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November 3, 2006



Table of Contents
Canadians Report More Slippage
Optimization Has No Magic Bullets
Be Sure to Vote
HogInfo Link: Byproduct Feeds

Market Preview
Canadians Report More Slippage
Last week's Hog Statistics Report from Statistics Canada indicates that the Canadian pork production sector is indeed in the clutches of several economic problems, few of which appear to be of their own making.

Canada's breeding herd on Oct. 1 was pegged at 1.62 million head, 20,000 head smaller than in July and 28,000 head (1.7%) smaller than one year ago. The decline leaves the combined Canada-U.S. herd 1% larger than one year ago on the strength of growth in the United States (see Figure 1).

Perhaps the more surprising news in the report was the continued decline of productivity measures in Canada. July-September farrowings were estimated to be 857,000 litters, 4.5% smaller than one year ago. That makes the fourth consecutive quarterly decline in Canada's farrowings and every one of those negative figures have been significantly larger than the respective quarter's sow herd reduction. If one wants to argue that we should look at lagged sow herd figures, it gets even worse since the first of these negative farrowings quarters followed year-over-year increases in Canada's quarterly breeding herd.

What is interesting is that farrowings are down by more than Canada's pig crop. I think that is a testament to the job Canadian producers are doing raising pigs, but the trend in year-over-year change in Canada's pig crops is certainly disturbing. The 3.4% year-over-year decline in Canada's pig crop means that the July-Sept. combined Canada-U.S. crop is smaller than that of 2005 -- the first time that has happened since the second quarter of 2003, when the roles of growth and expansion were reversed.

Much of this, of course, is due to the devastating impact porcine circovirus-associated disease (PCVAD) has had on Canada's herd, especially in the east. While still a fight, producers appear to be winning some battles in this war. I recently heard Camille Moore, DVM, of Quebec report that vaccines have proven very effective in reducing PCVAD mortalities and the disease's impact appears to be lessening even in herds that have not vaccinated. The word from the Prairie Provinces, though, is that the disease is spreading and causing more severe problems.

The catch, of course, is vaccine availability. From everything I hear, PCVAD vaccines will be hard to come by for several more months and may not be widely available until well into 2007.

The practical implication of a smaller Canadian breeding herd, lower Canadian pig crops and growing exports of feeder pigs to the United States is that Canada will not have enough slaughter hogs to fill its packing plants (see data tables below). Maple Leaf's decision to cancel its plans in Saskatoon is symptomatic of that situation and don't expect the symptoms to go away any time soon. It is very difficult for Canada's packers to compete with a dollar nearing par with the United States, especially when they are being forced by a burgeoning oil industry to pay very high wage rates.

Here's the "Up" Side
With all of the factors -- slow growth in the United States, potentially very high feed prices, reductions of supplies in Canada, reduced slaughter in Canada (thus reducing the amount of product available for export) -- is it really any wonder that hog futures have been steadily higher in recent weeks? Every contract on the board touched contract life highs on Thursday, and every one except December 2006 set records for highest daily closing price.

The average price of the Chicago Mercantile Exchange (CME) Lean Hogs futures contracts on the board (Dec. '06 through Dec. '07) was $68.38/cwt. carcass on Thursday. This would translate to just over $51/cwt. on a live weight basis, probably more than compensating for the roughly $30/ton rise in feed costs over the past month.

Don't get caught up in the gloom and doom of feed prices. The market for your product is offering some profit opportunities and you should manage them carefully over the coming weeks.




Click to view graphs.

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



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Production Preview
Optimization Has No Magic Bullets
This week we will conclude our discussion of optimization by reviewing some of its key concepts and how our industry can begin to address the concept more effectively.

As we've previously explained, optimization is a condition attained when all components of a system work together to achieve the maximum effect. So, if any one component optimizes itself, the system becomes suboptimized -- that is, unable to achieve the maximum effect at the level of the whole.

At its core, optimization recognizes the importance of thinking as a system. Because of the interrelatedness of components within a system, a change in any part affects the whole.

For a system working on optimization, two items are essential:
  • The system needs to have a clearly defined vision or statement of purpose. Absence of a common purpose leads to suboptimization.
  • The system needs to have an understanding of relationships between its parts. In other words, there needs to be an understanding of the actions and reactions created by small changes that occur anywhere in the system.
In the pig industry, the second item poses the greater challenge. The biological nature of pig production further complicates this issue. By measuring processes and outcomes in the contexts in which they occur, we can begin to understand the relationships within pig production systems.

As an example, a study by University of Minnesota researchers found that the individual pig's risk of death or of being lightweight at the end of the nursery phase was related to its birth weight, weaning weight, and whether or not it was nursed by a first-parity sow. The accompanying graph simulates the study's findings to help visualize the relationship between deads and lightweights based on the proportion of the pigs that were weaned from Parity 1 sows or weighed less than 3.6 kilograms (8 lb.) at placement.



















Through visualization of these relationships, we can begin to appreciate the challenges faced if system optimization occurs when deads and lightweights are minimized. For this system, deads and lightweights are dramatically affected by events in the sow unit.

No magic optimization formulation currently exists for the swine industry. Even in non-biological systems, optimization can be difficult to achieve. Still, by focusing on a common goal in the context of the big picture, a system can at least begin to reduce suboptimization.

Stephanie Rutten, DVM
University of Minnesota
rutt0011@umn.edu
Editor's Note: Editor's Note: To learn more about benchmarking, go to www.pigchamp.com. For all your agricultural news, markets and commentaries, go to www.farms.com.



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Legislative Preview
Be Sure to Vote
Remember to vote next Tuesday, Nov. 7. Many political analysts believe this will be a very close election in determining which party controls the U.S. Senate and the House of Representatives. The election results could affect the membership and leadership of both the Senate and House Agriculture Committees.

Revenue-Based Safety Net for Corn -- The National Corn Growers Association (NCGA) has released its preliminary analysis on the impact of their revenue-based safety net program for corn growers. According to NCGA, the revenue-based program would include maintenance of current calculation methods for direct payments; change the nonrecourse loan program to a recourse loan program; create a base revenue program (BRP); and modify the current countercyclical program into a revenue countercyclical payment (RCCP). The analysis compares four corn farms using the 2002 farm bill and NCGA's revenue-based program. NCGA said, "The 2002 farm bill has done a good job, but is expiring at a time when we have a new era of agriculture. NCGA's farm bill proposal could fit very well into agriculture's future and be just as accepted as the 2002 farm bill today."

U.S. Beef to Korea -- The first shipment of U.S. beef in three years arrived in South Korea this past Monday. The nine-ton shipment from Creekstone Farms Premium Beef will now go through quarantine inspections. USDA in September announced that South Korea had reopened its market to U.S. boneless beef, but the industry has been concerned about South Korea's zero tolerance on bone chips. The United States exported $49 million in boneless beef to South Korea in 2003.

P. Scott Shearer
Vice President
Bockorny Petrizzo, Inc.
Washington, D.C.



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Research Link Of The Week
HogInfo Link: Byproduct Feeds
Visit www.hoginfo.com to view research articles on amino acid utilization. Articles include the following: "Comparison of Grain Sources (Barley, White Corn, and Yellow Corn) for Swine Diets and Their Effect on Production and Carcass Traits," "Feeding Value of Immature (Low Test Weight) Corn and Soybeans for Swine" and more.








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