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February 16, 2007




Table of Contents
Canada's Hog Report Mixed
Empower Your Employees
E-85 Infrastructure Upgrade

Market Preview
Canada's Hog Report Mixed
Statistics Canada released its quarterly estimate of Canadian hog and cattle numbers earlier this week. The reports indicate a continued decline in cattle numbers and mixed data for hog numbers.

The hog report shows that the past year's breeding herd reduction continues with breeding animal numbers 1% smaller than those of Jan. 1, 2006 (see Figure 1). When combined with a larger U.S. breeding herd, this leaves the U.S.-Canadian breeding herd up 0.8% vs. year-ago levels. The industry has the capacity to produce modestly higher pig numbers during 2007 -- probably about enough to keep up with population growth.

Any increase in exports or reductions in carcass weights (both are very likely, in my opinion) will mean that the amount of pork available per capita in the United States and Canada combined will be less than in 2006. That also should be supportive of hog prices.

A caveat to this supply situation is the recovery of Canada's farrowings and pig crop from the relatively low levels of the past year or so. Farrowings for the October-December quarter were down fractionally from 2005, where the previous three quarters had been from 1.7 to 2.8% lower. Since the reduction in farrowings was smaller than that of the breeding herd, it appears that this facet of productivity has once again begun to improve after being flat or dropping for the past year or so.

Canada's fourth-quarter pig crop is estimated to be 0.7% larger than last year. That's the first positive year-over-year number for the pig crop since the 3rd quarter of 2005. Two of the past four quarters had seen crops that were over 2% lower than year-earlier levels.

The major reason for this improved productivity, of course, is that Canadian producers and veterinarians have started to get the health challenges (primarily porcine circovirus-PCVAD associated diseases) that have decimated many herds over the past two years under control. My conversations of the past few months have indicated that the new PCVAD vaccines are very effective. As vaccines become more and more available, their impact will be more widely apparent. In addition, even the farms that have not used vaccine have found ways to manage pig flow, grouping, etc. to minimize the impact of PCVAD. While productivity on these farms is still below pre-PCVAD levels, the output impacts aren't nearly as disastrous as they once were.

We will see some of these same positive impacts in the United States, but they will not be as dramatic since the U.S. industry simply hasn't seen the proportion of negative impacts that have been reported in Canada. I expect this development to have a modest, positive impact on output in 2007, and for that impact to be spread over time, and geography enough that it will be difficult to see in the slaughter data.

Unless we see some major positive impacts on the productivity in the March and April reports, I'm not ready to start increasing 2007 slaughter numbers. Supplies still appear quite manageable for this year, but futures are still offering higher prices than I can comfortably forecast, based on 2006 prices and '06-to-'07 supply changes.

Cowherd Down 5%
On the cattle side, Canadian ranchers continue to reduce the beef cowherd with the Jan. 1, 2007 herd down 5% from one year earlier. This represents a continued push to get cow numbers back toward pre-BSE (bovine spongiform encephalopathy) levels of around 4.5 million head.

Canada had 5.001 million beef cows on Jan. 1. These numbers ballooned after the discovery of BSE in May 2003, as Canada could not ship cull cows to the United States for slaughter and, generally, could not export product from these animals. Combine that with limited cow slaughter capacity and you get a large backlog that is now slowly being worked through. A key to the pace of this reduction will be the current USDA proposal to relax restrictions on imports of beef product from older animals.

Canada's 2006 calf crop was projected at 5.5 million head, 2% smaller than in 2005. When combined with a U.S. crop that was virtually the same as in 2005, this implies that cattle supplies in late 2007 and beyond will be a bit smaller. That should be supportive to hog prices at a time that we may need all the help we can get to pay feed bills.

Packer News
Finally, there was some good news on slaughter capacity from Canada this week. Kevin Grier of the George Morris Centre sent a message on Tuesday that employees at Olymel's Vallee-Jonction plant had voted to accept a government conciliator's recommendation on a new contract. Grier believes that means the plant will not be closed on May 25 as previously announced.

Canada still appears to have excess slaughter capacity and that will keep a lid on packer margins for the foreseeable future, so don't be surprised by news of more of these kind of situations -- at least until that excess capacity is rationalized.



Click to view graphs.




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Production Preview
Empower Your Employees
As farms and organizations struggle to improve, the credit or blame for progress achieved is often leveled at the staff. With changes in ownership, increases in herd size and segmentation of production phases, the pork industry has come to rely more on employees than on owners. With that realignment of the workforce comes a challenge to meet or exceed performance requirements.

In a recent column, we discussed the concept of "culture" and its role in the success of an organization. This week, we'll focus on employee "empowerment" as an approach to increasing the commitment of the workforce.

According to A Dictionary of Business and Management, empowerment refers to "the act of giving increased responsibility and a measure of control to employees in their working lives. The concept is based on the view that people need personal satisfaction and fulfillment in their work and that responsibility and control increase (job) satisfaction."

A recent article by Mark Dawson and Mark Jones, of Price-Waterhouse-Coopers, states nearly 75% of all programs for change, fail. The primary reason, they say, is "Employees feel left out of the process and end up lacking the motivation, skills and knowledge to adopt new systems and procedures... Organizations don't adapt to change, their people do."

Dawson and Jones continue: "Contrary to conventional wisdom, people resist change only when it makes them feel out of control -- when change is foisted on them without their consent. The belief that it is human nature to resist change is the wrong starting point, because it creates an adversarial climate. Decisions are made by management behind closed doors without input from the very staff who are expected to change their behavior. People are willing to change if they understand and accept the reasons and have a say in the way their jobs are restructured."

While empowering employees may require the proverbial "leap of faith," it need not be feared. For some organizations, employee empowerment begins with a suggestion box. Ideas for improvement are both welcomed and expected. All suggestions are considered by management and implemented in a timely fashion if they are appropriate. Surprisingly, companies that have implemented such policies report that a high percentage of ideas are accepted, as many address issues of safety and workspace layout.

Consider the management philosophy of Peter Schutz, the former CEO of Porsche. He describes the need to "decide democratically, implement dictatorially."

As we know from government, deciding democratically requires both input and compromise. Although cumbersome, the use of a democratic approach builds support from those whose cooperation is necessary. Implementing a change, however, requires achieving a balance between competing interests. As we struggle to balance the needs of the organization with the needs for employee fulfillment, consider that, in the end, a well implemented, flawed decision usually yields more than a good decision implemented poorly.

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



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Legislative Preview
E-85 Infrastructure Upgrade
Congressman Mike Rogers (R-MI) has introduced legislation to upgrade the distribution system for alternative fuel. The legislation would provide grants up to $30,000 to independent gas stations to help install E-85 pumps. Rogers said, "My legislation helps us kick start the distribution system so more American families can take advantage of this new technology and strengthen our economy, our national security, and our environment." The legislation:
  • Creates a federal Fuel Economy Fund by diverting up to $10 million of the Corporate Average Fuel Economy (CAFE) penalties currently paid by automakers (roughly $20 million/year) from the general treasury to the Fuel Economy Fund.

  • Authorizes the Department of Energy to use the fund to issue grants for the establishment of alternative automobile fuel infrastructure.

  • Uses the Existing Clean Cities program, and allows qualified entities to receive grants of no more than $30,000/grant and $90,000/station to expand the availability of alternative fuel infrastructure.

  • Explicitly bars "large integrated oil companies" from receiving grants.

  • Provides that no more than 3% of the fund can be used for administrative costs.
Similar legislation was introduced in the Senate by Senator John Thune (R-SD).

Trade for America -- A new coalition, Trade for America, has been formed to urge Congress to renew Trade Promotion Authority (TPA). TPA is the authority given to the President to negotiate trade agreements with other countries and requires Congress to approve the trade agreements without amendments. The National Pork Producers Council (NPPC), a member of the coalition, said, "The president needs TPA to continue to negotiate trade deals, which have been extremely beneficial to pork producers. A failure to renew TPA would be a failure to the U.S. economy, particularly to the agriculture industry, which has a trade surplus." The effort to extend TPA will be met with stiff opposition from unions. The United Steel Workers said, "Fast Track Authority must be replaced with a new way of giving Congress authority to negotiate trade deals that benefit workers first." TPA expires June 30, 2007.

No More Elections on Unionization -- Congressman George Miller (D-CA), chairman of the House Education and Labor Committee, has introduced H.R. 800, the Employee Free Choice Act. This legislation would no longer have federally supervised secret ballot elections for workers to determine if they wish to join a labor union. The legislation would replace the current secret ballot elections with a process known as "card check." If a majority of the employees signed a card indicating their desire to join a union, the plant would become a union plant without an election of the employees. Congressman Miller said, "Today, the procedures for organizing a union and bargaining for better wages and benefits are stacked against the workers." The administration indicated its opposition when Secretary of Labor Elaine Chao said, "A worker's right to a secret ballot election is an intrinsic right in our democracy that should not be legislated away at the behest of special interest groups."

Ninth BSE Case in Canada -- Canada announced last week its ninth case of bovine spongiform encephalopathy (BSE). It was discovered in a mature bull from Alberta, Canada. Secretary of Agriculture Mike Johanns said, "Based on what is known at this time, I would not expect this Canadian detection to impact our trade with Canada. Regarding the proposed minimal risk rule that specifies additional movement of cattle and beef into the United States, we remain in an open comment period until March 12, 2007." The National Farmers Union (NFU) is asking USDA to withdraw its proposed rule. NFU President Tom Buis said, "Today's confirmation of Canada's ninth BSE case is further proof the country does not have its BSE problem under control. The infected animal's age is six and one half years which falls within the range of previous cases -- animals born since March 1, 1999."

Senate Agriculture Committee Organizes -- Senators Tom Harkin (D-SD), chairman of the Senate Agriculture Committee, and Saxby Chambliss (R-GA), ranking member, announced this week the subcommittee chairmen and ranking members, as follows:
  • Nutrition and Food Assistance, Sustainable and Organic Agriculture, and General Legislation: Senators Patrick Leahy (D-VT), chairman, and Norm Coleman (R-MN), ranking member.

  • Energy, Science and Technology: Senators Kent Conrad (D-ND), chairman, and John Thune (R-SD), ranking member.

  • Domestic and Foreign Marketing, Inspection, and Plant and Animal Health: Senators Max Baucus (D-MT), chairman, and Lindsey Graham (R-SC), ranking member.

  • Production, Income Protection and Price Support: Senators Blanche Lincoln (D-AR), chairman, and Pat Roberts (R-KS), ranking member.

  • Rural Revitalization, Conservation, Forestry and Credit: Senators Debbie Stabenow (D-MI), chairman, and Mike Crapo (R-ID), ranking member.

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



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Dale Miller, Editor, National Hog Farmer

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