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Dale Miller, Editor,
National Hog Farmer
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Export Expectations Adjusted
Export sales in May 2007 continued a disappointing
trend. Year-to-date export volume through May was down 4.7% vs. one
year ago (see Figure 1). As we've seen all year, the biggest problem
for U.S. exporters is Mexico. May shipments there were 24% lower than
last year. That is a slight improvement relative to April, but it's
still disappointing for our second-largest market in 2006. Year-to-date
shipments to Mexico are now 30% below those of January-May 2006.
It still appears that higher tortilla prices are the main driver for
lower pork exports, but another factor may be weighing on U.S.
shipments. Fiona Boal of Rabo International pointed out to me this week
that Rabobank representatives in Mexico report that Mexican producers
have been reducing the size of their herds due to higher feed costs.
Those reductions have put more product on the Mexican market, driving
down prices and reducing the need for U.S. product. This reduction is
likely to wane as hog numbers reach more optimal levels and feed costs
fall in light of a larger expected U.S. corn crop. Both of those may
help exports later this year but will probably not drive shipments to
Mexico up on a year-over-year basis by year's end.
Year-to-date shipments through May were also lower to Russia (-26%) and
Taiwan (-42%). Japan has purchased 10% more pork this year while 3%
more U.S. pork has been shipped to Canada. Both China and Hong Kong
(still kept separate in USDA accounts) have purchased 38% more U.S. pork
China has purchased 19.442 thousand metric tons (21,431 tons) as of May
2007. If the rumors are true, China will buy two to three times that
much in the near future. That would be a large shot in the arm indeed
-- if the United States and China can solve this week's troubles over
ractopamine and alleged food safety issues. I find it almost laughable
that China would throw such a fit over food safety given the nature of
the country's food system. But this spat is as much about melamine (and
our negative but true statements about adulterated feed ingredients) as
it is about ractopamine.
The good side of the export news is that the value of exports is still
higher this year. Just over $1.086 billion of U.S. pork was exported
during January-May, a 6.1% increase over a year ago (see Figure 2).
Exports to China Drive Futures Rally
The rumors of significant exports to China and last week's slaughter run
that was just barely larger than one year ago helped continue the
increase in Chicago Mercantile Exchange (CME) Lean Hogs futures this
week. Contracts for October, December, February, June and July all hit
contract life highs yesterday, while April and May 2008 are within $1 of
their contract life high. The eight futures contracts that cover the
next 12 months averaged $73.66 carcass ($55.25 live) at Thursday's
The rally of the past two weeks has added $10 to $15 to the value of
every hog. The rally shows no technical signs of being over, so there
may be more to come, especially if we see some actual shipments to
More Acres, More Rain Helps
USDA's increase in harvested acres for corn and rains across the Midwest
this week also helped the feed cost situation. As can be seen in Figure
3, the costs of soybean meal and corn to make a 16% crude protein hog
diet has fallen by $20-30/ton over the past month. Allowing roughly
one-third of a ton of feed for a market hog means that the feed cost
reduction has added $7-10/head to producers' bottom lines.
Put the two together and we have seen potential producer margins for the
remainder of 2007 and all of 2008 increase by $15-25/head in recent
weeks. Those margin increases may persist and be reflected in cash
markets next year but, then again, they may not. Look carefully at your
potential costs and income given this change in futures prices. It may
well pay to lock those margins in on at least a portion of your
production for the next 12 months. The rally at least begs you to pay
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
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Variation in Pigs
Continuing our discussion of variation, this week let's
consider the variation in the number of pigs born alive/litter (NBA).
Although the week-to-week variation in herd litter size remains
relatively low, that does not mean that litter size has relatively low
variation within a herd.
Recently a producer expressed frustration about the variation in NBA for
consecutive litters from the same sows. He asked whether that was
In an analysis of data from three different herds, coefficients of
variation for within-parity NBA ranged from 27-35%. In practical
terms, this means that NBA for two thirds of the litters of any given
parity falls within three pigs above or below the parity's average.
Wouldn't it be nice to be able to predict litter size for every sow? If
you knew her next litter would be small, you could remove her
preemptively and put a more productive female in her place. However,
the data on individual sow prediction is not reassuring.
Returning to the data analysis, there are a few points of interest.
Across a sow's productive lifetime (eight parities), the average
within-sow correlation of litter-to-litter NBA ranged from 0.15-0.18.
Since correlation is measured on a scale of 0-1, in practical terms it
is easy to appreciate that the correlation of litter-to-litter NBA for
any sow is not very large.
Why is NBA so unpredictable at the individual sow level?
Without question, there is both a herd effect and a sow effect. In other
words, any sow within a herd has a baseline NBA potential. But other
factors also play a role. Examples include the litter service number
(number of estrous cycles required to generate the litter), the month of
farrowing and sow parity. From the farm's perspective, the timing of
matings, age and quality of semen, and the sow's plain of nutrition at
the time of follicular development, conception and embryo implementation
could also affect NBA.
So although week-to-week variation in herd NBA remains low, higher
variability of NBA at the individual sow level could offer potential for
improvement. At the very least, it could serve as a caveat against
making removal decisions on the basis of a single litter.
Stephanie Rutten-Ramos, DVM
University of Minnesota
Editor's Note: For all your agricultural news, markets and
commentaries, go to www.farms.com.
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Farm Bill Drafts
The House Agriculture Committee began writing the 2007
farm bill this week and worked late into Thursday night to finish.
Chairman Collin Peterson (D-MN) expects the House of Representatives to
vote on the farm bill before the August recess -- maybe as early as next
week. The House Democratic leadership is providing the committee with
an additional $4 billion for nutrition and $2.5 billion for renewable
energy above the base-line. This would be part of the $20 billion
reserve that was in the budget passed by the House. A major change that
Chairman Peterson provided in the commodities title is that a producer
will now have the option of using either the current counter-cyclical
program or opt for a revenue-based counter-cyclical program. More
details of the committee's action will be in next week's column. The
Senate Agriculture Committee is expected to begin consideration of the
farm bill in September or October.
Payment Limitations -- The House Agriculture Committee is
making reforms in payment limitations. The bill
Payment limitations will be a major issue in the Senate.
- Adjusted Gross Income (AGI): Under current law,
individuals with a 3-year average AGI greater than $2.5 million are
ineligible for farm program payments (commodity and conservation),
unless 75% of income is agriculturally related, in which case the $2.5
million limit does not apply. The committee will forbid the payment of
subsidies to anyone with an AGI of more than $1 million -- no
- Percent of income from agriculture: Individuals with $500,000
to $1 million in income would have to have 66.66% of that income from
agriculture to get payments.
- Direct attribution: Would remove the current three-entity
rule and move to direct attribution for farm program and conservation
- Direct payments: Would increase the current cap on direct
payments to $60,000 (currently $40,000).
- Counter-Cyclical Payments: Would maintain the current
counter-cyclical payment (CCP) limit at $65,000.
- Generic certificates: Would remove the use of generic
certificates, but there would be no cap on marketing loan gains/loan
- Married couples: Would allow payments to be doubled for a
- Conservation payments: Direct attribution would apply to
conservation payments, as well as crop subsidies, while increasing
conservation program payment limitation to $60,000/year for participants
in one program and $125,000/year for participants in more than one
program. This increases the existing payment limitation for both the
Conservation Reserve Program and the Conservation Security Program, and
lowers the current limitation for the Environmental Quality Incentives
Program (EQIP) if participating only in EQIP and raises it by
$50,000/year if participating in more than one program.
COOL & Agriculture Appropriations -- The House Appropriations
Committee has included a timeline for the implementation of mandatory
country-of-origin labeling (COOL) in its fiscal year 2008 agriculture
appropriations bill. The bill provides USDA's Agricultural Marketing
Service with an additional $2 million to implement COOL and requires
USDA to publish a revised rule by Jan. 17, 2008, which would be open for
a 60-day comment period. On July 19, 2008, USDA is to publish a final
rule, which will implement mandatory COOL on Sept. 30, 2008. The Senate
agriculture appropriations bill will have similar language.
P. Scott Shearer
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