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February 2, 2007




Table of Contents
Has Meat Demand Hit a Ceiling?
Porcine Circovirus-2 Around the World
Johanns Presents Farm Bill Proposal

Market Preview
Has Meat Demand Hit a Ceiling?
Final data for 2006 domestic meat consumption will not be official until USDA publishes its annual summaries for livestock and poultry slaughter around March 1, but enough monthly data are now available to get a clear idea of this key number.

Figure 1 shows estimated consumption by species, courtesy of the Livestock Marketing Information Center (LMIC) in Lakewood, CO. These data show that 2006 consumption will be a record high at just over 221 lb./person. However, the intra-year pattern indicates that the growth occurred in the first quarter while consumption declined in the fourth quarter.

It is important to realize that consumption is always a direct function of production. With small adjustments in inventories, production and exports determine what is left for U.S. consumers.

U.S. meat production moderated during the second half of 2006, as chicken producers tried to manage supplies to help prices, pork producers kept carcass weights steady with year-earlier levels and beef producers reduced the amount of carcass weight increase. The pork and beef initiatives were mainly a response to high feed costs. At the same time, pork exports were cooking and beef exports were recovering, even though they were still far below pre-BSE levels.

The trend on total meat consumption is flat and still begs the question: "Have we reached a meat saturation point?" Economists have asked this question quite a few times over the past 20 years and the answer has always been "no." That doesn't mean the answer will be "no" this time. Since this plateau is higher than those of the past, we must be closer to any saturation level that may exist.

Given the relationship between production and consumption, this one is looking more and more like a ceiling. Rising feed costs and other production costs will eventually cause meat prices to increase. Unless consumer demand increases at the same time, the quantity of meat consumed will have to decline.

What's Ahead for Pork Demand?
Relatively flat consumption and lower real prices at the consumer level mean that U.S. domestic demand for all three major species fell in 2006. Figure 2 shows data from the University of Missouri that quantifies these declines. The 7.7% fall in broiler demand is the largest since 1974 and the real driver for the current rationalization of chicken production. Take a look at egg sets and chicken slaughter and production in this week's Competing Meats table. Those are very big negative numbers for the chicken business.

No one should conclude from Figure 2 that the pork checkoff is not doing its job in marketing pork in the United States. Pork demand is determined by a number of factors that are beyond the control of pork producers and their promotion programs. The entire pork checkoff takes in about $50 million annually. Only about half of that goes to demand enhancement. That means that $25 million is being used to impact a market valued at $42 billion. Producers' advertising budget represents 0.06% of total market value. That is very small.

Recall that demand for a product is a function of the price of the good in question, the prices of other goods, consumer incomes and consumer tastes and preferences. The price of chicken was a major negative influence on pork demand in 2006. So were the prices of gasoline and other energy sources. And the wave of positive tastes and preferences that sent meat demand soaring with the Adkins diet and other high-protein diets has certainly waned.

The bottom line is that your $25 million likely did some very good things, but simply got swamped by the negative impact of other demand factors in 2006. These things happen, but they should not be used as a reason to stop trying.

The National Pork Board is involved in several evaluation activities to monitor and measure the effectiveness of their programs. A negative move in pork demand doesn't necessarily mean that those checkoff programs have been unsuccessful. It may well mean that they are too small to stem the entire negative tide -- even though they have slowed it down a bit in producers' favor.

Many things affect these demand indexes and producers must be careful to account for all of those factors as they make decisions about the future.




Click to view graphs.

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



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Production Preview
Porcine Circovirus-2 Around the World
Porcine Circovirus-2 (PCV-2) has become a major health concern in the United States and around the world. Speakers at the Allen D. Leman Swine Conference last fall discussed the disease's impact and treatment protocols in Europe, Asia, Canada and the United States.

In Europe, the disease was first isolated from pigs with wasting disease in 1997, reports Antonio Palomo Yague, a veterinarian with a practice in Europe. As in the United States, PCV-2 has been associated with a number of disease syndromes in pigs, including interstitial pneumonia and lymphadenopathy, postweaning multisystemic wasting syndrome (PMWS), porcine dermatitis and nephropathy syndrome and congenital tremors.

The disease doesn't distinguish between large or small farms, high-health status herds or low-health herds, and it is commonly associated with other diseases. According to Yague, presence of PCV-2 is essential for the development of PMWS; however, other conditions are often associated with development of the syndrome.

"Commonly presented clinical signs in Europe include wasting, tremors, enlarged lymph nodes, pallor, jaundice, hyperthermia and diarrhea," he says. "Morbidity and mortality rates associated with PMWS vary, depending on the stage of the outbreak and management issues, such as overcrowding, commingling and age groups."

In Yague's European practice, he found PCV-2 to be highly resistant to inactivation by common detergents and disinfectants. "Rapid and accurate diagnosis and removal of diseased animals from farms, combined with good husbandry practices, appears to be the most efficacious method of controlling losses attributable to PCV-2 infections," reports Yague. "The sound biosecurity practices we've always recommended do not ensure freedom from PCV-2-associated disease."

Some control measures that Yague found to be effective included: adequate colostrum intake during the first 36 hours, all-in, all-out production, full partitions between pens, reduced batch mixing and weaning piglets at the same age, replacement gilts quarantined for at least nine weeks, reduced crossfostering, low density and smaller pens, optimal climate control (especially at weaning), increased diet digestibility, reduced simultaneous vaccinations, plenty of water and organized pig flows throughout the farm.

"Collaboration between veterinarians and producers is essential for the exchange of information, building producer confidence, and fostering continued positive interaction," points out Yague.

JoAnn Alumbaugh
Director of Communications, Farms.com
joann.alumbaugh@farms.com
To learn more about pig production go to www.pigchamp.com. For all your agricultural news, markets and commentaries, go to www.farms.com.



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Legislative Preview
Johanns Presents Farm Bill Proposal
Secretary of Agriculture Mike Johanns unveiled USDA's 2007 farm bill proposal, which includes over 65 recommendations. Johanns said the proposal was more market oriented and equitable, as it dealt with commodities. He said the proposal should spend approximately $10 billion less than the cost of the 2002 farm bill over the past five years, excluding ad-hoc disaster aid. Some of the highlights of the proposal include:

Commodities:
  • Payment Limits - End payments to individuals with over $200,000 in adjusted gross income (would only cover approximately 2.3% of the U.S. taxpayers) and limit payments to $360,000.
  • 1031 Exchange - Eliminate commodity program payments for all newly purchased land benefiting from a 1031 tax exchange.
  • Eliminate three-entity rule.
  • Counter-cyclical program will be based on revenue (revenue trigger - not price trigger).
  • Loan Rates - Loan rates will be based on the last five years, removing high and low years, capped at 2002 House of Representatives passed farm bill levels, if necessary (wheat - $2.58/bu.; corn - $1.89/bu.; soybeans - $4.92/bu.; upland cotton - $0.5192/lb.; and rice - $6.50/cwt.).
  • Posted county price (PCP): Replace the current daily PCP with a monthly PCP.
  • Increase direct payments.
  • Planting flexibility - Allow planting of fruits and vegetables on program crop acres.
  • Crop Insurance - Establish a revenue-based, counter-cyclical program providing gap coverage in crop insurance, link crop insurance participation to farm program participation.
Conservation:
  • Wetlands Reserve Program - Increase from 2.3 million to 3.5 million acres.
  • Consolidate cost-share programs into the Environmental Quality Incentives Program (EQIP) and create a Regional Water Enhancement Program with an additional $4.2 billion.
  • Conservation Reserve Program (CRP) - Continue at the current acreage limit and focus on lands with the greatest environmental benefits. Priority will be given to whole-field enrollment for lands utilized for biomass production of energy.
Renewable Energy:
  • Bioenergy and Biobased Product Research Initiative ($500 million) - According to USDA, "Advances in technology play an important role in the future of renewable energy. Our scientists, farmers and entrepreneurs must coordinate efforts to continue improvements in crop yields and work to reduce the cost of producing alternative fuels."
  • Providing $500 million for Renewable Energy Systems and Efficiency Improvements Grants Program - This program supports small alternative energy and energy efficiency projects that directly help farmers, ranchers and small rural businesses.
  • Providing $210 million to support an estimated $2.1 billion in loan guarantees for development of cellulosic ethanol projects in rural areas.
Trade:
  • Increase funding for the Market Access Program (MAP) by $250 million. The increase targets specialty crops only.
Secretary Johanns and a number of USDA officials will be traveling around the country over the next few days to discuss the farm bill proposal with producers and the public. Additional information is available at www.usda.gov.

Downer Legislation is Back - Senator Daniel Akaka (D-HI) and Congressman Gary Ackerman (D-NY) have introduced the "Downed Animal and Food Safety Protection Act of 2007," which would prohibit "downed" animals from the food supply. This legislation (S. 394 and H.R. 681) would prohibit fatigued hogs from entering the food supply. Congressman Ackerman said, "For years, the cattle industry and those who represent them have foolishly put profit ahead of public health and wound up jeopardizing both." The legislation would: 1) require the "humane euthanasia" of animals that become nonambulatory; 2) prohibit the movement of conscious nonambulatory animals; 3) make it unlawful for an inspector to pass any nonambulatory livestock or carcass; and 4) require that nonambulatory animals be labeled, marked, stamped or tagged as "inspected and condemned." In making this temporary measure permanent, it would also cover sheep, swine, goats, horses and mules. It would also call for immediate, humane euthanasia as soon as an animal becomes non-ambulatory. Similar legislation was introduced last Congress.

Earlier COOL - Senator Craig Thomas (R-WY) has introduced S. 404, the "Country of Origin Labeling Act of 2007," which moves the implementation of COOL to Sept. 30, 2007. Currently, COOL is to go into effect in September 2008.

Voters Support Ethanol - The Renewable Fuels Association released a poll recently that shows 85% of American voters believe that the "government should be involved in the development of alternative fuels." Other findings in the poll include:
  • 84% believe the government should provide incentives for the production of alternative fuels like ethanol to reduce dependence on imported oil.
  • 88% believe the development of the domestic ethanol industry helps create jobs and is beneficial to the overall economy.
  • 85% believe that ethanol helps farm states' economies.
  • 80% believe that ethanol is an important component of our domestically produced energy supply.
  • 60% believe that ethanol impacts the economies of any states that are not traditionally farm states.
The poll was conducted by the Winston Group on Jan. 8-9 and surveyed 1,000 registered voters.

Pork Board Named - USDA has announced the appointment of 154 pork producers and eight importers to the 2007 National Pork Producers Delegate Body. The appointees will serve a one-year term. The delegate body was established under the Pork Promotion, Research, and Consumer Information Act of 1985. The delegates meet annually to recommend the rate of assessment, determine the percentage of the assessments that state associations will receive and nominate producers and importers to the National Pork Board. A list of the 154 appointed members is available at www.usda.gov/2007/01/0013.xml.

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


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