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May 11, 2007



Table of Contents
New Paradigms Taking Shape
Sorting Through Seasonal Infertility
CRP & Ethanol
World Pork Expo Career Center

Market Preview
New Paradigms Taking Shape
U.S. market hog prices continued their quite normal seasonal increase last week with national net negotiated prices reaching $72.65/cwt. carcass (see Figure 1). The national net "total" price, which includes all contracted and packer-sold hogs but excludes packer-owned hogs, was $72.30/cwt. carcass.

That means producers selling on the negotiated market are now, on average, getting more for their hogs than their neighbors with contracts. This always happens at the upper reaches of a hog cycle or during the normal summer seasonal rallies. It is simply a reflection of tighter hog supplies relative to packer needs and packers' aggressive pursuit of non-contracted supplies.

Producers should not be surprised if this price escalation slows over the next few weeks. As you can see in Figure 1, hog price frequently falls slightly during the week of Memorial Day. Holiday demand slackens and the day off removes some push for hogs. Negotiated hogs usually peak in late June or early July at a price about $9/cwt. carcass higher than the price during the first week of May. It doesn't take a math degree to see that such a "normal" rally this year will carry hogs well above $80 -- to near $83, in fact. That would be the highest net hog price seen since December 2004.

Chicago Mercantile Exchange (CME) Lean Hogs futures for July touched on $80 back in early March, but have struggled recently to stay above the $74 mark. History says that these summer contracts will not move much from here through expiration, so I'm not sure that any action is warranted at this time.

I hope many readers have already priced a good portion of summer hogs on that March rally and have found other productive uses for their time, having locked in hogs at very good prices. This freeing of mental and emotional resources may be one of the big benefits of pre-pricing hogs.

Prices Holding Strong
Just how good have these prices been? Figure 2 shows weekly data for the nearby hog futures contract on the Chicago Mercantile Exchange. Note that both the current Lean Hogs contract and the old Live Hogs contract (prior to 1997) are shown here and that the old prices have not been converted to a carcass weight basis. That peak in June 1990 is the record-high price of roughly $89/cwt., when converted to carcass weight using a 73.5% yield that was probably representative of the time period. Prices in 1985-86 would be in the $85/cwt. carcass range, as well.

Today's prices are very, very good relative to history. U.S. producers have not responded aggressively to these prices and Canadian producers have not been able to respond at all due to the vast difference between the value of the Canadian dollar versus years past. So, the future looks bright so long as demand holds up.

The flip side, of course, is that we are going to need every penny to pay higher costs and keep some semblance of profitability. The cost picture got better this past week as substantial progress was made on corn plantings and new-crop Chicago Board of Trade corn futures fell to their lowest levels since January. Ditto for soybean meal. These declines (which have been offset somewhat in early trading on Friday morning) leave our estimates of corn-soy feed costs $12-14/ton lower than they were in late March (see Figure 3). Feed is certainly no bargain, but that reduction has saved producers $4-5/head on feed costs

This is strictly a weather market at this point. Watch corn and beans for some technical moves as both are very close to some key support lines. Any penetration of those lines could signal further price breaks.

I've given several talks this spring where I unveiled what I believe to be the best strategy for dealing with these feed costs. Here it is:
  1. Buy low
  2. Convert efficiently
  3. Sell high
Pretty simple advice, but it usually draws a good laugh from the audience!

The moral to the story is this -- some principles never change, but the definitions do! The critical words in this strategy are "low," "efficiently" and "high."

As Figure 2 shows, the definition of a high hog price will likely change in coming months and years. Higher costs will be passed along and I believe we will see record-high hog prices during the next few years.

The definition of "low corn price" has already changed -- perhaps permanently. We all once saw $3 corn as high. Three-dollar corn is now "cheap" and will remain so for the next 3-4 years, for sure. Beyond that, increased acreage and higher yields may make $3 corn "normal," but it probably still will not be cheap relative to the long-run distribution of prices.

Redefining Top Performance
Finally, the changes in definitions may well mean that "efficiency" changes, too. We've been satisfied with 3:1 feed conversion ratios, but we may need to push those to 2.6:1 in the future. Similarly, a productivity level of 23 pigs/sow/year has been considered as at least "good,"-- but it may be the "survival rate" in the future.

The challenge for professional pork producers will be to grasp the new definitions and build them into your paradigms. You will have to view this business in some fundamentally different ways and making those kinds of changes is not easy. Get started now in questioning how you and your colleagues think about this business. The organization that can change the fastest will have a decided advantage in 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
Sorting Through Seasonal Infertility
As the days lengthen and the weather warms, sow farm managers start thinking about the impending challenges of seasonal infertility.

This breeding herd challenge is manifested in two ways:
  • Sows do not stand as well after weaning. On average, wean-to-first-service interval can increase markedly.

  • Farrowing rates decline. This can be apparent through lower conception rates or as mid-term abortions.
While there are many aspects of seasonal infertility that remain unclear, a few numerical patterns have emerged. First, herds with better overall farrowing rates appear to be less impacted. In other words, the magnitude of the decline in farrowing rate is less. Second, it often takes Parity 1 females longer to return to estrus than older sows. Return-to-estrus intervals among Parity 2 females are also affected, but not to the same magnitude as Parity 1 females.

In order to minimize the seasonal effects, some managers increase their female inventory during the summer months. This can be accomplished either by retaining sows that would have normally been culled or by increasing the gilt inventory. It is worth noting that the sow retention phenomenon could lead to further complications, as these sows would farrow and be replaced in late fall and early winter, creating a pulse of Parity 1 and Parity 2 females to be weaned the following summer.

Two other herd characteristics merit further consideration -- parity distribution and herd response.

An older parity distribution could have a protective effect against seasonal infertility, especially regarding post-weaning return-to-estrus interval. Alternatively, a herd's strategy to breed more females through the summer and fall could actually exacerbate the problem. By having large populations of Parity 1 and Parity 2 females, the herd is at high risk for prolonged post-weaning return-to-estrus intervals. And by retaining less fertile sows to meet breeding goals, a herd should naturally expect its conception and farrowing rates to decline.

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.




North American Swine Reproductive Practices Survey.
Sow farm and boar stud managers, we need your help. Please complete the survey outlined below.


The University of Illinois and its cooperators are conducting two surveys for an Update of Reproduction Practices for the North American Swine Industry. One is for BOAR STUD and the other for SOW FARM managers. All responses are intended for a single site and responses are confidential and anonymous. Those businesses with multiple sites should either respond for a single unit of their choice, or request unit managers perform the survey. Your participation will help to create this important and unique database that will help define the swine breeding industry, its labor profile, limits to reproductive performance, and use of reproductive technologies and practices. Each survey will take ~15 minutes. The outcomes will be summarized and shared with the industry in the future for helping to create a comparative reference source to aid in business decisions for opportunity, improvement, labor, and systems operation. The survey results may also help to prioritize the needs of the pig breeding industry of North America. Thank you in advance for your participation and feedback. Please email Dr. Rob Knox at rknox@uiuc.edu with any questions of comments.

To access the BOAR STUD Survey click the following link : www.zoomerang.com/survey.zgi?p=WEB226BDQZLQMN

To take the SOW FARM survey click the following link: www.zoomerang.com/survey.zgi?p=WEB226BDTLLS8C



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Legislative Preview
CRP & Ethanol
Thirty-seven agricultural and livestock organizations recently wrote Secretary of Agriculture Mike Johanns asking him to reconsider his decision to not allow producers to opt out of their Conservation Reserve Program (CRP) contracts for 2007 without penalty. The groups wrote, "Even with a large crop in 2007, another substantial increase in corn acreage will be required again in 2008 to meet the rapidly increasing production of corn-based ethanol. Although non-environmentally sensitive cropland in CRP cannot provide all the additional cropland for corn next spring, this CRP acreage can, nonetheless, provide a good measure toward meeting the anticipated, necessary expansion of cropland for corn next year. Given the dynamic challenges in the next 18 months, it is also critical the CRP not be expanded through a general signup in 2007 and 2008, and we encourage the department to limit new enrollments to targeted situations with the highest environmental value." Groups signing the letter included: American Meat Institute, American Feed Industry Association, National Chicken Council, National Grain and Feed Association, National Pork Producers Council, National Turkey Federation, and The Fertilizer Institute.

Animal Welfare Hearing -- The House Agriculture Livestock subcommittee this week held a hearing on the status of animal welfare in American agriculture with regard to steps that animal agriculture producers have implemented to improve animal welfare, and new proposals related to these issues. The National Pork Producers Council (NPPC) reminded members of the subcommittee of the number of programs the U.S. pork industry has developed and implemented to improve animal care and handling. These programs include: the Pork Quality Assurance (PQA) food-safety program; the Swine Welfare Assurance Program, an educational and assessment program that looks at 10 specific areas of animal care; and the Trucker Quality Assurance program for those who handle or transport market hogs. Next month, the PQA Plus program will be launched, which includes producer certification, on-farm assessments of well-being practices and independent, third party audits. NPPC said the industry had "on its own developed and implemented world-class programs that help pork producers raise and care for their animals in a humane, compassionate and socially responsible manner." The Humane Society of the United States (HSUS) told the committee members that the House Agriculture Committee had not conducted a "serious hearing on animal welfare since 2000." HSUS also proclaimed, we have "fallen short as a caring nation in providing the basic protections and are sorely and embarrassingly lagging behind Europe on animal welfare."

Increase in Renewable Fuels Standard -- The Senate Energy and Natural Resources Committee approved S. 987, the "Biofuels for Energy Security and Transportation Act of 2007." This legislation would increase the Renewable Fuels Standard (RFS) to 36 billion gallons by 2022. Starting in 2008, the new RFS will require 8.5 billion gallons of renewable fuel. The standard increases gradually to 15 billion gallons/year by 2015. After 2015, a complementary "advanced biofuels" standard takes effect. This requires 3 billion gallons/year of advanced biofuels in 2016 and increases to 21 billion/year in 2022. The National Cattlemen's Beef Association (NCBA) has raised concerns that this new RFS requirement of 15 billion gallons of ethanol would require nearly 43% of all U.S. corn production to meet this requirement.

2% Bio-Diesel Standard -- Congressman Tim Walberg (R-MI) has introduced legislation, the "Energy Independence through Bio-Diesel Act," that would create a 2% national standard for bio-diesel. Walberg said, "Creating a national standard for bio-diesel will encourage the technology and economics of scale necessary to make America the leader in renewable sources of energy."

COOL Before Older Canadian Cattle -- Senator Byron Dorgan (D-ND) has introduced legislation that would require that country-of-origin-labeling (COOL) be in place before the United States could import Canadian cattle over 30 months of age. Dorgan said, "There is no longer any excuse for delaying implementation of COOL. Consumers have the right to know where their meat is coming from, and to make their own decision -- fully informed decisions -- about whether they want to be putting beef from Canada on their dinner table, under the current circumstances. It is clear that Canada has a continuing problem with Mad Cow Disease and American families have a right to know whether their beef is coming from Canada."

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.



HELP WANTED
Swine Center and Feedmill Manager
US Meat Animal Research Center (USMARC)
University of Nebraska


Manage feedmill and swine herd. Position located near Clay Center, NE. USMARC is a facility for research, development, and study of meat animal production in the US, making major contributions toward solving problems facing the US livestock industry. BS in Animal Science or equivalent experience. Education/experience must include nutrition management. Knowledge of feed manufacturing process and regulations related to feed manufacturing necessary. Knowledge of biosecurity issues/protocols related to producing swine in confinement facilities and feed manufacturing essential. Valid driver's license required. Preferred experience will also include experience with AI, embryo transfer, and progressive biosecurity management, operational responsibility for a commercial feed mill with specialty rations for cattle, sheep, and swine; and responsibility for cost containment, least cost rations, and knowledge of alternative feed-stuff utilization. Excellent benefits including staff/dependent scholarship program. Apply at: http://employment.unl.edu (Requisition # 060903). UNL is committed to EEO/AA and ADA/504. If you require an accommodation, please call Terry Madson at 402-762-4151.

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