 lb. and over 132 lb. groups).

This is almost certainly due to the intense pressure that recent markets have placed on producers who specialize in weaned pigs and that is especially true of those who sell those pigs on spot markets. Figure 2 shows spot prices for 10-lb. weaned pigs – and the picture is ugly to say the least. These prices get hammered from both sides. When lean hog futures fall or corn and soybean meal future rise, the value of these pigs goes down. There have been times this summer when that value was zero and there are few signs of any significant rally now.

Pork Supply, Hog Market Levels Cause Concern
Friday’s Cold Storage report from USDA was yet another piece of bearish, though reasonably expected, news. Pork inventories on July 31, at 547.331 million pounds, were 8.3% larger than one year earlier, but 27.5% higher than the average for 2003-2007. Ham stocks, though 5% smaller than last year, remain large by historic standards, exceeding the 2003-2007 average by 29%. Belly stocks were only 3.9% higher than last year, while total loin stocks were 16.2% lower than last year.

The problems, from a supply standpoint, in this report are in the “other” and “unclassified” categories. Those two are 25% and 30% higher than last year and they are not small categories. Only the total ham inventory (i.e. the sum of bone-in and boneless hams) at 137.8 million pounds is larger than these two. Stocks of “other” pork totaled 107.3 million pounds on July 31, while stock of “unclassified” pork amounted to 70.6 million pounds.

We don’t know much about these. They contain a number of processed products, such as sausages and bacon, but we don’t know much else. When they begin to account for a large proportion of total cold storage, it becomes a bit difficult to judge just where the marketing challenges might lie.

July 31 cold storage inventories represented 30% of July production. That number is 1.7% higher than last year’s figure, but about in the middle of historical levels. Those have ranged from an outlier low of 23.7% (3.2% lower than all other observations since 1998) in 2001 to a high of 34% in 2000.

Finally, this recent surge in federally inspected (FI) hog slaughter (Figure 4) has everyone concerned about hog numbers this fall. Last week’s run of 2.228 million was only 0.5% lower than last year and 2.7% higher than my forecast level based on the June Hogs and Pigs Report. That makes two weeks in a row that slaughter has been significantly higher than the report suggested. Is it because we backed hogs up with plant shutdowns and slower chain speeds in July? Or, because we have pulled hogs forward with unusually mild summer temperatures? Slaughter weights (201 lb. last week, +6 lb. from last year – again!) can support either argument.

The problem with the “pulled them forward” position is that it requires, at some point, hog numbers to fall short of expected levels unless future weeks’ supplies also grow at a faster rate. That caveat is important as we move into the fall.

What could happen to return the market herd to “normal” rates of gain? The weather will be cool. The corn will be fresh. I’m not sure we will see a hole in marketings due to the seasonal timing of this surge. If we have indeed pulled hogs forward, any eventual reduction will likely be feathered out over several (and perhaps many) weeks from this fall through next spring. Only time will tell, but I fear that these recent big weeks will not result in significant shortfalls in the fourth quarter.

It is so ironic that yet another “good” result for hog producers is causing market difficulties.



Click to view graphs.

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