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March 30, 2007



Table of Contents
Moderate Growth in Pig Numbers Projected
Pivotal Week Ahead
Earlier Mandatory COOL Proposed
World Pork Expo Career Center

Market Preview
Moderate Growth in Pig Numbers Projected
The results of Dow Jones' quarterly survey of market analysts regarding their estimates of the key numbers in USDA's Hogs and Pigs Report due to be released this afternoon appear in Figure 1. The watchword for these expectations as we consider industry growth relative to recent profitability is, again, "moderation."

Of course, there is probably little that will squelch a desire to raise more hogs as effectively as $4-plus corn! Note that the largest numbers in this table are for December-February pig crop and the under-60 lb. inventory. Those estimates indicate larger slaughter than did the December report through mid-April and again during the fourth quarter. The predicted increase through mid-April (roughly 28,000 head/week) is not nearly as large as recent slaughter over-runs have been.

If exports continue strong and the actual numbers come out near the level shown in Figure 1, these figures should not drive hog prices significantly lower. Lower chicken production and, thus, higher prices and what presently appears to be very good beef demand should support prices as well. Watch your e-mail on Monday for my review of the actual report numbers.

All Eyes on Planting Estimates
The other report that is garnering huge attention is Friday morning's Prospective Plantings report. Consider that this report is being discussed beyond the agricultural press. That doesn't happen too often for corn, but it sure does now that ethanol is part of the collective interest.

By the time you receive this letter, the actual numbers will be widely distributed. If planned corn plantings are close to the 88.06 million acres and historic harvest rates apply, we will harvest 80.13 million acres of corn next fall. Depending on how one constructs a long-term trend, we can expect a trend yield of 148 to 154 bu./acre. Those give a total crop of 11.86 to 12.34 billion bushels. Those numbers are 1.3 to 1.8 billion bushels larger than last year's crop -- but many believe that ethanol usage will increase by about 1 billion bushels.

The bottom line is that carryout stocks at the end of the 2007-08 crop year may not be much larger than the 752 million bushels predicted at the end of this crop year. It will take a huge crop to do much more, so don't expect any big breaks on feed costs.

BK Joins Welfare-Friendly Bandwagon
Burger King fired the latest shot in the welfare-friendly battles this week when they announced their preference for product from non-caged layers, non-stalled sows and chickens that are gas stunned instead of electrically stunned. While they will prefer these products, they acknowledged that there is presently a short supply. Burger King estimates that they will buy 2% of their eggs and 10% of their pork from such sources. They expect those levels to increase by the end of the year. That appears very ambitious to me -- especially for pork. This product segment is growing, but identifying that much product will probably be difficult over that short time horizon.

This announcement underscores my belief that the pressure from Smithfield Foods' move to eliminate gestation stalls will come from downstream pork users (restaurants, retailers, etc.) trying to keep up in the perceived rush to satisfy consumers' animal welfare wishes.

It reminds me of everything I have read and heard about Britain's animal welfare regulations of the 1990s. British food retailers basically forced the regulations on British producers because they thought consumers wanted it -- or feared animal rights' group protests. But after producers were forced to adopt lower-productivity and higher-cost methods, British consumers and retailers widely opted for lower-cost product from Denmark and other European Union suppliers that had not been forced to adopt the "welfare-friendly" methods.

Should this trend continue, it would erode our competitive advantage in export markets and possibly provide opportunities for Canada and other countries to sell more product in the United States.

Editor's Note:
Due to a problem getting data this week, the weekly data tables are not available. Those tables will be updated and included in a Hogs and Pigs Report special edition next Monday.




Click to view graphs.

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



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Financial Preview
Pivotal Week Ahead
The last week of March looks like it will be a pivotal week for many pork producers. In the past week or so, many producers have asked for my thoughts about the planting intentions in the crop report and what the USDA's Hogs & Pigs report will look like. Many are wondering whether they should take futures positions going into these reports.

Needless to say, there is no easy answer. We might see some wild moves in the marketplace. If I knew what the report was going to say, I'd probably be on a beach somewhere, rather than writing this article.

I tell producers: Know your costs. Formulate a plan and stick to it. Don't second-guess your decisions. You need to make decisions that allow your organization to remain profitable. You never go broke locking in a profit!

There are many different strategies to use. There is no right or wrong strategy, but you must have one and stick to a game plan that best fits your tolerance for risk.

Large slaughter numbers -- The hog slaughter numbers the last couple of weeks have been very large compared to last year. I think most of that has been weather-related. Producers are catching up on some marketings. I believe we will see fewer hog numbers coming in mid-April through June, due to health challenges over this past winter and this should be supportive to pork prices. I have been hearing that producers have been able to get more porcine circovirus-associated disease (PCVAD) vaccine and the results of its use have been very promising. I've also seen sow production improving as of late. Although I expect some reduction this summer, it appears we will see larger numbers this fall and early 2008.

Can You Survive? -- I spoke at the Iowa Pork Congress in late January where I talked about improving productivity as a whole in the United States (see National Hog Farmer, March 15, 2007, pages 29-31).

To reinforce that point, I offer the following example. Most sow herd costs are fixed. In 2007, I estimate it will cost $675/sow/year, annually. The table below illustrates how cost/weaned pigs shifts as pigs/sow/year (PSY) improves from 20 to 25 PSY. You can see, as you improve from 20 PSY to 25 PSY, you reduce costs by $6.75/pig.

PSYCosts/Weaned Pig
20 $33.75
21 $32.14
22 $30.68
23 $29.34
24 $28.12
25 $27.00


Yes, I know people are paid bonuses for more production. And, yes, that sow probably will eat more feed - but not $6.75/pig worth!

Today, as in the past, it is always about production efficiency. That will not change. Producers who can maximize productivity will survive. Those who cannot will likely leave the industry.

I was with a client this week that believes he needs to be at 6,250 lb. of pork sold/sow/year. The U.S. pork industry is at 4,700 lb., today. This producer is close to 6,000 lb./sow/year, which translates to over 20 grade A pigs marketed/sow/year.

I think in the future, the number we will target is pounds of carcass/sow/year and the benchmark will be 4,500 lb. (6,000 lb. live wt. x 75% yield). Today, that figure would come in at 3,500 lb. carcass/sow/year. For a 2,500-sow operation, that is 1,000 lb. more pork/sow, annually, or 2.5 million more carcass pounds at $0.60/lb., which equals $1.5 million more revenue with the same number of sows. We can, and we must, improve our productivity.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com



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Legislative Preview
Earlier Mandatory COOL Proposed
Senator Byron Dorgan (D-ND) proposed an amendment to the Iraq war supplemental appropriations bill that would have moved the implementation date for mandatory country-of-origin labeling (COOL) to Sept. 30, 2007, a year earlier than current law. The amendment was ruled out of order, but we may see it during the farm bill debate. The National Pork Producers Council (NPPC) told the Senate it opposed mandatory COOL because it would not result in long-term higher hog prices for U.S. pork producers, it would not raise consumer demand for products labeled "U.S.", would not provide additional food-safety assurances to consumers, and would create a "permanent cost advantage for chicken and turkey." The National Cattlemen's Beef Association (NCBA) urged the Senate to oppose this effort. NCBA, in a letter to all Senators, stated, "NCBA has long understood the significance of labeling as a marketing tool for cattle producers to showcase the high quality of U.S. beef. The current law, however, does not accomplish this task, and as such, NCBA remains dedicated to working with Congress, producers, retailers, and consumers to develop a beneficial labeling program that adds true value and avoids excessive costs to our producers and consumers -- a program that truly gives consumers a choice and allows cattlemen to see a return on their investments." The American Meat Institute (AMI) reminded the Senate that the "potential costs of Country-of-Origin Labeling law will outweigh benefits to producers and processors."

Expand Renewable Fuel -- Senators Jeff Bingaman (D-NM) and Pete Domenici (R-NM) have introduced legislation that would expand the use of renewable fuels over the next 20 years. The "Biofuels for Energy Security and Transportation Act" would require America's fuel supply to contain higher amounts of renewable fuels, from 8.5 billion gallons in 2008 to 36 billion gallons in 2022. From 2016 to 2022, the legislation requires an increasing portion of the renewable fuels consumed to be advanced biofuels, such as cellulosic ethanol, biobutanol and other fuels derived from unconventional biomass feedstocks. The legislation increases the Department of Energy's funding for bioenergy research and development by 50%.

Pork Producers Hit Washington, DC -- Over 70 pork producers were in Washington, DC last week as part of National Pork Producers Council's spring legislative action conference. The producers visited their Senators and Congressmen to express their opinions on key issues that would affect the pork industry. Issues discussed included:
  • Opposition to downer animal legislation.

  • Opposition to legislation that would ban the use of certain antibiotics in animals.

  • Support legislation that would clarify that manure is not a hazardous substance subject to the Superfund laws.

  • Support passage of the Peru and Columbia free trade agreements.

  • The farm bill should help the pork industry maintain its competitiveness in domestic and international markets.
Senate Provides Disaster Assistance -- The Senate provided $4.2 billion in agricultural disaster assistance in the fiscal year 2007 supplemental appropriations bill. This legislation also includes a March 31, 2008 target for ending U.S. combat operations in Iraq. President Bush has indicated he will veto the legislation because of the Iraq war language and the additional funding for non-defense items.

Increased Penalty for Transporting Animals for Fighting -- The House of Representatives passed H.R. 137, which would increase federal penalties for transporting animals across state lines to engage in fighting. The legislation would make it a crime to buy or sell animals for fighting. It also would make it unlawful to use the U.S. Postal Service to promote animal fighting in the United States. Similar legislation has been introduced in the Senate.

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



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Career Center
World Pork Expo Career Center
National Hog Farmer and the National Pork Producers Council are excited to announce the 2nd Annual Career Center at this year's World Pork Expo. Career Center will be held June 7 & 8 (9:00 a.m.- 3:00 p.m.) at the Iowa State Fairgrounds in Des Moines, IA. You will have the opportunity to meet representatives from pork production companies to learn about career opportunities they currently have available. There will also be representatives from colleges that offer swine production programs for those interested in pursuing more education.

The May issue of National Hog Farmer will feature the companies who are participating in this Career Center. If you represent a company that would like to participate and/or have questions, please e-mail Lisa Peterson at lisa.peterson@penton.com for more information.


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