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Articles from 2007 In September

Variations in Price Reporting

As cash hog prices have fallen to near or below breakeven levels for many pork producers, we thought it would be good to take a look at some historical relationships between the various published prices that the U.S. Department of Agriculture (USDA) releases. The relationship between the different purchase methods changes constantly, especially when markets are making major moves such as we have seen recently.

Figure 1 shows daily data for prior day base purchase prices by purchase type from January 2002 through last week. One of the most notable characteristics of this graph (and the underlying data) is the variability or "noise" that it contains. The source of this noise is the wide differences in packer-buying programs that are manifested in different base price and premium and discount schedules.

Figure 2 shows daily data for prior day net slaughter prices by purchase type for the same period. Note the "quietness" of these data series relative to the prior day base prices. One reason, of course, is that those widely variant packer-buying philosophies must, at the end of the day, arrive at hog values that are reasonably similar. The net money paid by each packer must be competitive.

In addition, there is more certainty in the slaughter data in that the day for which the data are recorded is more certain. Prior day slaughter data include the prices for all of the pigs actually slaughtered on a given day. Prior day purchase data include prices for trades in which the price and a delivery date were agreed to on the prior day -- regardless of when the delivery date may actually be. That variation in delivery date is another source of some of the variability that we see in the daily purchase prices.

Impact of Mandatory Price Reporting
The proposed rules for the renewed mandatory price reporting system will remove one source of this variation. Should the proposed rule become final, a purchase will qualify as "negotiated" if it represents agreement on a price through buyer and seller interaction. The requirement for "agreement on a delivery date" is being dropped since many negotiated sales do not arrive at a specific delivery date on the day that a price agreement is made. This change will put the prices of these sales into the data for the day of the negotiation instead of the day of the delivery. We think that is a proper change that will better reflect the prices negotiated on each day.

Of particular note in both of the graphs below is the relationship of the Other Market Formula prices to the others. Other Market Formula prices are prices based on Chicago Mercantile Exchange (CME) Live Hogs Futures markets. These prices have averaged $1.16 below negotiated prices and over $2 below hog/pork market formula and other purchase arrangement prices since January 2002. Is this proof that selling based on futures markets is a bad idea? Not necessarily.

What it really means is two things. First, when producers sell to packers based on futures market prices, packers will make sure they include enough basis in that price to cover them in virtually all instances. They will hardly ever use the average basis. The reason is that the packer is now taking the basis risk. There is no such thing as a free lunch. If you don't want basis risk, you have to pay someone else to take it and that results in a lower price for your hogs.

The other reason has nothing to do with futures markets and nothing to do with packers and everything to do with human nature. Note that the Other Market Formula line rarely goes above the other prices, but is frequently far below them. That variation is due to producers' experiences and expectations.

After a time of low prices, producers who were burned by low cash prices say, "I'm not doing that again," and aggressively forward price hogs based on futures -- and miss out on the ensuing cyclical rally. That's what happened in 2004.

The shortfall of Other Market Formula prices in 2006 was the result of producers' concerns about a normal cyclical low in the fall of 2006. Those concerns were, no doubt, fed by the predictions of well-meaning agricultural economists based on years and years of data that showed a four-year hog cycle. If 2006 was the cyclical low, then it was a very mild cycle, and producers would have clearly been better off if they had sold hogs on the cash market.

Futures Market Rewards
The good side of this discussion is that producers who have sold hogs on futures-based contracts (again, we point out, based on the advice of well-meaning agricultural economists) are this year being rewarded. Those prices have run $3 to $4/cwt. higher than the negotiated and swine/pork market formula prices since mid-August. That difference will likely grow as we move through the fall, as a good number of hogs were priced on October and December futures at $70 or more.

Hogs and Pigs Report Analysis
Watch your e-mail this weekend for our summary and analysis of Friday's Quarterly Hogs and Pigs Report from USDA.

Click to view graph.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

Newsham Purchasing Monsanto Choice Genetics

Newsham Genetics has entered into a definitive purchase agreement to acquire Monsanto Choice Genetics, Inc. Terms of the agreement were not disclosed.

The acquisition strengthens Newsham’s business base, according to Newsham Genetics Co-CEO Brent Mitchell. “Additionally, we’ll be able to add new products and lines that complement our current offerings, accessing new genetic combinations that provide the most value to our customers, providing even more product choices.

“With Monsanto Choice Genetics and Newsham Genetics currently the second- and third-largest swine genetics companies, the acquisition will create a very strong and vibrant player in the North American market with the most extensive technology in the industry,” says Mitchell.

“We have great respect for the entire Monsanto Choice Genetics team of professionals and we are excited about our future together,” explains Newsham’s Co-CEO Mark Weaver, DVM.

Newsham officials recognized the significant investment that Monsanto made in its genetics platform over the past 10 years. “Monsanto developed the most extensive swine genomic map in the industry, with over 6,000 genomic marker associations for swine performance,” says Weaver. “This technology will allow Newsham to accelerate genetic progress across many different traits for the industry.”

The agreement includes a three-year research alliance between the two companies. The alliance will focus on technology and the genomics platform to take advantage of the value created from these tools.

“We’re pleased Newsham Genetics is acquiring this business and will continue to advance the genomic and marker technology platform for the swine industry,” says Kevin Holloway, president of Monsanto’s Animal Agriculture unit. “The research alliance illustrates Newsham is committed to continuing genomic research and harvesting the rich pipeline that Monsanto has developed.”

More News >

Hog Runs Raise Concerns

Last week's U.S. federally inspected (FI) hog slaughter total of 2.226 million head was the fourth-largest ever and a bit of a shock that it came so early. The three weeks that now stand ahead of that total on the all-time rankings all occurred in December, a time that we typically expect weekly highs to occur.

If Friday and Saturday's slaughter runs just equal those of last week, this week's total will be 2.240 million head and it will rank as the third-largest slaughter week ever. It is very likely that Friday's total will exceed that of last Friday and Saturday's run may do so as well. I don't think the total will be large enough to eclipse the current No. 2 week on record, with 2.258 million head processed the week of Dec. 18, 2004. The all-time high is 2.265 million the week of Dec. 19, 1998, when some plants worked on Sunday. We all remember how much fun that week was!

What Lies Ahead?
All of this begs the questions: "Where is this thing headed and just how alarmed should the industry be?"

I don't think there is any doubt that slaughter totals are headed upward this fall and that they will exceed what was predicted in the June Hogs & Pigs Report. We will get a fresh read on the supply situation on Sept. 28 when the next Hogs & Pigs Report comes out. I hope it gives us a much better feel for market hog inventories.

The increase in slaughter was dramatic back in March (see Figure 1) and, while it has jumped around a bit, we have had only one week below 2006 slaughter levels since then. The six-week average of year-over-year change is stabilizing between 3.5 and 4%, so that looks like a good range for the fourth quarter.

The shock comes in seeing where 4% more hogs leave us for weekly slaughter totals (see Figure 2). Only one week exceeds 2.3 million head, but four of those fourth-quarter weeks will break the current record for weekly slaughter total. And that is if 4% is large enough to capture the increase in supplies.

I don't think anyone should be alarmed, but I think everyone should be concerned. The announced resumption of a partial second shift at Morrell's Sioux City, IA, plant will add 3,200 head of daily capacity and leave the U.S. total at 428,035 head. At 5.4 days/week and allowing for 7,000 head/day more "push-them-through" capacity, U.S. packing plants could handle 2.35 million head weekly. Hog prices would be under some pressure at that operating rate, but the pressure should not be huge.

Adjustments Will Be Made
What can be done? The first steps are in place.
Packers have added capacity and are ready to push animals through. There is no real altruism in that as they expect to make a profit. That is not a bad thing and they are fulfilling their role in the system.

It appears that retailers have many pork features planned for this fall given the relatively high prices of both chicken and beef. That is very good news, but packers and processors need to push for retailers to extend those features over both time and product selection.

Don't expect any more help out of foodservice than is already in place. That has nothing to do with their desire to help. It is just based on the fact the foodservice operators have planning horizons of six months to a year. They may do some featuring, but they cannot change menus in the short run. The bulk of the extra product will have to go through retail and to export markets.

Exports were better in July and, we think, have been better in August. However, heating them up a bit would be a big help. While getting hogs through the packers is an issue, we also have to move the meat and there is just so much that can be done in the U.S. market without deep price cuts. The best solution will be a recovery of our exports. China could be a big part of that, but some recovery in shipments to Mexico would be a huge help, too.

Market weights suggest that we are relatively current at present, but producers need to keep that up in order to not back hogs up when the runs get even bigger. Hog prices are not likely to get much better as we go through this quarter, so there is little incentive to hold them. Get hogs moving when they reach ideal marketing weights and think ahead. Packers will be getting booked earlier and earlier and you will probably have to plan at least one week out in scheduling deliveries.

Finally, all of you loyal North American Preview readers can prepare to enjoy counting the money you will make this fall on those October and December Lean Hogs futures that you sold back in the summer. You did sell some, didn't you?

Click to view graph.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.

Agriculture Secretary Resigns

Agriculture Secretary Mike Johanns resigned from office on Sept. 20, reportedly to seek an open U.S. Senate seat in Nebraska.

In announcing the resignation, President George Bush said Johanns “brought focus and energy to the department,” but was “serious about going home and possibly serving the nation in a different capacity.”

Bush announced Johanns’ resignation at a Rose Garden ceremony. He said Deputy Agriculture Secretary Charles Conner would assume the duties as acting secretary.

Several state officials said that Johanns is expected to seek the Senate seat being vacated at the end of next year by Sen. Chuck Hagel (R-NE).

Several officials criticized the departure of Johanns prior to Congress’ completion of the new farm bill, a goal he said he wanted to reach by the end of the year. The current version expires Sept. 30.

North Carolina Finalizes Swine Lagoon Ban

The North Carolina Pork Council (NCPC) supports passage of the recently approved Senate Bill 1465, Swine Farm Performance Standards, which places a permanent ban on construction of new swine lagoons.

The bill, signed by Gov. Mike Easley, supercedes the state’s nearly 10-year-old building moratorium, and puts in place permanent performance standards for new or expanding hog farms, explains Tommy Stevens, environmental affairs director for the NCPC.

“We accept the performance standards for new and expanding farms as set forth in the bill, and we will continue to be supportive of the research and development of alternative waste treatment technologies that are economically feasible options for our farmers,” says Deborah Johnson, CEO of the NCPC.

The bill provides that existing operations meeting current permitting rules can continue to operate lagoon and sprayfield manure management technologies.

The last part of the legislation incorporates the Methane Capture Pilot Program. Under that effort, up to 50 farms can participate in a pilot program in which methane from animal waste could be captured, electricity generated on the farm and then sold back to the utility companies at a price not to exceed 18 cents/kwh. Actual price would be negotiated between the state utility commission, the utility company and the party or farm the site is located on.

A cost-sharing program will be available to farmers to convert to the new technologies, with the state covering 90% of the cost up to $500,000 for each applicant over the next five years. The state share will be 80% in 2012 and 75% in 2017.

The state legislation was a compromise of many, many meetings and a lot of time negotiating through this whole process, says Stevens. The new law basically places the same restraints on hog industry growth as the moratorium, except that this time the requirements are permanent.

A provision in the legislation covers producers’ lagoons that are in imminent danger of structural failure. Producers would be permitted to replace their lagoons if problems couldn’t be resolved by other means.

“That was something that we wanted and obviously the environmental community did not,” says Stevens.

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10 steps to manage odor

The seemingly ever-present challenge associated with raising hogs is keeping odors at bay.

The questions commonly associated with odor control are basic:

  • What are the realistic expectations for odor in the building, at the site of production?

  • Where does the odor originate?

  • How difficult will it be to manage the odor?

  • What is the cost of controlling the odor and where will I get the most bang for my buck?

Jay Harmon, with the agricultural and bioengineering department at Iowa State University, offered 10 steps to managing odor during an environmental seminar at the World Pork Expo in early June.

Step 1: Siting decisions — The proposed siting of hog production facilities is all about location, Harmon emphasizes. The distance to nearby dwellings, the size of the pork production facility and the exposure angles — from the facility to a residence — must be taken into account.

Before siting, study the historical prevailing winds for direction and frequency during various times of the year. Understand the percentage of time (hours) that a dwelling will experience the “downwind” direction of prevailing winds. The exposure angle — the angle when neighbors are directly downwind — should be documented.

The terrain will affect the intensity of the odor. “As winds die down, wind flows down through valleys,” he explains.

“Acceptable distances are not equal in all directions,” reminds Harmon. “In Iowa, predominant summer winds are from the south and south-southeast. A facility to the south of a neighbor at a given distance has a greater odor impact than one to the north at the same distance.”

Selecting the proper site for a new hog production unit is one of the cheapest odor-control options available, he adds.

Step 2: Manure handling — Injecting manure can reduce odor 50-75% compared to broadcasting. The cost is roughly $0.003/gal. Umbilical systems can be less visible than tankers because of the difference in road traffic. “This may make handling manure more ‘invisible,’” he says.

Step 3: Dietary manipulation — Harmon feels this is one of the easiest options to implement for reducing odors. Cutting crude protein levels and bumping crystalline amino acids can reduce odors 20%, he says. More strategies will emerge.

Step 4: Cover manure storage — Whether permeable (straw, cornstalks, geotextiles) or impermeable (high-density polyethylene), covers help prevent gases from escaping.

Permeable covers can reduce odors by 40-50% at a cost of 10-25¢/sq. ft., Harmon explains. Impermeable covers are more costly at $1.00-1.40/sq. ft., but they also improve odor reduction by 70-85%. Snow and rain accumulation on the impermeable covers must be managed, he adds.

Step 5: Visual barriers and eye appeal — “Well-kept sites get fewer complaints,” Harmon relates. “It serves as a reflection on the overall management of the site.”

The fact of the matter is, people complain less when the hog operation is out of sight. “Although it is very difficult to quantify the impact or costs, the adage ‘out-of-sight, out-of-mind’ is real,” he assures.

Step 6: Pit ventilation — The more odorous air comes from the pit, contributing more than half of the total odor during critical periods. Pit ventilation accelerates volatilization and offers limited benefits to indoor air quality. “Inlet management is more critical with pit ventilation, and remember, a full pit essentially eliminates pit ventilation,” reminds Harmon.

Step 7: Biofilters — Drawing exhaust air through a biofilter bed can reduce odor, ammonia, hydrogen sulfide and dust. Like any odor-curbing technology, the biofilters must be managed properly, particularly the moisture content. Odor levels can be reduced 65-80% at an estimated cost of about 42¢/finished pig.

Precautions must be taken to ensure the biofilter design is compatible with the ventilation system. Whole-house ventilation through a biofilter is not practical, he explains.

Step 8: Vegetative environmental buffers — A properly designed vegetative filter helps lift and mix odorous gases. A wedge-shaped design, with shorter shrubs/trees planted in the outside rows and progressively taller trees in the rows closer to the buildings, will help with this lifting and mixing action.

Naturally, these barriers take years to establish, with the cost ranging from 6-10¢/pig over 20 years, he estimates. A side benefit is the vegetation provides a visual barrier, but be aware of the impact these trees and shrubs can have on a naturally ventilated facility.

Step 9: Chimneys — These relatively low-cost design features promote air mixing and reduce the noise of the ventilation system. Height of the chimney is important for effectiveness, as is the cross-sectional area.

Step 10: Other odor deterrents:

  • Additives — Most effective in dilute systems; effectiveness varies from zero to about 20%.

  • Aeration — 40 to 80% effective in dilute systems with costs averaging about $4/pig.

  • Barriers — They force exhaust air up and reduce dust at ground level; Harmon estimates this relatively low-cost option is about 20% effective.

  • Biocurtains — Remove dust.

  • Digestion — Requires a large investment, but considered 50-80% effective in reducing odors; nutrient neutral.

  • Oil sprinkling — Considered 40-50% effective; can create slippery conditions; commonly not automated.

Harmon says focus on the simple solutions first. “Consider management as well as cost. If you are building new facilities, spend time focused on proper siting. Consider covering or protecting outside manure storage. And be careful with manure application. Remember, you are hauling odor to your neighbor's doorstep.”

More articles on manure management technologies

Pristine on the Prairie

Pristine on the Prairie

This High Plains hog operation uses an elaborate manure handling system to minimize environmental impact.

As dawn breaks in the Oklahoma panhandle, the sky turns a lighter shade of purple. A lone owl glides home from a night of hunting. The scent of sagebrush fills the air while the thump-thump-thump of an oil well serves as background noise.

And, as the light of the morning gathers, it reveals another inhabitant of the High Plains. Just to the left are 13,250 sows. A stone's throw to the right are 13,250 more.

The two sow units make up Seaboard Foods' Wakefield Farm near Turpin, OK, sharing a state-of-the-art environmental management system.

In fact, until the light is full and employees start the feeding chores, neither sound nor smell would tip off the presence of pork production here.

“Like I said, there really are pigs in those barns,” says Don Owens, as sounds of sows drift from gestation facilities. Owens serves as Seaboard Foods' director of environmental, maintenance and construction operations. Sometimes he has to convince visitors that he's not pulling off a bit of magic. It can be hard for anyone to understand how an operation of this size has so little impact on the nearby prairie.

Oklahoma Pork Council Executive Director Roy Lee Lindsey, Jr. has brought a number of legislators to the facility to give them a look at modern pork production. “Some of them have started to question where the hogs are, or whether we have taken them to a bunch of empty buildings,” he says. “Once we have convinced them that this really is the way pork can be produced today, it seems to have quite an impact on their perspective.”

Seven-Step Manure Plan

Wakefield Farm is the sow complex that almost wasn't. Planning began in the late 1990s, but the operation was caught up in Oklahoma's turmoil involving rules for large pork production units. Construction on this Beaver County site began again and the operation went into production in 2002 with an elaborate environmental and nutrient management system.

There are seven components to the manure management system: 1. microbial treatment added weekly to barn pits; 2. HDPE-lined and covered (high-density polyetheylene) solids-settling basins; 3. an HDPE-lined psychrophilic (no heat added) anaerobic digester, with permeable cover; 4. mechanical solids separator; 5. HDPE-lined aeration lagoon for the nitrification/denitrification process; 6. HDPE-lined primary storage lagoon; and 7. HDPE-lined secondary storage lagoon, with sufficient retention time for significant denitrification prior to land application.

“There are other operations that use some of these technologies,” Owens says. “But as far as I know, this is the only farm that uses all the components as one system.”

Here's how it works. Flow begins from pull-plug pits in the barns and goes into the covered solids-settling basins near the first lift station. Liquid effluent from the settling basins flows into the digester, where the cover helps trap and reduce gaseous emissions. Settled solids are pumped to a mechanical solids separator, which produces a dark, black solid component that is trucked to the nearby Dorman sow farm to be composted on a 4-acre concrete composting pad. More than 700 tons of stable, composted product is generated each year, finding use as a source of natural fertilizer and organic matter.

Effluent from the digester flows to the aerated lagoon, which treats the liquid with both coarse- and fine-bubble aeration to further stabilize organic material while also providing additional nitrification/denitrification. Some effluent is used to recharge pits in barns, while the remaining effluent flows to the primary storage lagoon. From there, effluent is pumped to the secondary lagoon for further denitrification, and application to crops through one of three center pivot irrigation systems.

Precious Water

Not to be lost in the elaborate nutrient management scheme is the fact that Wakefield Farm takes good care of another valuable component — water.

“Water is a precious commodity here on the High Plains,” Owens says. “When you look at the effluent leaving the barn vs. the effluent we're pumping from the secondary storage lagoon, we've been able to remove about 75% of the nitrogen. By reducing the amount of nitrogen in the effluent, we're able to get the most value from it, micro-managing the crop, providing the nutrients to match the various stages of growth along with the water.”

It's the job of Roberto Maisonnave, a Seaboard Foods environmental scientist, to make sure the nutrients in the effluent match the agronomic need. “We sample soils and effluent, and make sure we are calculating the correct rate for the application,” he says. Before any farm can apply nutrients, he provides a pumping sheet that specifies the amount to be delivered in accordance with the land application plan.

Operators receive land application maps that show seasonal wetland areas within each field, so that these areas can be protected from effluent application. These areas of the field are also marked with permanent stakes that are clearly visible.

Fresh water is carefully monitored, too. The farm reports its water use weekly in order to make sure conservation techniques are being followed. Seaboard Foods also regularly audits and inspects various components of the water system.

Breathe Easy

Visitors are most impressed at the near absence of odor at the site. Seaboard officials credit the covers on the holding areas and solids separation at the initial stages of manure handling for the reduced odor and emissions. The digester also is designed to trap and reduce emissions, with the gases flowing through a hydrogen sulfide scrubber before being released into the air.

Weekly applications of a granulated, live microbial product into barn pits helps break down solids and aids in reducing odors prior to and during subsequent treatment. Barn pit plugs are pulled on a schedule to help avoid solids build up.

Bio-curtain structures are installed at each end of the breeding-gestation barns to filter particulates and redirect exhaust air upward. And the company audits management practices for housekeeping inside the barns, helping to make sure that the little things are done daily to improve air quality.

Jackrabbit Central

The farm not only blends in with its surroundings, it also seems to provide a boost for the native wildlife population. Since these are dry, moderately sandy Pratt soils, it's not easy to support grassy vegetation, and they are prone to wind erosion. The area around the enhanced waste treatment system receives the annual sowing of a grass mix as well as an extensive weed-control effort. Slopes help direct rainfall to the grassy areas. This helps boost long-term soil quality by increasing the soil organic matter while reducing the chances that soil will blow away.

On an early summer morning, the payoff is obvious as a pair of jackrabbits play tag on a carpet of grass near the secondary storage lagoon.

Owens is all business as he describes the Seaboard Foods environmental management system based on the ISO 14001 standard. Each of the company's 250 farms is inspected on an environmental audit based on about 75 items, twice a year, with a team of employees dedicated to conducting and following up the audits.

But he's obviously just as proud of the trees, some planted and some protected during construction, which provide wildlife habitat around the farm. Bobwhite and blue quail make the farm their home, as well as pheasant and deer. “You might not expect to see that around a farm like this,” he says. “But they are right here, next to all these sows.”

Canada Sets Initiative For Circovirus Relief

Canada has announced a four-year allocation of $76 million to prop up its ailing hog industry.

“Canada's new government is committed to ensuring the profitability of the Canadian hog sector,” announces Christian Paradis, secretary of state for Agriculture. “We recognize the challenges that producers are facing, and through this initiative we will work with industry and veterinarians to give producers the necessary tools to aggressively combat these diseases.”

Porcine circovirus-associated disease (PCVAD) has severely impacted herds, appears to be increasing across Canada and is producing new outbreaks in western provinces.

Recent research shows that mortality rates seem to be rising in affected herds. From 2000 to 2006, deaths and condemnations increased by 4%, representing 1.75 million hogs.

Producers will be assisted in four areas: herd inoculation, research, biosecurity best management practices and long-term risk management solutions.

Canadian Pork Council President Clare Schlegel says: “We applaud Agriculture and Agri-Food Canada for recognizing the critical role that good animal health plays in our sector, as well as the serious challenges hog producers are currently facing. While these diseases did not pose a food safety risk, they have had severe economic impacts on our producers.”