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It's Only September!

What a remarkable few days for U.S. hog slaughter. The three largest days in history for FI slaughter were last Thursday, and Tuesday and Wednesday of this week. Thursday was like one of those unfortunate Olympic swimmers who set a world record in the afternoon and saw four people break it by dinner time. The record of 410,000 lasted until Tuesday's record of 416,000, and then Wednesday sneaked into second place at 414,000. Note that the daily estimate for December 19, 1998, was 420,000 head, but that was a Monday, and it included a large Sunday slaughter during the infamous hog glut -- so it doesn't count as a daily record in my book.
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The truly remarkable occurrence is that prices have held firm and even increased. Wednesday's national weighted average base price in the afternoon report was up over $1/cwt carcass from Tuesday. Thursday morning's national weighted average base price in the prior day report is up over $1.50/cwt carcass. The net prices in Thursday morning's prior day slaughter report are, with the exception of prices based on other market (ie. lean hog futures) formulas, all between $68 and $70. And it's <i>September!</i>
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These figures reflect the fact that live hog demand has strengthened dramatically since spring. Professor Glenn Grimes' calculations for January-July show it down only 1% from last year after having been down nearly 3% as recently as May. Furthermore, live hog demand really did not begin to soften until the second half of 2005, so this January-July comparison is using relatively good times in 2005 as the comparison base. The numbers may get better as we conclude 2006 because we will be comparing to a falling base in 2005.
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Add to this that January-July does not include an increase in live hog demand due to the commencement of second shift operations at the Triumph Foods plant in St. Joseph, which didn't get rolling until August, and have progressed rapidly. The plant's impact has yet to show up in Professor Grimes calculations, but it is being seen in the cash hog prices of recent weeks.
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All of this strength in cash hogs has driven CME Hog Futures contracts to new contract-life highs this week. Selling into this rising market may have left you with some margin calls but will not have left you with any red ink -- and probably left some nice profit margins. I still believe incremental selling into this market is prudent. No, you won't get the highest possible price, but you will get profits that you never thought would be there, and you will free up time to use to do other important things -- like fine-tuning your breeding or nursery management or helping that son or daughter prepare for bow hunting or basketball. Don't forget the real important things in life!
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The average national weighted average net price for year-to-date 2006 is just over $64/cwt carcass. Given the recent strength of cash prices, October LH futures at $67+ and December LH futures at $64+, that number will probably rise a little between now and year's end. CME Lean Hogs futures for February through October 2007 (the last contract on the board right now) averaged $64.08 at mid-session on Thursday. There is not much basis between CME Lean Hogs futures prices and the national weighted average net price, so these futures prices are a good estimate of next year's price -- and are available for you to take a look at right now.
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Did you ever really expect to get to sell hogs in 2007 for as much as you sold them for in 2006? Truly remarkable.
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And why has this happened? Exports are a big factor, and new plant capacity is another, but the extremely measured response of producers to good times is the real hero. Figure 1 shows the U.S. breeding herd for each quarter since 1980. The herd bottomed out at 5.937 million in March 2004 and has grown more or less steadily and SLOWLY since then.
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I said in late 2004 that I would expect the breeding herd to grow 3-4% in this expansion phase. Using the December 2004 number of 5.969 million head, that would have put the herd at 6.15 to 6.21 million head at its peak about two years later. That's the historical pattern.
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So how have we done? Assuming that the breeding herd on December 1 is 1% larger than one year ago, the December herd will number 6.071 million head, 80,000 to 140,000 smaller than I believed would be the case. Many industry observers believe those additional sows are still coming -- and I agree with them. Another 100,000 sows will likely go into production over the next year or so. But they are coming slower than anyone expected and that is a very good thing for the hog market. Keep up the good (and slow!) work.
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<a href="http://nationalhogfarmer.com/images/0908mkt.doc" target="_new"><img align="left" valign="top" src="http://images.industryclick.com/files/17/graphlogo.jpg" vspace="0" border="0" hspace="3"></a><br><br> Click to view graph.<br><br>
<font color="red">Steve R. Meyer, Ph.D.<br>
Paragon Economics, Inc.<br>
e-mail: <a href="mailto:[email protected]">[email protected]</a></font>

Deadline Extended for Air Consent Agreement

Pork producers who signed an Air Consent Agreement with the Environmental Protection Agency (EPA) have a deadline to meet.

Producers who had an attachment describing a farm(s) housing 25,000 or more hogs weighing 55 lb. or more, or 100,000 hogs weighing under 55 lb., must file a one-time report required under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) within 120 days of executing the agreement with EPA.

EPA has granted a one-time extension through the month of September for producers who may have already missed their 120-day reporting deadline. Failure to meet the deadline may void the legal protection offered by EPA for signing the agreement.

The report must include the language found in section 28(A) of the consent agreement, which can be found on page 9 on the EPA Web site: www.epa.gov/compliance/resources/agreements/caa/cafo-agr-050121.pdf

For more information, contact the U.S. Environmental Protection Agency, Special Litigation and Projects Division (2248A), Attn: AFO/CAFO certifications, Office of Regulatory Enforcement, 1200 Pennsylvania Ave. NW, Washington, DC 20460. Or contact Allen Stokes, director of environment, National Pork Board, at (515) 223-3447 or [email protected]

Comments Filed on CAFO Rule

The National Pork Producers Council (NPPC) filed comments Aug. 30 on the federal Clean Water Act proposed by the Environmental Protection Agency (EPA) to regulate confined animal feeding operations (CAFOs).

“EPA has proposed a reasonable final CAFO rule, which will provide an effective regulatory program that addresses clean water issues while keeping regulatory costs for producers low,” says Randy Spronk, chairman of NPPC’s Environment Committee and a hog producer from Minnesota. “The pork industry always has sought sensible regulations that are achievable, affordable and sustainable. We believe EPA has met those criteria.”

The proposed regulation is a revision of a 2003 rule that required CAFOs over a certain size to obtain National Pollutant Discharge Elimination System (NPDES) permits, and to develop and implement nutrient management plans (NMPs).

NPPC and other livestock groups challenged that rule in federal court, arguing that the Clean Water Act requires NPDES permits only for producers who discharge. The U.S. Court of Appeals agreed and ordered EPA to revise the rule.

Under the revised rule, only CAFOs that discharge must obtain NPDES permits and submit NMPs.

“The research reported in our comments shows that less than 1% of swine CAFOs discharge in any year,” says Spronk, “so EPA’s decision to not require permits of CAFOs that do not discharge is justified.”

In its comments, the NPPC did express some serious concerns about the proposed EPA rule:

  • Possible major delays in CAFOs obtaining NPDES permits or getting approval for changes to NMPs because of lengthy EPA reviews and public participation requirements.
  • Concern that the July 31, 2007 permit deadline for covered CAFOs provides too little time for states to amend their permit regulations. NPPC asked EPA to give states a year to amend their programs to the final CAFO rule and one additional year for CAFOs to submit permit applications and NMPs.
To read NPPC’s comments on the revised final CAFO rule, visit www.nppc.org

Gestation Stall Ban on Ballot

Arizona’s Proposition 204 will appear on the general election ballot on Nov. 7. It would amend the Arizona criminal code to make it a class 1 misdemeanor to use sow gestation stalls except in the seven days prior to expected farrowing.

The law would take effect on Jan. 1, 2013. Proposition 204 also includes rulings for the housing of calves raised for veal.

A newspaper survey conducted in March found that 78% of 527 randomly selected respondents likely to vote in the Arizona general election favored Proposition 204. The Social Research Laboratory at Northern Arizona University conducted the survey.

Arizonans have been provided information about pork production by Arizona pork producers who have received training from Operation Main Street, a Pork Checkoff program to train pork producers on how to relate accurate information about modern pork production.

More on the Arizona issue is available at www.azFarmersRanchers.com

Illinois Simplifies Environmental Rules

To simplify the myriad of environmental regulations that pertain to agricultural and horticultural operations, the University of Illinois (U of I) Extension developed Ezregs, a new Web site that can be accessed at www.ezregs.uiuc.edu

“Ezregs makes it easier to find and understand the regulations that affect the day-to-day operations of producers and other farm and plant professionals,” says Ted Funk, U of I Extension specialist in agricultural and biological engineering. Funk is a co-author of the new site, along with Extension specialists Randy Fonner, Scott Bretthauer and Bruce Palsrud.

The Web site features a database of 13 sets of regulations including the Illinois Environmental Protection Agency Livestock Regulations, the Livestock Management Facility Act, the Illinois Construction Site Stormwater Permit, the Illinois Pesticide Act, the Endangered Species Act and the Historic Resources Preservation Act.

Currently, Web site users can access sections on four different types of operations: livestock production, food crop production, ornamental horticulture production and landscape maintenance.

After choosing a type of production system, users can scroll through frequently asked questions that will pull up pertinent regulations. Answers are provided in laymen’s terms; a glossary section is also included.

“I think this is one of those Web sites that people are going to bookmark as a favorite and return to often,” Funk says. “There are just too many details in the regulations for anyone to commit to memory, and those are details that can make or break an operation.”

Indiana Pork Supports Growth

Indiana Pork, the strategic alliance between the Indiana Pork Producers Association (IPPA) and the Indiana Pork Advocacy Coalition (INPAC), boards of directors voted unanimously to endorse the efforts of Gov. Mitch Daniels to expand pork production as part of the governor’s livestock initiative in the state.

Daniels has called for pork production to double in Indiana by 2025. The goal is to make Indiana a national leader in integrating livestock into local economic development using sound environmental practices, public understanding of modern livestock agriculture and land-use planning.

“Our organization sees the governor’s initiative as a critical move to revitalizing the rural economy in our state,” says Monty Moss, DVM, IPPA president. “Increasing pork production not only benefits pork producers, it benefits grain farmers and all the other vendors who provide goods and services needed in pork production.”

Estimates are that pork producers often buy goods and services from more than 50 vendors including feed suppliers, veterinarians, construction firms, plumbers, transportation firms, waste handlers and more. In doing so, those purchases support rural economies and provide a downstream benefit for tax-supported institutions, including schools.

Gov. Daniels, Lt. Gov. Becky Skillman and the Indiana State Department of Agriculture have demonstrated extraordinary leadership to promote Indiana livestock, especially pork production,” adds INPAC President David Hardin. “In addition to calling for increased pork production, they have taken aggressive steps to establish new markets as our industry expands.”

Gov. Daniels and state agriculture department Director Andy Miller recently completed a trade mission to Japan and South Korea where they, along with IPPA representatives, met with Asian customers to promote Indiana pork.

“This type of bold leadership puts Indiana out in front of other states in their efforts to support a stronger rural economy,” says Moss. “With this vote, we hope to show the non-agricultural community that support for agriculture has a positive impact on the entire state.”

Indiana Names New Staffers

Indiana Pork has hired three new staff members.

Mike Platt has been named new executive director. Platt is a graduate of George Washington University and has more than 20 years of association management and business management expertise.

Beth Richardson, a graduate of Purdue University from Lebanon, IN, has been hired as operations manager.

Emily Otto-Tice is IPPA’s new senior director of business development. She was most recently employed by JBS United.

ID System Needs Better Focus

The National Animal Identification System (NAIS) needs more focus and direction before livestock producers will accept it.

That was the opinion of more than 80% of participants at the National Institute for Animal Agriculture’s (NIAA) ID-Info-Expo 2006 in Kansas City, MO, who suggested that the program is behind expectations. More than 78% of the 100 respondents indicated NAIS should be a mandatory program.

Agriculture Secretary Mike Johanns, in his Aug. 23-keynote address at the NIAA meeting, stressed the program will remain voluntary under his jurisdiction. He believes the marketplace will push implementation of NAIS through premium opportunities for producers.

Cost and confidentiality were named as two of the biggest obstacles to adopting NAIS.

Johanns said data collected through private data management companies would be kept confidential and used only if there was a disease outbreak.

NAIS was developed by the Agriculture Department in 2004 to help safeguard the health of U.S. livestock. The goal is to have 100% of premises registered by January 2009, according to USDA’s Animal and Plant Health Inspection Service. In mid-August, 297,000 premises were registered.

To learn more about NAIS, go to www.usda.gov. To learn more about the NIAA survey, go to www.animalagriculture.org

Animal Welfare Auditor Training

A two-day instructional course to prepare for becoming a certified animal welfare auditor is set for Sept. 20-21 at Fremont, NE, and Schuyler, NE. The events are sponsored by the Professional Animal Auditor Certification Organization, Inc. (PAACO) and the American Meat Institute (AMI).

The first course offered by PAACO and AMI held in February, received high marks, prompting scheduling a second course.

The hands-on course is the first step in achieving certification status for cattle, swine and sheep plant auditors. Participants earn full certification by passing an examination and completing at least three in-plant audits monitored by an approved instructor/auditor.

The first day’s instruction takes place at the Hormel Foods packing plant in Fremont, NE. The second day’s training will be held at the Cargill beef plant in Schuyler, NE.

Course instructors include Angela Baysinger, DVM, Farmland Foods; Paul DuBois, DVM, Cargill Pork; Temple Grandin, president of Grandin Livestock Handling Systems; Kellye Pfalzgraf, Tyson Foods; Janet Riley, AMI; and Mike Siemens, Cargill Beef.

For more information, contact Mike Simpson, executive director of PAACO at (402) 403-0104 or e-mail [email protected]

Hog Prices Beat Predictions

With hog prices outperforming expectations this summer, observers wonder why producers are not expanding.

“The pork production industry has been profitable since the spring of 2004,” remarks Chris Hurt, Purdue University Extension swine specialist. “Producers, however, relate their concerns about large market uncertainties and the high cost of buildings as two important reasons for not expanding.

“In addition, uncertainly over rising corn prices with booming ethanol use has left many producers extremely cautious,” he adds.

Hog prices have made large gains since May that have caused analysts to look for explanations and to increase fall and winter price forecasts.

“The year got off to a rugged start,” says Hurt. “In the first four months of 2006, live hog prices averaged $42.24/cwt. That was more than $9 below the average in the same period in the previous year and kept revenues just above cost of production.”

Why were prices so depressed?

“First, meat and poultry production were very high,” notes Hurt. “During the first quarter, beef production was up 6%, pork was up nearly 4%, and poultry was up near 4%. Secondly, avian influenza in Europe in the winter and spring resulted in reduced broiler exports, with that production pushed back into the domestic market.

“Finally, the pork market expected pork supplies would continue to grow throughout the year with more breeding herd expansion. What evolved was different than expectations. Broiler exports picked up again late in the spring, the growth in pork supplies early in the year yielded to more moderate increases in the summer, and the USDA’s June Hogs and Pigs report confirmed little expansion of the U.S. breeding herd.”

Futures prices have increased price expectations. October lean hog futures have increased from $56 in May to $66 recently.

“Fundamentally, pork supplies are now expected to be up only 1-2% for this fall and winter,” says Hurt. “This summer’s farrowings are expected to be unchanged and fall farrowings are up only 1%. Higher corn prices after this fall’s harvest may keep marketing weights fairly close to unchanged as well.

“Foreign demand for pork has continued to enhance hog prices. With data currently available, exports for the year have been up 15%. With more pork moving out of the country, the available supplies in the domestic market have been up less than 1% this year. Finally, indications are that retail margins have been narrower than anticipated this summer, which has added to farm level prices as well.”

For June, July and August, hog prices averaged $3.40 higher than for the same period in 2005. If this additional margin lasts, which appears likely, hog prices would average about $49 in the last quarter of 2006 and around $46 in the first quarter of 2007.

Hurt says the current hog market provides substantially better pricing opportunities than earlier anticipated. If producers choose to forward-price their hogs for the fall and winter, they should complete this process by early September while summer cash prices still tend to be high.