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August 3, 2007 A Penton Media Property



Table Of Contents
MCOOL Compromises
Capturing More "Opportunity" Value
Farm Bill Passes House



What's new on National Hog Farmer?
- North Carolina Keeps Swine Lagoons
- World Pork Expo New Product Tour
- Wisconsin Sounds 'All Clear' On Pseudorabies Front
- Read the full July issue

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Market Preview
MCOOL Compromises
The Agriculture Committee of the House of Representatives passed a farm bill that contained, among other features, some compromise language on mandatory country-of-origin labeling (MCOOL). There was a bit of compromising done but, unfortunately, meat and livestock groups did most of it.

That may sound critical, although that's not my intent because I know those groups worked hard to get more changes made. However, it appears that the current Congress is listening much more to protectionists and populists in their decision-making.

The biggest value of the compromises to U.S. pork producers is that it limits the records that USDA can require for verification of origin to those records kept in the normal course of business. Further, it appears likely that producers will only have to provide their customers with a statement indicating: a) the origin of the pigs, and b) that the producer has records showing where he/she got the pigs. In other words, the trail of those records would lead back to the origin of the pigs.

In addition, the new language allows ground meat to be marked with a "may contain" label that lists all of the countries from which ingredients either actually came from or could reasonably come. That is not a big deal for pork, but it is huge for ground beef.

There is some disagreement about how the House bill will change the actual labels applied to pork other than the fact that there will be only three labels as opposed to the four or more presented in the original rules. Those rules required actual combinations of where animals were born, raised and slaughtered.

The law is clear -- imported meat is to be labeled as product of the source country. My reading of the law says that animals born, raised and slaughtered in the United States must be labeled "Product of the U.S." Animals born or raised in another country and slaughtered in the United States will be labeled "Product of Country X and the United States." Some observers believe that product from animals born, raised and slaughtered in the United States can be included in that latter label, basically lumping everything other than imported meat into one label. USDA will have to interpret the law during the rulemaking process.

Finally, the language exempts any animals that are in the country on Jan. 1, 2008. Products from those animals would be allowed to move through the channels of commerce without a label even if they are sold after Sept. 30, 2008, the date MCOOL becomes effective. It also means that any animal born or entering the United States on Jan. 1 or after must have "normal business documents" that show its origin so products can be accurately labeled.

Of course, there is no guarantee that any of this will survive the floor debate in the House or the deliberations in the Senate. House Republicans are already up in arms because of a funding provision in the bill, and the administration has threatened to veto this version of the farm bill if it makes it to President Bush's desk.

Tyson Announcement Puzzling
Five of the six weeks -- from late May through early July -- saw slaughter 3-6% larger than last year. The three weeks prior to last week saw slaughter runs much closer to year-ago levels (See Figure 1). It appears to me that this is more a matter of large slaughters last year than it is a reflection of small slaughters this year.

Federally inspected (FI) slaughter was up 3.6% from the 2006 level last week and up 4.5% this week (through Thursday).

Tyson's announced cutback was somewhat puzzling when it came out last week. The reduction totaled 24 hours in its six plants reportedly spread over the end of last week and the beginning of this week. Pork packer margins had gotten very low in late June and early July, but spiked upward two weeks ago. As you review Figure 2, keep in mind that these are estimated gross margins. Packers must still pay all of their non-hog costs from these funds.

The rise two weeks ago was driven by a $2.40 increase in the cutout value, a $1 drop in the national net price of hogs and a sixth consecutive weekly record for per-head byproduct value ($17.04/head). Last week saw another byproduct record ($17.26/head) and a rally in cash hog prices that reduced packer margins.

What is driving the byproduct value? Fat. The price of fat is more than double one year ago. Anything with energy in it is pretty valuable these days.

Why did Tyson cut back on slaughter runs last week? Probably because they were trying to look ahead and because there are lags between when hogs are purchased and product is sold.

Looking ahead at pork product markets in late July hardly ever provides a pretty picture. Except for a minor blip in August ribs and loins in preparation for Labor Day, the price of virtually every cut declines. It could well be that Tyson managers are just trying to manage the cost of future inventories relative to cutout realizations that will almost certainly fall.

And, it could be that they share my concern about supplies and see plenty of pigs that are now going to get bigger since corn is an "affordable" $3.06/bu.



Click to view graphs.

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



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Production Preview
Capturing More "Opportunity" Value
A closer look at "opportunity cost" can provide a fresh look at what is being left on the table as current decisions are being implemented in your production system.

Opportunity costs are the price of choosing one option over another. More specifically, it's the cost of the next best opportunity that was not selected. While the concept is usually applied to the price (cost) of production, it can be applied equally well to the revenue side.

The opportunity cost of becoming a pork producer is the lost income, satisfaction and experiences that you could have had if you had chosen to be a plumber or a physician, for example.

The idea in economics is that the cost of a decision is not really best viewed as the money you pay for inputs, which, after all, is only a symbol of value. Rather, it is the outcome(s) you abandon by virtue of committing to your present course.

The value of considering opportunity costs for the decision-maker is that it awakens the urgency that choices are both limited and limiting and, therefore, should be made carefully. The time and the opportunity that are committed to one set of choices cannot be recovered and applied to an alternative. You can change course, but you cannot turn back and remake a decision.

Another twist on the concept is to consider the outcome of a set of decisions and then measure what you achieved vs. the perfect outcome. The shortfall is the "opportunity" that could have come your way except for the variety of factors that determined the actual outcome. Some factors may not be within the control of management, but a great many certainly are.

When I walk through a production facility that is operated in a less-than-desirable fashion, I often point to something that is out of adjustment and provide the building manager a quick estimate of the dollar value of the savings if the problem were fixed. I've even been known to reach into my wallet and actually lay $20 bills on the problem. This helps remedy the common "disconnect" in the minds of pig care providers and their ability to recognize the potential savings in terms of real dollars.

What is the lost opportunity associated with an out-of-feed or out-of-water event? What is the cost of failure to maintain proper temperature and ventilation levels, especially in newly weaned pigs? Every insult to the animal saps a bit of its potential performance and that's potential that can never be recovered.

The accumulated result of these decisions and failures is a burgeoning volume of unrealized profit.

Along with calculating your cost of production this year, take the opportunity to calculate the dollar value that never reached your bank account because of less-than-optimal performance. The wise producer then measures the cost of capturing more and more of that opportunity value.

By Dennis DiPietre

Editor's Note: Dr. DiPietre is an independent consultant from Columbia, MO. For all your agricultural news, markets and commentaries, go to www.farms.com



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Legislative Preview
Farm Bill Passes House
The House of Representatives passed the 2007 farm bill last Friday afternoon by a vote of 231-191. The budget was a major factor in its development. The bill moved forward after the House Democratic leadership found additional funds for nutrition and energy. The debate became very partisan on the floor and split the House Agriculture Committee membership over the funding mechanism for the additional $4 billion for nutrition. The Republicans called the revenue measure a "tax increase," while the Democrats said they were closing a "tax loophole" identified by the Department of Treasury in 2002. Only six of the 21 Republicans on the House Agriculture Committee voted for the bill. Republicans on the committee strongly supported the committee-passed version, but the funding mechanism caused them to vote against final passage. Only 19 Republicans voted for final passage of the bill.

Senate Farm Bill in September -- Now that the House of Representatives has passed their version of the farm bill, all eyes will focus on the Senate. Senator Tom Harkin (D-IA), chairman of the Senate Agriculture Committee, has indicated the committee will begin considering the bill the third week of September. He would like to see a strong conservation title for working lands, increased programs, grants and loan guarantees for cellulosic ethanol, advance broadband for rural communities and improved nutrition programs.

Water Resources Act -- The House passed by a large bipartisan vote the conference report for H.R. 1495, the "Water Resources Development Act," which would authorize funding for flood-control, navigation and environmental projects managed by the Army Corps of Engineers. The legislation provides $3.6 billion for the modernization of the locks and dams on the Upper Mississippi River and the Illinois Waterway system. This has been a high priority of the National Corn Growers Association and the American Soybean Association. The conference report now goes to the Senate for consideration.

South Korea Suspends Inspection of U.S. Beef -- South Korea has temporarily suspended quarantine inspection of all U.S. beef shipments effective Aug. 1, 2007. They are asking USDA to investigate the current incident where product not approved for export was in boxes shipped to South Korea and what corrective steps will be taken. USDA has indicated that out of some 600,000 boxes of U.S. beef sent to South Korea since it resumed imports in April, only six have contained unauthorized material.

Summer Recess -- Starting next week, Congress will be in recess until after Labor Day. Members will be in their districts and this would be a good time to visit with them on key issues concerning the farm bill and agriculture. Contact your Senator's or Congressman's office and ask for their schedule of town hall meetings that you could attend.

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



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Advancement in PRRS Research Award.
Boehringer Ingelheim is awarding $75,000 annually to fund three research proposals to help solve the PRRS mystery. Entries due January 1, 2008. Visit www.PRRSresearch.com

Pork Industry Calendar
Aug. 8, 2007: "Bringing and Keeping Gilts in the Breeding Herd;" webcast runs from 1-2 p.m.; contact: Mark Whitney, University of Minnesota swine extension specialist at (888) 241-3214 or whitn007@umn.edu.

Aug. 8, 2007: Informational Seminar for Pork Producers, Governor's Inn and Conference Center, Casselton, ND; contact John Dhuyvetter, North Dakota State University area live specialist at (701) 857-7682.

Aug. 16, 2007: The 48th Annual George Young Swine Health and Management Conference, Marina Inn, South Sioux City, NE; contact: Sharon Clowser, University of Nebraska, by phone (402) 472-8550, fax (402) 472-9690 or e-mail sclowser2@unl.edu.

Aug. 21, 2007: ManureTech 2007, Dairy Forage Research Center Farm, Prairie du Sac, WI; contact Randy Fonner, University of Illinois at (217) 333-2611, refonner@uiuc.edu or log onto www.imanuremgt.org.

Aug. 23, 2007: "Managing Prices for Optimal Returns," Hilton Garden Inn, Johnston, IA; contact: Ali Smith, Iowa Pork Producers Association, at (515) 225-7675, (800) 372-7675 or asmith@iowapork.org.

Aug. 28, 2007: 17th Annual Swine Conference sponsored by Carthage (IL) Veterinary Service (CVS), Ltd., Western Illinois University, Macomb, IL; contact: CVS by phone (217) 357-2811, fax (217) 357-6665, e-mail reg@hogvet.com or log onto www.hogvet.com.

Aug. 28-30, 2007: ID INFO EXPO, Westin Crown Center, Kansas City, MO; contact: the National Institute for Animal Agriculture at www.animalagriculture.org

Sept. 6, 2007: Midwest Swine Nutrition Conference, Indiana Farm Bureau Building, Indianapolis, IN; contact: Tip Cline, Purdue University by phone (765) 583-2831 or e-mail tcline@purdue.edu.

Sept. 9-12, 2007: 13th Discover Conference on Food Animal Agriculture: Sow Productive Lifetime, The Brown County Inn, Nashville, IN; contact: the American Dairy Science Association by phone (217) 356-5146, fax (217) 398-4119, e-mail adsa-discover@assochq.org or log onto www.adsa.org/discover.

Sept. 11, 2007: Midwest Pork Conference, Hendricks County Conference Complex, Danville, IN; contact: Sarah Bustamente at the Indiana Pork Producers Association at sarahb@achievainc.com.

Sept. 15-18, 2007: Leman Swine Conference, RiverCentre, St. Paul, MN; contact the University of Minnesota by phone (612) 624-3434 or (800) 380-8636, e-mail vop@umn.edu or log onto www.cvm.umn.edu/outreach.

Oct. 17-24, 2007: U.S. Animal Health Association (USAHA) Annual Meeting, John Ascuaga's Nugget Hotel, Reno, NV; contact: USAHA by phone (816) 671-1144, fax (816) 671-1201 or e-mail usaha@usaha.org.



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