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August 17, 2007 A Penton Media Property



Table Of Contents
Pork Export Trend Unsettling
Control Variation to Improve Quality
House Passes Agriculture Appropriations



What's new on National Hog Farmer?
- News: Hold the Fat
- News: Manure Isn't What it Used to Be
- Sow Housing Debated
- August issue: Animal Welfare

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Market Preview
Pork Export Trend Unsettling
Yesterday's U.S. pork export data was again disappointing, showing June shipments were 11% lower than a year ago. That makes the fifth consecutive month that U.S. shipments have been below 2006 levels. That run of negative reports has now pulled year-to-date shipments down 5.5% on a product weight basis.

The biggest trouble spot for exports continues to be Mexico. June pork exports south of the border were 44% lower than last year and business with our second-largest pork export market is now 26% lower than last year. The value of shipments to Mexico was down 40% for June and the year-to-date (YTD) total value is down 26%.

I still believe that the two big factors that are driving this reduction in trade with Mexico are tortilla prices and the liquidation of a portion of the Mexican hog herd due to high feed costs. The liquidation can't go on forever and some analysts believe it will have run its course by this fall. That would ring especially true if corn prices continue to moderate. The same moderation, of course, could allow tortilla prices to fall as well.

The other big negatives for U.S. pork exports were Russia (-15% in June and -24% YTD) and Taiwan (-3.2% in June and -37% YTD). Shipments to South Korea are still slightly positive for 2006, but June shipments were nearly 30% smaller after May shipments were down 24%. I'm not too surprised by the difficulties with South Korea -- mainly because last year was such a huge growth year. I am, however, concerned about the magnitude of the recent reductions as beef exports begin to flow.

Even shipments to Japan were down (by 1.5%) in June vs. one year ago, although YTD trade with our largest volume and value customer is still up 8.5% for the year.

China is still the wild card in this export picture. June shipments to Hong Kong-China were 161% larger than in 2006 and YTD shipments exceed 2006 by nearly 53%. As a footnote, I should clarify that I combine the two since there is some slippage of the Hong Kong volume into China.

Altin Kalo, an analyst with Steiner Consulting Group, wrote in Tuesday's edition of the Chicago Mercantile Exchange's Daily Livestock Report that business with China is going to have to be very good to make up for the decline in trade with Mexico. He pointed out that June shipments to Mexico this year were 8,000 metric tons (8,800 tons) smaller than last year. In fact, YTD shipments to Mexico are 38,596 metric tons (42,456 tons) smaller -- a number larger than virtually all of the rumored purchase quantities for China.

The value of U.S. exports remains larger than last year through June -- by 4.8%. June, though, marked the third straight month of lower monthly export value, though the declines have been small. See Figures 1-3 for graphic presentations of this export information.

Through 2001, I marveled at how the United States could continue to set pork export records as the U.S. dollar got stronger and stronger against the currencies of our three main international competitors (see Figure 4). The rise of the greenback made our products more and more expensive but we just kept shipping more.

That trend has now reversed. In spite of an ever-weakening dollar, which makes U.S. product less expensive relative to that of Canada, Europe and Brazil, our shipments are falling. Of course, there are many, many factors that affect foreign trade but, as is true in many markets, price frequently trumps everything else. Unfortunately, that's not the case now.




Click to view graphs.

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



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Production Preview
Control Variation to Improve Quality
In the context of a new year's industry benchmarks, we'll use this column to consider one man's approach to improving quality.

In the words of Dr. Genichi Taguchi, "To improve quality, don't measure it." To some degree, this may seem counterintuitive. After all, how can you improve if you don't know where you are?

But Taguchi argues that while measures of defects or failures (i.e., death loss, pigs failing to meet the target market window) indicate the need for improvement, they offer no information about how to improve. Instead, he suggests that measures used for quality improvement incorporate both customer objectives and the relationships between quality and cost.

In practicality, quality improvement requires a balancing act between meeting customer specifications and the cost of meeting those expectations. As well, achieving quality is best addressed through variation.

From the pork production perspective, we can appreciate that it costs the producer more to hold the tail-end pigs in the barn until they make market weight than it would if the producer accepted the discounted value of marketing those animals at group close-out. We can also appreciate the role of variation in creating those marketing challenges.

Taguchi argues that it is far more efficient to control variation in a system than it is to address the symptoms that variation causes. One of the greatest challenges our industry faces with respect to causes of variation is the presence of interactions. An interaction can be described as the effect observed when two or more factors are combined. This effect is different than what would have been observed if we considered only one factor at a time.

As an example, if a farm has a minimum weight requirement for piglets at weaning, but does not factor in their age, we may find that the nursery has more pigs fail to start on feed than it would have had with a minimum age requirement. This is because the intestinal tracts of piglets mature with age, and not weight, and their ability to adapt to solid feed is associated with gut maturity.

Consequently, if a farm runs a feed trial to determine the best diet program for their production system, they need to account for piglet age across the different trial groups. If they do not, the farm could very easily associate superior performance with a diet instead of with piglet weaning age. Similarly, they could find that the optimal diet program differs according to weaning age.

Experts have long proclaimed that quality improvement includes minimizing variation. Because of the biological nature of pig production, variation will naturally be greater than that of a controlled manufacturing environment. However, by considering the role of interactions in pig production systems, we will be better able to address variation's underlying causes.

Stephanie Rutten-Ramos, DVM
University of Minnesota
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
House Passes Agriculture Appropriations
The House of Representatives passed its fiscal year 2008 agriculture appropriations bill prior to leaving for its summer recess. The bill includes $18.817 billion in discretionary spending, which is $1.002 billion more than last year's bill. Key items in the bill include:
  • Animal identification -- Does not provide new funding for the animal identification program. According to the House Appropriations Committee, USDA "cannot justify money already appropriated. Drastic action is required as this program is far too important to be allowed to continue to flounder. The agency is directed to develop a detailed plan with measurable goals."

  • Food Safety and Inspection Service (FSIS) -- Provides $930.1 million for FSIS, which is $38 million above fiscal year 2007. This will help address vacancies in federal meat inspector positions.

  • Imported poultry products from China -- Prohibits USDA from establishing or implementing a rule allowing poultry products from China into the United States.

  • Country-of-origin-labeling -- Provides an additional $2 million to USDA's Agriculture Marketing Service (AMS) to implement mandatory country-of-origin-labeling (COOL). Benchmarks are established for USDA to meet in developing a final rule to implement mandatory COOL.

  • Trade programs -- Provides full funding for the Foreign Market Development (FMD) program at $34.5 million and the Market Access Program (MAP) at $200 million.

  • Packer audit -- Encourages USDA's Grain Inspection Packers and Stockyards Administration (GIPSA) to conduct its own audits of large packers instead of relying on company level audits. Provides an additional $2 million to provide for additional employees to "strengthen enforcement and promote voluntary compliance."

  • User fees -- The bill does not include the administration's proposed user fees for meat, poultry and egg inspection.

Canadian Producers Oppose COOL -- The Canadian Cattlemen's Association and the Canadian Pork Council have formed a coalition called Canadian Livestock Producers Against COOL. The coalition is seeking changes to the U.S. House of Representatives passed farm bill provisions on mandatory country-of-origin-labeling (COOL). The changes are to have COOL conform to international trade agreements. The coalition believes the provisions in the farm bill violate U.S. trade obligations under the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO).

Mandatory Price Reporting -- USDA's Agricultural Marketing Service (AMS) has published a proposed rule to reestablish the mandatory price reporting regulations for swine, cattle, lamb and boxed beef. Public comments on the regulatory aspects of the proposed rule are due by Sept. 7, 2007. Comments concerning the information collection and recordkeeping provisions are due by Oct. 9, 2007. The proposed rule is available at www.ams.usda.gov/lsmnpubs/mpr/LMRPR.pdf.

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



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Pork Industry Calendar
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.

Click here to get National Hog Farmer's complete pork industry calendar.



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