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April 20, 2007



Table of Contents
Debating Meat Dominance
The Role of Variation on the Sow Farm
Livestock Competition
World Pork Expo Careers

Market Preview
Debating Meat Dominance
So what is the "dominant" meat in the U.S. marketplace? That probably depends on how you want to define dominant. Perspective is such an important issue in so many things, isn't it?

In terms of per capita disappearance/consumption on a boneless equivalent basis, beef still maintains a narrow lead over chicken in the United States (See Figure 1). That lead actually grew slightly in 2006, and is forecast by the Livestock Marketing Information Center in Denver to remain the same in 2007.

The trend for beef is flat while the trend for retail weight chicken production, though it declined last year and may do so this year, is still up. Note that retail weight pork consumption has changed little for the past 20 years, meaning that pork industry growth has been completely dependent upon population growth and exports.

Boneless equivalent is probably our best measure of what people actually eat since it leaves out much of the "waste" that we see in meat products. The figure is still based on the residual of production plus imports plus inventory change over the amount we export, since no ongoing public data exists that reflects direct measurement of consumption. In addition, this figure (and retail weight, for that matter) is based on rather old factors that convert carcass weight production to downstream weights based on standard cutting methods, trim loss, pet food usage, etc. The U.S. Department of Agriculture is presently revising those conversion factors.

Chicken Wins on Volume Purchased
If we measure importance in terms of the volume of product that people actually purchase (See Figure 2), chicken is the clear winner with per capita retail weight consumption over 20 lb. higher than beef and nearly 30 lb. higher than pork. The same trends are evident here that are evident in the boneless equivalent chart since they are related by a constant conversion factor.

The argument can clearly be made that either of these "consumption" measures is really just a matter of production since "consumption" here is just what is left over after we deduct the things we actually measure (imports, exports and frozen stocks). And year-to-year variation in "consumption" is indeed a matter of production variation. The kicker, of course, is what price a given level of production/disappearance/consumption results in and the concurrent value of total disappearance/consumption.

Beef Rules Expenditures
Figure 3 shows total retail level expenditures (price times quantity) for the four major species through 2006. By this measure, beef is still the "ten ton gorilla" of the meat sector. Pork maintained a narrow lead over chicken for many years before chicken took over second place in 2004. Pork expenditures moved back ahead of chicken in 2006 as chicken prices fell dramatically and pork prices declined by a smaller amount.

The Case for Chicken
While important, none of these charts provides a complete answer about which is the "dominant" meat if, in fact, there is one. Len Steiner of Steiner Consulting Group makes a compelling argument that chicken has become the leader of the meat business. Its huge presence in virtually every level of foodservice usage and its many product forms in retail stores make it ubiquitous. In addition, its position as the lowest-cost meat protein always makes it a good option for tight budgets and the ability of the industry to respond quickly to prices (such as is the case at present), and price pain leaves it in a terrific position to capitalize on opportunities and, with some discipline, limit the duration of losses.

Experiences with Price Pain
The industry has not historically responded very well to price pain, at least partially because it doesn't have much painful price experience. The merger of Tyson and IBP, however, has brought a degree of red meat margin management to the chicken industry, and probably means that the industry will respond more quickly to low prices than it has in the past. When your business always grows by 4%/year, market share is a pretty simple way to measure success. Slower growth, though, amplifies the importance of margins and will likely result in more response to them. Last year is one instance of chicken's new-found margin sensitivity, and this year may be the first measure of its responsiveness to regained margins.



Click to view graphs.

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



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Production Preview
The Role of Variation on the Sow Farm
In the past, we've discussed the costs of variation. The classic example is that of market weight. Even when pigs are marketed within an acceptable range of a target weight, the greater the variation within that range, the greater the opportunity loss. Today we'll consider variation at the level of the sow farm and how it undermines performance.

There are several ways to describe variation. We are accustomed to reports of average values. For parameters that have a "bell-shaped" curve (also known as the normal distribution), the average is at the highest point, and most of the parameter's values lie near that average. The minimum and maximum values define the upper and lower ends of the distribution.

The standard deviation is a way of describing how wide or how narrow the values in the distribution lie. Two thirds of a parameter's values fall within one standard deviation above or below its average. Approximately 95% of a parameter's values fall within two standard deviations above or below its average. The coefficient of variation (CV) is a way to relate the standard deviation to the average. The CV is often described as a percent and is calculated by dividing the standard deviation by the average; therefore, the larger the CV, the greater the variation in the parameter.

For this article, we considered five parameters from a dataset of weekly performance monitors from nine farms followed over a four-year period.

The first parameter considered was average female inventory. Farms ranged in size from 600 to 3,500 sows. The CVs for average female inventory ranged from 2.7%-5.6%. The variation in weekly inventory did not exhibit seasonality. Nevertheless, both gradual and abrupt changes in inventory pose challenges to breeding managers trying to fill, but not overfill, breeding groups. When animals are not available to breed, breeding groups are shorted, farrowing falls short, weaned pig production falls short, and there are fewer weaned sows to be bred in the next rotation. When inventory is long, pressure to minimize non-productive sow days can lead to overfilling breeding groups, pressure on farrowing capacity and a temporary abundance of light, young, weaned pigs.

The second parameter considered was the total number of sows bred. The CVs for sows bred/week ranged from 11%-18%. Such variation could be the result of seasonal effects, people effects (i.e., short-staffing, new employees), inventory fluctuation, or repetition of the highs and lows from the previous turn.

The third parameter considered was the number of sows farrowed. It should be noted that breeding groups and farrowing groups are offset slightly because gestation length does not correspond to an exact 16-week interval. As such, some of the week-to-week variation in the number of sows farrowed would not be a direct result of the variation in breeding group size. However, the CVs for the number of sows farrowed ranged from 13%-23%. Such variation is a challenge to herds needing to produce a consistent number of weaned pigs each week. As a result, weaning age will fluctuate to permit the unit to wean relatively "consistent" numbers of pigs.

The fourth and fifth parameters considered were total number of piglets born alive and total number of piglets weaned. Not surprisingly, the range of CVs for total number of piglets born alive was 13%-26%. Among the farms, sows farrowed/week and piglets born alive/week were relatively parallel with slightly more variation among weekly live born. The CVs for total piglets weaned/week ranged from 11%-24%.

In the context of a sow unit, small variations in inventory can translate into larger variations in breeding groups, farrowing groups, piglets born alive and weaned. Further, once a fluctuation is incorporated into a parity rotation (the number of weeks -- breeding, gestation, lactation, wean-to-first-service interval -- for a sow to produce a litter and be rebred), it becomes increasingly difficult to work it back out of the cycle.

Stephanie Rutten, DVM
University of Minnesota
E-mail: 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
Livestock Competition
The Senate Agriculture Committee and the House Agriculture Livestock Subcommittee held hearings this week to review competition issues affecting the livestock and meat industries. There were a wide variation of opinions expressed by the various farm organizations, producer groups and industry. The National Pork Producers Council (NPPC) said that several bills before Congress could adversely affect pork producers' ability to market their hogs, including a ban on packer ownership and a requirement that packers buy at least 25% of their pigs on the spot market. According to NPPC, "Punitive actions against packers do not necessarily benefit pork producers in the long run unless the packers are clearly in the wrong. We have seen no evidence of this, and Congress must proceed with caution, weighing the costs and benefits of such important public-policy decisions."

The National Cattlemen's Beef Association (NCBA) said, "We ask that the government not tell us how we can or cannot market our cattle." The American Meat Institute (AMI) testified that the recent USDA "Livestock and Meat Marketing Study" found that "contractual marketing agreements between producers and packers increase the economic efficiency of the cattle, hog and lamb markets and that these benefits are distributed to consumers, as well as to producers and packers." The study also concluded that restrictions on the use of contractual agreements would have a negative economic effect on packers, producers and consumers.

The National Farmers Union (NFU) told the committees that Congress needs to take action to "restore true competition" in the marketplace. NFU would like the farm bill to include: mandatory country-of-origin labeling (COOL); require USDA and all federal agencies enforce the Packers and Stockyards Act and antitrust laws; require contracts to be traded in open, transparent and public markets; and prohibit mandatory arbitration.

Reject Antibiotics Legislation -- The American Farm Bureau Federation (AFBF) is calling upon Congress to reject legislation (H.R. 962 and S. 549) which would remove important antibiotics and classes of antibiotics from the market. AFBF said, "In order to raise healthy animals, we need tools to keep animals healthy -- including medicines that have been approved as safe and effective by the Food and Drug Administration. To restrict access to these important tools will jeopardize animal health and compromise our ability to contribute to the public health through food safety." The legislation:
  • Phases out the non-therapeutic use in livestock of medically important antibiotics, unless their manufacturers can show that they pose no danger to the public health;
  • Requires this same tough standard of new applications for approval of animal antibiotics;

  • Provides for federal payments to farmers to defray their costs in switching to antibiotic-free husbandry practices, with a preference given to family farms;

  • Authorizes grants for research and demonstration programs on means to reduce the use of antibiotics in the raising of livestock; and

  • Requires manufacturers to report:

  • 1. The amounts of antibiotics they supply for animal use;
    2. The animals to which those drugs are given; and
    3. The uses for which those drugs are supplied.
  • Does not restrict use of antibiotics to treat sick animals or to treat pets and other animals not used for food.
This issue will be debated in Congress.

Postpone FSA Office Closings -- Congresswoman Stephanie Herseth (D-SD) has introduced legislation (H.R. 1649) to prevent the closure of Farm Service Agency (FSA) offices for 12 months. Herseth said, "To me, it's common sense that we would wait until we have more information about the specific demands the 2007 Farm Bill will place on our already busy FSA offices before jumping to any conclusions."

Inheritance Tax Repeal -- Congressman Mac Thornberry (R-Texas) introduced legislation (H.R.1586) which would permanently repeal the inheritance tax. Ending the inheritance tax or "death tax" has been a priority of many agricultural organizations especially the American Farm Bureau Federation and the National Cattlemen's Beef Association. With the current budget deficit, the likelihood of this legislation passing is remote.

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



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Career Center
World Pork Expo Careers
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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Dale Miller, Editor, National Hog Farmer

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