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Articles from 2008 In September


Positive - But Not Resoundingly So

USDA's quarterly Hogs and Pigs Report, released last Friday, indicates ample supplies of market hogs in the short term, moderating supplies late this fall, and then some reductions in the second quarter of 2009 and beyond. Those cutbacks do not appear to be large enough to drive hog prices clearly into profitable territory and smaller reductions in farrowings in the Dec-Feb quarter could drive supplies back near 2008 levels in late 2009.
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This report was almost precisely as expected by market analysts (see Table 1). In fact, I have never seen one any closer than this. The only differences of any size were in the 120-179-lb. inventory class and the Jun-Aug pigs saved per litter category. The former implies that market hog supplies in October and November will be larger than expected and the latter implies that we will have to account for even higher productivity from this point forward.
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The 2.6% reduction in the breeding herd agrees closely with sow slaughter and gilt retention this past summer, but it is still a bit disappointing given the projected level of production costs for the rest of 2008 and 2009. This reduction, especially when combined with the increase in productivity, will not drive hog supplies down enough to provide consistently positive returns next year. I expect further reductions in the U.S. sow herd given the current outlook for substantial losses this fall and current sow price levels.
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Given recent corn and soybean meal futures prices, costs next year will be just over $80/cwt., carcass. As you can see from my price forecasts in Table 2, I think prices in Q2 and Q3 of 2009 may be high enough to cover theses costs, but I do not think any other quarterly prices through the end of 2009 will do so.
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NOTE TO READERS: I will include my usual production and price forecast tables which include the forecasts of Iowa State University, the University of Missouri, and the Livestock Marketing Information Center in this Friday's North American Preview.
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<b> Farrowing Intentions Baffling </b>
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One curious number in this report is the Dec-Feb farrowing intentions figure. It indicates that after cutting farrowings by 5.5% in the Sep-Nov quarter, producers now expect Dec-Feb farrowings to be only 2.9% lower than one year earlier. It appears that some producers were encouraged by the August price spike and added more gilts. Sow slaughter slowed slightly, but not by enough to justify this rebound in farrowings. And, such a quick recovery of farrowing numbers does not fit with the need to reduce supplies further in order to bring profits back to producers.
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This report leaves Q4-2008 slaughter at unprecedented levels of nearly 31 million head. Note in Figure 1 that I still have eight weeks this fall with Federally Inspected (FI) slaughter levels above 2.4 million head - a level reached only once in history. I believe slaughter capacity will be sufficient as long as we do not have a plant close due to a fire, labor disruption, etc. Packer margins have returned to more normal levels after a truly exceptional summer and they should be large enough this fall to encourage high throughput levels. No surprise there!
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This report does point to shorter - but not "short" - supplies in December. This pattern could point to an early seasonal low for hog prices, but we must remember that pork demand is basically on a downhill slide from Dec. 1 onward as most holiday hams are purchased by then. If this report is correct on the weight category inventories, though, much of the supply pressure should be off come December.
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<b> Demand & Supply</b>
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I still think two items are critical:

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<li> Demand has to hold up if U.S. producers are to see a return to profitability. This report does not indicate a production cutback large enough to drive prices to profitable levels unless much of the live hog demand surge we have seen in 2008 remains in force. That statement, of course, really boils down to this: "Exports need to stay strong." Recent financial challenges will probably keep the U.S. dollar low, so exports may continue strong. But I do not think we should count on the kind of growth we have seen in 2008 to continue. It is just unrealistic to think that we can continue to grow exports at this pace, especially with China embarking on a major pig breeding herd buildup.</li>
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<li> The U.S. breeding herd and, consequently, U.S. output must be reduced more in order to provide any assurance of ongoing profits. The U.S. breeding herd, at 6.049 million head, is now 172,000 head smaller than it was at its December 2007 peak. I still believe the herd must decline by another 180,000 to 230,000 sows to see prices high enough to cover higher feed costs over the next five years. I do believe U.S. crop farmers will eventually get yields high enough to drive grain prices lower, but that will take time and hog producers simply cannot stand any more years like 2008 or, for that matter, 2009 as it looks at present.</li> </ol>
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<a href="http://nationalhogfarmer.com/images/0929mkt.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 graphs.<br><br>
<font color="red">Steve R. Meyer, Ph.D.<br>
Paragon Economics, Inc.<br>
e-mail: <a href="mailto:steve@paragoneconomics.com">steve@paragoneconomics.com</a></font>

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A Fine Financial Mess

I do not even pretend to understand everything about what is going on with U.S. financial institutions and the proposed bailout or rescue or support or whatever you want to call it by the federal government. What I think I understand is this: Mounting defaults on mortgages cast huge doubts on the value of many mortgage-based debt packages. Those doubts caused institutions to quit buying the packages, meaning that dollars are no longer moving and no values can be determined. That has caused the entire system to grind to a virtual halt and that means that dollars are not available in the credit market.

Much of that is above us mere mortals - for now! If the situation continues, though, the halt of trades on Wall Street and in international financial markets will mean no credit for national manufacturers and, eventually, main street businesses. There is still time to keep this from getting that far, but the time period is indeed finite.

Robert Dieli, a friend of mine and the owner of Mr. Model Online, a macro-economic forecasting firm and website, tells me that there is an appropriate role for the federal government to play in this crisis and that is the role of a market maker - one who steps in and begins the transaction process at some price level. The market may move either way from that point, but someone has to step in and begin the process of assigning value to these questionable assets. They are not all worthless, but you can't sort through them efficiently without a starting place. Bob, like me, is pretty much a free market economist who dislikes any unnecessary government involvement. So, since he normally agrees with my perfectly reasonable biases, I tend to listen to him and what he says makes sense. I don't like our tax money being used that way, but I don't know that there is much choice at this point.

Talk to Your Lender
What does it mean for pork producers? Financing could get tight. So, an industry facing 10-12 months of losses in the next 15 might find additional capital hard to come by. Do you have a plan in place? Will it survive your lender not being able to access sufficient capital? I don't want to sound doomsday, but you need to be talking to your lender about what is possible over the next few months.

This situation could be even more limiting to the grain sector. U.S. corn and soybean producers are looking at unprecedented up-front costs to plant next year's crop. Large capital requirements and limited capital availability do not mix. At best, they mean the cost of capital will rise, making breakeven costs even higher. At worst, they could mean some acres do not get planted.

Last spring, I heard of an active secondary market in land leases in some areas. Some lease holders could not access sufficient capital to plant a crop, so they sold the leases to others who could. That scenario could play out in spades in 2009, especially at record-high lease rates.

Mark Greenwood of AgStar Financial Services has pointed out that one reasonable strategy for pork producers to handle high feed costs is to backward integrate into corn and soybean production. Everything that goes around comes around, right? If you have the labor and machinery to do that or can access them through custom farming arrangements, a secondary lease market may provide such an opportunity - provided you can access the capital necessary. Now is the time to explore the possibility and make plans if you are interested.

Will Demand Hold?
Hog prices have stabilized over the past couple of weeks. Some believe that will be the case for the rest of this year, but I am not in that camp. Robust demand can only go so far and if Friday and Saturday slaughter this week are equal to those of last week, the total will be near 2.35 million head. That's another record for the respective week and the third time ever that a September week has seen over 2.3 million. And all three of those weeks have been this year. Unless demand is truly exceptional, it will be very difficult to hold these price levels as 2.4 or even 2.5 million hogs show up at U.S. plants each week from October through December.

Expectations for the Pig Crop Report
The results of DowJones survey of hog market analysts' asking for their expectations for today's quarterly Hogs and Pigs Report appear in Figure 1. Analysts expect the breeding herd to show a larger, but by no means robust, decline relative to last year. They also expect the market herd to remain significantly larger than last year, even though the Sept. 1 inventory will be far closer than in the last two quarters. That, of course, is primarily due to comparing to very large numbers one year ago.

These numbers indicate that analysts expect market hog supplies to get much closer to year-ago levels come mid-November (i.e. the 60-119-lb. inventory up only 1.9%). But they also predict that farrowings may only decline 4% relative to last year. Combine that with recent quarters' 1% growth in litter size and the numbers suggest March-August 2009 slaughter just 3% smaller than this year. That would be a very anemic reduction in terms of price impacts and forecasted costs near $80/cwt., carcass.

The report will be released at 2:00 p.m. CDT today. Watch your inbox for a summary of the actual report.




Click to view graphs.

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

Smithfield Plans to Buy U.S. Hogs Exclusively

Smithfield Foods has announced it will process only hogs born and raised in the United States, effective April 2009.

The announcement comes as new labeling regulations become effective for various meat, fruit and vegetable products. As of Sept. 30, 2008, mandatory country-of-origin labeling (COOL) is required for all covered commodities supplied directly or indirectly to a retailer.

Smithfield’s Sept. 24 statement says it intends to procure only hogs born and raised in the United States at its U.S. facilities. The company says labeling will be used to communicate this to consumers.

“Smithfield expects that any independent producer who wishes to be a valued supplier of live animals to Smithfield will work with the company between now and the end of March to create a fully documented and transparent supply of hogs born and raised in the USA,” the statement says.

Pork Economics 101

We’re going back to Econ 101 again this week. Figures 1 and 2 accompany the following discussion.

Higher demand is a great thing! It allows everyone to be happy. Consumers are happy because they are the ones who initiate higher demand. They decide how to spend their limited resources to maximize their utility or well-being. If they did not want to buy more product or pay higher prices, neither would happen.

Of course, that is not true of every consumer. Some may not want to pay more, but they are forced to do so by those that will. U.S. consumers may not like this summer’s higher prices, but robust export demand has set the course.

We have seen hog demand rise this summer, driven primarily by higher export demand for pork and pork variety meats. The increase in demand has caused prices to rise even though supplies have been significantly larger than one year ago. Figure 1 represents these changes by the shifts of demand from D to D’ and of supply from S to S’. The equilibrium quantity rises to Q’ and price rises to P’.

The position of the supply function in these P-Q diagrams is determined by a good’s variable costs of production. If they rise, then price must rise in order to cause producers to produce even the same amount of a good. The flip side is that fewer units will be produced at any given price level. That means that supply shifts up and to the left when costs rise – such as the shift from S to S’ in Figure 2.

So what happens if supply shifts up and to the left, but the quantity of output remains the same? In the short run, output remains Q and the price received remains P, but the cost of producing output Q is C=P* and per unit profit is P-C, which is obviously negative. Does that sound familiar?

There are only two ways to rectify this situation – increase demand or reduce output. A demand shift to D’ would push prices upward to P*=C and output could remain Q. Consumers would again be happy since they make the decisions that determine demand. Producers would again be happy since they are not losing money. In fact, at any point on their supply curve, producers earn a “normal” rate of return on invested capital since the opportunity cost of investing that capital elsewhere is built into a firm’s costs. I’ll ask you to just trust me on that one for now.

The more likely way to rectify this loss situation, though, is to reduce output from Q to Q’ in order to drive price to P’, a level which equilibrates the quantity demanded from demand D and the quantity supplies from supply S’. Consumers are once again happy and producers are once again earning normal rates of return on invested capital, but they are producing less and, quite likely, there are fewer producers. Not everyone is happy with that outcome.

Looking Ahead
It appears now that average hog production costs through the end of 2009 will be about $80-$83/cwt., carcass. The average for Chicago Mercantile Exchange (CME) Group Lean Hogs futures contracts over that same period as of Monday, Sept. 15 was $78.35, implying that average net cash hog prices will be $75-$77. At those levels, per head losses will average $6-$16 through the end of 2009.

So, can we wait for demand to catch up or must we cut back? Given the strength of demand this year, and the strengthening U.S. dollar, “demanding” our way out of this appears unlikely. And the reduction of the U.S. sow herd has been small thus far. U.S. sow slaughter of U.S. sows is 11% higher, year-to-date. U.S. beef cow slaughter is 13% higher. No data are available on the slaughter rate for broiler-type hens, but the size of that flock went below year-ago levels in June for the first time since February 2007 and stood 1.5% lower than last year as of July 30.

I still think output has to be significantly reduced if profits are to return to the pork industry. The average national net price for this year is going to be $66-$70/cwt., carcass. Reaching $82/cwt., carcass, would require a 20% increase in prices and using a price flexibility of 2:1 to 3:1 would mean production will have to fall by 7-10%. Since the least productive sows will be removed, the U.S.-Canadian sow herd must decline by a larger percentage than that. The U.S. isn’t there yet and will not get there in 2009, but given present cost prospects, that must still be the objective if profits are to return.




Click to view graphs.

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

New Hog Farm Owner Responds To PETA Animal Abuse Video

A representative of MowMar Farms, the new owner of an Iowa hog operation featured in a video posted on the PETA Web site, says he is surprised and outraged over the images of animal abuse portrayed at the Bayard, IA, facility.

MowMar, based in Fairmont, MN, has operated as a family-owned swine business for over 30 years.

“MowMar Farms does not and will not tolerate the mistreatment of any animals under our husbandry, and we take these PETA allegations very seriously,” said a company statement released by the National Pork Board.

PETA (People for the Ethical Treatment of Animals) indicated the mistreatment of pigs was documented on film over a three-month period starting June 10. MowMar Farms purchased the farm just a month ago and has retained a new management company to oversee daily operations.

MowMar officials said they first learned of the PETA allegations just a few days ago, Sept. 15, when PETA notified MowMar that it wanted to meet.

PETA and MowMar officials had a frank and open discussion in a Sept. 17 meeting about PETA’s discoveries and outlined actions to correct the situation. MowMar and the farm manager agreed to:

1. A thorough investigation into the incidents, policies and personnel that were in place prior to the acquisition of the farm by MowMar. Employees who committed animal cruelty violations have been and will be terminated based on the findings of the investigation.

2. An animal handling expert will be invited to visit the farm and conduct a review of the policies and procedures and provide independent guidance on best management practices.

3. Policies and procedures that are not considered consistent with MowMar’s policies and generally-accepted standards for the treatment of farm animals will be revised and strengthened.

4. Current and future employees of MowMar and the farm management company will receive extensive training on MowMar policies and the proper treatment of animals on their farms.

5. The effectiveness of video monitoring equipment is being studied as a tool to oversee all aspects of herd care.

MowMar Farms will continue to enforce a “zero-tolerance” policy with regard to farm animal abuse and officials are committed to resolving “this inexcusable situation as quickly as possible.”

Pork Industry Responds To Iowa Hog Farm Video

“The National Pork Board and America’s pork producers take their ethical responsibility for the proper care of pigs seriously and will not tolerate any mistreatment of animals.”

That statement from California pork producer and National Pork Board President Steve Weaver comes in response to an incident of alleged animal abuse at an Iowa hog farm.

A video placed on the Internet by the People for the Ethical Treatment of Animals (PETA) reportedly depicts the misconduct of an employee charged with the care of animals at a hog facility at Bayard, IA.

The owners of the hog farm (a supplier Hormel Foods) said they are taking immediate steps to correct the problems uncovered. Representatives of the owners met this morning with PETA staff members to discuss specific corrective steps.

“U.S. pork producers are committed to care for animals in a way that protects their well-being,” adds Weaver. “The industry provides education and training programs – including Pork Quality Assurance Plus and the Transport Quality Assurance Program – to ensure that all persons involved in the care of pigs understand their ethical responsibility and possess the skills necessary to provide good care.”

Missouri Soybean Group Joins Effort to Improve Swine Nutrition

The Missouri Soybean Merchandising Council has joined the Pork Checkoff’s Nutritional Efficiency Consortium, groups that have banded together to address the increasing cost of producing pork through research.

Consortium members include the National Pork Board, state pork associations, state and national corn growers associations and several allied industry organizations.

“We are 25 partners-strong in our quest to maximize feed efficiencies in the pork industry,” says Larry Kline, vice president of finance and business development for the Pork Board. “This is a great example of pork producers working together and partnering outside the industry to find solutions.”

The nutritional efficiency consortium has funded over $1.1 million in research. Projects include a review of alternative feed ingredients for swine rations; the use of co-products, such as distiller’s dried grains with soluble; the estimation of net energy for feedstuffs; a study looking at the physiology of nutrient utilization by pigs; and the impact of co-product use on pork quality.

“The benefits to the industry are huge. This consortium allows us to leverage checkoff monies with funds from our partners, but the benefit is not only financial,” explains Mark Boggess, director of animal science for the Pork Board. “This consortium pools together the expertise of all of the different partner organizations. We set better priorities and make better decisions for the industry as a group. The Missouri Soybean Merchandising Council is a great new partner.”

More information on the consortium is available at pork.org or by following the Pork Science tab.

At home on a hog farm

National Hog Farmer Aerial shot of the O'Neel farm near Friend, Neb.

This family built a home and a hog farm from scratch, while enjoying the beauty of nature. Terry and Diane O'Neel like to relax the old-fashioned way — sitting on the porch swing of their farm home near Friend, NE, listening to songbirds in a nearby grove of trees.

It wasn't always this way. The O'Neel farm site was once a wide-open crop field where, as a high-school kid, Terry picked up straw bales under the searing summer sun. And he rode a tractor each fall, disking down clods to get the ground ready for another crop.

It all changed when the O'Neels bought this ground from Terry's parents and started building their homeplace by planting a thousand trees. They moved in a house, remodeled it to raise a family, and constructed seven hog buildings to house 550 sows and their offspring through finishing.

After nearly 20 years, those trees have matured to offer shelter for birds and bunnies. Add in the white, crushed-rock driveways, neatly trimmed grass, colored-metal buildings and Diane's flowerbeds, and you have a professional pork production system housed in a park-like setting.

“We can see and hear the songbirds, and yet we also have an operation that lets us produce pork efficiently,” Terry says. “I think that is evidence that we are working in harmony with the environment.”

Biofilter bonus
The O'Neel operation is truly a family business, as daughter Danielle and son Ethan, along with Danielle's fiancée, Trent Roesler, also are involved in the farm. The O'Neels produce about 9,000 pigs a year as well as grow no-till corn and soybeans. They manage about 660 acres, with about 300 of those acres under center-pivot irrigation.

The latest building is a 2,000-head finisher, set up with four, 500-head rooms over a deep pit. Since the building is power-ventilated, the O'Neels are working with the University of Nebraska in setting up horizontal biofilters to treat the exhaust air. The project has been partially funded by the Nebraska Environmental Trust Fund and the Nebraska Pork Producers Association.

The biofilter is a farm-constructed system built with a number of recycled items. Old wooden pallets, wire hog panels and gates make a maze of plenums through which the air is directed. Wood chips derived from ground-up pallets provide the filtering medium.

“This medium provides a home for microbes,” explains Rick Stowell, an Extension agricultural engineer with the University of Nebraska. “The biofiltering actually is done primarily by the actions of the microbes. When those microbes are doing their job, a biofilter can be 90% effective at reducing the odor.”

Eliminating as much odor as possible is important to the O'Neels. “We have neighbors located only about a quarter-mile south of the operation,” Terry says. “The barn sits across the road from our home on our original farmstead, where my mother still lives.”

The new barn also has a number of features that help conserve energy and water. Controllers can be set to turn lights on and off, control misters and handle the soaking cycle when the barn is set for cleaning. The O'Neels switched to compact fluorescent lighting in their barns to cut down on electricity use.

Nutrient value
The O'Neels also are excited about the new finisher because it will capture and store nutrients in its deep pit. “We will agitate the manure and apply it to our crop ground in the fall,” Terry says. “With the price of phosphorus skyrocketing and other commercial fertilizer nutrients going up as well, we believe there will be more than $27,000 worth of nutrients in that pit for us to apply each year.”

The seven original barns use a pull-plug system and shallow pits, which drain to a three-cell lagoon system. “We dewater the lagoons in summer, applying the dilute effluent to corn fields,” Terry explains. “Then, we agitate sediments in the lagoons as needed, and commercial applicators apply the effluent using a dragline and injectors.”

A consulting agronomist checks soil samples annually for recommendations on effluent application rates. Fields also are grid-sampled on a four-year rotation. Dates and rates of application are recorded in the O'Neel's comprehensive nutrient management plan.

Capturing carbon
The O'Neels switched over to no-till farming in 2000. “I was skeptical as to how it would work,” Terry says. “Now I believe in it. Our organic matter has increased from 1.8% to more than 3%, and that's a huge increase. Our soil tilth has improved, and the water-holding capacity of the soil has increased. It's also reduced our soil compaction and soil erosion, and we get our crops in using less labor and equipment.”

Yields have been maintained or improved, he adds. And the practice of no-till allows the farm to be certified in an Exchange Soil Offset contract. “Leaving residue in the field provides carbon sequestration that helps reduce greenhouse gases,” Terry explains. “These carbon credits are purchased by certain industries in XSO contracts that, in turn, provide a payment for us to leave this residue on the soil surface.”

The O'Neels also take advantage of a number of federal and state conservation programs, such as the Conservation Security Program. Under CSP, the family receives incentive payments to use no-till practices, cover crops, spring nitrogen applications and buffer strips that help reduce soil erosion and prevent nutrient runoff from their farm.

Community focused
The O'Neels work hard to build good relationships with their neighbors. They held an open house to show their new finisher to the public. More than 200 folks showed up to see the modern pork production technology and enjoy a smoked-loin sandwich.

Their public relations efforts don't end with the local neighborhood, as Terry is an Operation Main Street speaker for the National Pork Board. He gives 15-minute speeches to various service groups, such as Optimist, Rotary and Lions clubs.

“People are amazed at how much the pork industry has changed,” he says. “I generally run out of time trying to field their questions.”

Back on their Nebraska farm, the O'Neels continue to build an attractive hog farm in tune with nature. To date, they've planted more than 1,600 trees on their homeplace. They now use a band of sheep to graze their lagoon banks, which are steep and hard to mow.

“Since our home is at the same site as the hog facilities, we breathe the same air and drink the same water,” Diane says. “It is important for us to be good stewards of the environment. We have tried to create a clean, well-landscaped farmstead. We take a great deal of pride in our home.”

6 Steps to Lower Feed Costs

Kansas swine nutritionist Joel DeRouchey presented a fast-paced lesson on swine nutrition research findings, feeding recommendations and industry trends in a 50-minute talk at World Pork Expo.

The Kansas State University (KSU) Extension specialist focused on ways pork producers could reduce their environmental footprint by altering feeding programs. A timely bonus was that many of the strategies also promised to lower feed costs.

DeRouchey recommended:

  1. Focus on feed efficiency

    “The higher efficiency we have, the lower the excretion levels,” DeRouchey reminds. And, don't overlook the basics of efficiency, including using feeders designed to minimize waste, adjusting them often and using phase feeding or even specialized feeding software to match diets with the pigs' nutrient requirements.

    He recommends reducing any safety margins built into rations. With today's high feed prices, balancing rations with extra nutrients to provide a cushion is costly, he says, but keep an eye open for the negative effects of inadequate nutrient levels, such as skeletal problems when finishing hogs don't get enough phosphorus.

  2. Lower phosphorus excretion with phytase

    When considering phosphorus requirements, look at available phosphorus vs. total phosphorus required for various growth phases. DeRouchey laments that many commercial swine diets today provide more available phosphorus than National Research Council's (NRC) suggested 0.15% and KSU's recommended 0.18% for late finishing pigs (over 200 lb.).

    “We see diets come in at 0.25-0.26% (available phosphorus) in late finishing. They are spending way too many dollars on phosphorus.”

    With the monocalcium phosphate (monocal) and dicalcium phosphate (dical) prices at $1,000/ton, other options should be considered, he says.

    The enzyme phytase is a saving grace to assist in the digestion of the phytate phosphorus naturally found in feedstuffs. “If you look at phytase from an efficacy standpoint, it flat out works,” he declares. (See Figure 1.)

    But there are some precautions when using phytase. Avoid confusion on inclusion rates by targeting phosphorus release values when formulating rations, rather than just looking at phytase units. Currently, manufacturers use different units for reporting levels in the diet. “Products should be compared on equal release values in the diets,” DeRouchey says.

    To get the most cost benefit in rations, he recommends replacing about 0.10% available phosphorus with phytase (Table 1). Higher levels, up to release values of 0.12 - 0.15, can be used, but with less economic return. Phytase's ability to release phosphorus plateaus at higher levels, he explains.

    Using phytase at the recommended 0.10 release value saves producers about $0.95/finishing pig.

    “Some people have started to get themselves into trouble by taking phytase too far (beyond the 0.12 release value) and not recognizing its diminishing returns,” DeRouchey says. Trouble can include phosphorus deficiencies, such as rickets and broken bones, when phosphorus release is overestimated.

    In most diets used today, even with phytase, there is still about 40% of phosphorus being excreted. “That's the opportunity,” DeRouchey says. Low-phytate corn is one option that may help increase phosphorus efficiency.

  3. Remove fat and reduce feed particle size

    Nutritionists traditionally recommend 600-800 micron particle size when grinding hog feed. But smaller particles improves feed efficiency and makes good sense — to a point.

    “Returns are linear going from 700 to 300 microns,” explains DeRouchey. “The finer we grind, the more digestible the feed is. But we have to recognize if we grind too fine, we'll have added feed flow problems and a higher instance of gastric ulcers.”

    Many producers are grinding to 600 microns or finer. “They are getting away with it because they no longer have added fat,” he contends. At $0.40 or more per pound for choice white grease, for example, added fat is simply too expensive to formulate into most rations, so he advises producers to pull the plug on added fat. Without the fat, finer grind diets are easier to manage because feed flows better through equipment.

    Some producers are skeptical of removing fat from lactation diets, but doing so saves dollars, too. “Added fat in a lactation ration will typically yield a one-third to one-half extra pound per weaned pig,” says DeRouchey. “However, the value of that extra weight currently does not justify the added cost for many producers.”

  1. Consider nutrient-rich corn

    DeRouchey said that corn hybrids with NutriDense (BASF Plant Science) traits have higher concentrations and provide greater digestibility of key amino acids (lysine, threonine, methionine, tryptophan, isoleucine and valine) vs. No. 2 yellow dent corn. That means producers can feed less crude protein to reduce nitrogen excretion. Plus, NutriDense hybrids offer about 5% more energy, which helps improve feed efficiency and also helps make up for eliminating fat from diets.

    To illustrate the cost benefits, DeRouchey cites a 2004 study evaluating average daily gain (ADG) and feed efficiency (FE) when zero, 3% and 6% added-fat diets (formulated with yellow dent corn) were compared with diets using NutriDense corn. Although adding fat currently is not economically feasible in most rations, the goal was to determine if the energy benefit from corn with NutriDense traits would be additive when fed along with added dietary fat.

    The study showed that diets with zero and 6% added fat had a significant improvement in ADG when the diets included corn with NutriDense traits. With the zero added fat, pigs grew about 2% better with NutriDense vs. No. 2 yellow dent corn (1.83 vs. 1.80 lb./day). With 6% added fat, pigs grew 4% faster with NutriDense corn compared to yellow dent corn (1.90 vs. 1.83 lb./day).

    In all three diets, the NutriDense-trait corn improved feed efficiency compared to No. 2 yellow dent corn diets. In diets with no added fat, pigs had a 7% improvement in FE (2.67 NutriDense vs. 2.87 yellow dent). DeRouchey figures the 0.2 lb. improvement in FE is worth $4.50/pig marketed.

    NutriDense comes with a premium price tag, but Chris Peter, a BASF Plant Science field nutritionist, says the $4.50 advantage translates to about $0.50 extra value on each bushel of corn consumed per pig (9 bu./feeding period).

  2. Use synthetic amino acids

    DeRouchey says the use of synthetic amino acids jumped this past winter and spring as soybean meal prices skyrocketed. The move to lower crude protein levels results in a 20-40% lower nitrogen excretion and decreases ammonia production, thereby improving air quality. Recently, methionine prices have increased, so economics must be carefully monitored, he adds.

  3. Consider distiller's grains

    With a savings from $1.50 to $3.00/pig in feed costs, DeRouchey says many producers are opting to use dried distiller's grains with solubles (DDGS), where available. However, the alternative feed source does not have much effect on manure excretion.

Manure volume will go up because DDGS have more fiber and lower digestibility, but nutrient management planning and manure value are virtually unchanged. Nitrogen value is higher, but not significantly.

Since DDGS are a poor source of lysine, it figures dietary crude protein (CP) would have to increase, so nitrogen also jumps. DeRouchey says that can be mitigated by using synthetic lysine.

“On a 15% DDGS diet, CP increases about 1% when we maximize the use of synthetic lysine. Economically, there's no reason not to do that,” he says.

For a 2,400-head finishing facility using a 15% DDGS diet, with maximum use of synthetic amino acids, the annual nitrogen excretion goes up by only about 6,000 lb. (8%).

DDGS diets impact phosphorus excretion even less. While phosphorus excretion with DDGS diets can be a worry for beef and dairy producers, that's not a problem for swine producers, DeRouchey says. DDGS provide about 0.77% available phosphorus compared to just 0.14% for corn. DDGS combined with phytase means producers can decrease or remove supplemental dical or monocal in most finishing rations.

For the 2,400-head unit, phosphorus output is about 11,000 lb./year for either a 15% DDGS diet or a traditional corn-soybean diet, assuming phytase is used in each.

DeRouchey emphasizes that facility site planners developing manure management plans must use updated projections for manure concentrations and excretion levels based on current feeding regimens and expected manure output vs. common industry book values, which might reflect older feeding styles and animal profiles.

Learning Biosecurity's Value The Hard Way

Iowa producer takes a disease hit when basic transportation biosecurity practices are violated.

Craig Rowles, DVM, closely scrutinizes extra costs at Elite Pork Partnership, an 8,000-sow, farrow-to-finish operation near Carroll, IA. He knows he will need a sharp pencil to survive these risky times.

He also understands why cash-crunched pork producers might question allocating limited resources for biosecurity.

“When you start focusing on biosecurity, and the fact that you are probably going to invest in capital expenses, supplies and labor, from a producer's perspective, it is very difficult to understand what the return on investment (ROI) for biosecurity will be,” he explains.

Biosecurity Breach

For Rowles, biosecurity has become an integral part of his risk reduction strategy that he views as a health insurance policy.

He learned that lesson the hard way when he purchased a 3,000-sow, farrow-to-finish operation a few years ago. “We were trying to make sure we were doing a good job, and I ordered a truck and trailer for the flow for transportation purposes,” he explains.

But when the trailer was not immediately available, he decided to rent one for a while. When the new trailer finally arrived, Rowles decided it might fit better at another production site.

He received a phone call a couple of days later from one of the breeding site managers that new gilts had arrived in the rented trailer. The manager said the trailer “didn't look very clean, but we unloaded the gilts anyway.”

Rowles cringed and made a note on the calendar to check those gilts in three weeks. Sure enough, three weeks to the day, a sentinel sow aborted and that spelled trouble for Elite Pork Partnership.

“It was a PRRS (porcine reproductive and respiratory syndrome) break that ultimately cost me about $200,000,” Rowles lamented in a talk at the Transportation Biosecurity Summit in mid-July in Kansas City, MO. The truck driver was fired, but the damage was done.

“The introduction of disease in a swine operation has a significant impact on its overall economic well being,” he emphasized. “And money spent on biosecurity can have a significant return on investment.”

Pointing to some Canadian studies, Rowles reports an introduction of Mycoplasmal pneumonia can set you back $400,000; a PRRS break can cost a minimum of $275,000; and an outbreak of Transmissible gastroenteritis (TGE) can produce a hit of $400,000.

He urges producers to look at biosecurity expenditures as a tool to manage potential health-related disasters.

Assess Your Risk

Individually, producers have to figure out how much to invest in biosecurity, says Rowles. Design a production system that has natural breaks in it to reduce the potential for lateral introduction of disease, while maintaining the most cost-effective use of assets.

“We designed our transportation system to guard our upstream production, placing more importance on segregated transportation for replacement gilts than on weaner pigs we take to market,” he says.

Trailers are owned; trucks are not. Rowles contracted with a couple of trucking firms, guaranteeing that they would haul all of his pigs if they would likewise guarantee that they would only haul his pigs in their trailers. “It's a good deal for both of us.”

Production flows are arranged so that nursery and feeder pigs are transported to finishing sites first thing on Monday mornings. Those trailers haul market hogs the rest of the week.

On Friday afternoon, trucks and trailers are washed and disinfected and sit idle over the weekend.

Other trailers used to haul weaned pigs on Mondays are also used to haul cull sows and replacement gilts. Rowles says weaned pigs are hauled, followed by cull sows. Then those trucks and trailers are washed and disinfected and sit empty until weaned pigs are hauled again on Wednesday. The trucks and trailers are washed and disinfected again, then used to haul replacement gilts on Thursday and weaned pigs again on Friday. They are washed and disinfected again on Friday, then sit idle over the weekend.

Truck Wash

“In a smaller operation like ours, we try to design in these natural breaks, but we did spend $80,000 on a single-bay truck wash,” says Rowles.

He admits it is hard to figure the ROI for a truck wash, but with all of the pig movements it's become a key part of biosecurity.

Living without TGE for nine years and getting PRRS under control has made Rowles a believer it's all worthwhile.