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August 31, 2007 A Penton Media Property

Table Of Contents
The China Connection
A Volatile Month
Sign-Up Dates for New Livestock and Crop Disaster Programs

What's new on National Hog Farmer?
- News: China Suspends Some U.S. Pork Imports
- News: Manure Isn't What it Used to Be
- Sow Housing Debated
- August issue: Focus on Animal Welfare

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Market Preview
The China Connection
Smithfield's announcement of the sale of 60 million pounds of pork to China last Friday was welcome news for the U.S. pork industry. After several months of rumors about Chinese interest in U.S. pork and several weeks of discussion indicating their wishes to restrict pork from hogs fed ractopamine, it was good to finally get solid news of a shipment. We hope it will be the first of several over the next few months as China tries to provide pork to its consumers in the wake of large death losses in its domestic herd.

But just how big is this sale? 60 million pounds sounds like a lot of pork, but consider the following facts:
  • 60 million pounds amounts to 29,956 tons and that amount will be shipped between now and the end of the year.

  • 60 million pounds represents roughly 15% of one week's U.S. carcass-weight pork production at present, and will represent about 13% of the likely peak weekly production this fall of around 460 million pounds.

  • 7,480 tons/month will be about 70% of a recent monthly total for shipments to China/Hong Kong (see Figure 1), but only about 18% of July shipments to Japan.

  • This shipment could be filled by three-fourths of one day's normal slaughter, assuming that China buys cuts in the same proportion that they are produced. We don't think that is likely since China will want to stretch limited dollars over as much product as possible.
China's ban on ractopamine is certainly an obstacle for other packers to overcome. We are confident that Smithfield's vertically integrated structure made it easier for them to meet this demand, but we also believe that other packers will follow Smithfield's lead if there is more business to be had.

I think segregating ractopamine hogs and maintaining product identity is a bigger issue that the availability of ractopamine-free hogs. Many producers pull one or two loads of hogs from a barn before they put ractopamine into diets, so there are hogs out there to meet the Chinese demands. The trick is getting them grouped into one day's (or a portion of one day's) slaughter operations and then maintaining the identity of that product through the plant. Again, Smithfield may be in a better position to do that because of their ownership of pigs but other packers will figure it out quickly if there is a buck to be made.

Could this be a dry run for mandatory country-of-origin labeling (MCOOL)? I think so. The operational issues appear to be much the same. It will be interesting to see how much the "ractopamine-free" methods actually cost.

Domestic Demand Shows Signs of Strength
While the China business has hopefully kick-started export business, the news for domestic demand through July was much more positive. Professor Glenn Grimes' demand index calculations for January-July show a 1.4% improvement in U.S. consumer-level pork demand in just one month. That is a very large jump in this index and it mainly reflects record-high retail pork prices. The indexes for beef and chicken improved as well in July, with chicken demand increasing by 2.1% from June. Indexes for all three species appear in Figure 2.

July's average retail pork price of $2.936/retail weight pound was 3.3% higher than last July. The price increase was good for both packers and producers as the farm-wholesale spread grew by 2.6% and producer prices were nearly 7% higher.

We think this recent jump in retail prices and, consequently, the demand indexes is a lagged impact of what has been happening since late winter. Wholesale pork demand has been very strong for much of this year in spite of soft exports and what appeared to be very soft consumer demand. We are pretty confident that the time lag of USDA's retail price series was the real reason for the difference. We think the same was true for chicken. It appears the data have now caught up with reality.

U.S. hog slaughter resumed its growth last week, increasing 3% from the same week last year (see this week's North American Pork Industry Data table below). It appears that USDA's July inventory of market hogs was low but not by a large amount. The culprit in comparing this year's data to last year's is an increase in market hog imports from Canada -- 165,000 more from June 3 through Aug. 26.

The June report suggested that slaughter from July 1 through last week should have been 2.1% higher than last year. That actual figure was 3.2%, but the larger numbers of Canadian market hogs account for over half of the difference. The larger number of Canadian feeder pigs imported up to June 1 would have been included in the June 1 inventories. Deducting the Canadian pigs leaves adjusted slaughter +2.5% for June 3 through last week; not much larger than USDA's predicted 2.1%! Let's hope it stays that close through fall.

Click to view graphs.

Steve R. Meyer, Ph.D.
Paragon Economics, Inc.


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Financial Preview
A Volatile Month
On Friday, Aug. 3, we had cash markets in the low- to mid-$70s and every futures month was on the board at $70 or above. The rumor was that China was in the market for buying lots of U.S. pork. Life was good. It seemed that even though we had more hogs coming to market, prices were going to profitable. At the same time, grain prices were coming down and corn in southern Minnesota was below $3/bu. It looked like we were going to have realistic corn prices even with the ethanol boom.

Now, three weeks later, futures have dropped in some months by $10 to $12/head, the cash market has dropped over $15/head, and corn prices are up by at least 25 cents/bu. Unfortunately, I think these wild swings in the marketplace will be the norm for a while. There are currently more dynamics that can affect producers' margins and they will have to be a little lucky, and prudent, with their marketing decisions.

I've had several conversations with producers looking for advice on what to do. I stress to them that it depends, first, on their financial situation and, second, how much market stress they can handle. If you are leveraged, you cannot afford to take the risk that prices are going to be great forever. If there is a margin that looks acceptable for your business, act on it and don't look back.

Finishing Space is Tight
The tight supply of finishing spaces in the Midwest is a sign that the pipeline is full. Warm summer weather has backed up gains, while significant productivity gains have been made in the sow herds. Add to that the effectiveness of the circovirus vaccines in reducing finishing mortalities and it is very difficult to find any empty finishing sites at this time.

It will be interesting to see the fall slaughter numbers. I have seen many systems weaning close to a 10-pig average dealing with mortality levels greater than 10%, which are now down to 6% or lower. If you do the math, that could equal a lot of pigs placed on feed. The question is -- can we keep moving the product? Our exports are down (especially to Mexico) and we are hoping that China will be our salvation. Time will tell.

A New Era
I believe the volatility in the markets will create a separation of producers over the next 12-24 months. There are not packer agreements to assure profitability. Producers will need to manage their feed risk and their market risk.

I recently reviewed the profits of five clients for last year. One made over $20/head, while another lost money! Some of the difference had to do with herd health issues and the amount of revenue received, but part of it was how each producer managed risk. In the future, the ability to manage risk will separate the best from the rest.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at


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Legislative Preview
Sign-Up Dates for New Livestock and Crop Disaster Programs
USDA has announced sign-up dates for the new Livestock Compensation Program, Livestock Indemnity Program and Crop Disaster Program aimed at providing benefits to producers who suffered losses caused by natural disasters in recent years.
  • Livestock Compensation Program & Livestock Indemnity Program: Eligible livestock producers can apply to receive benefits under the Livestock Compensation Program (LCP) and Livestock Indemnity Program (LIP) beginning Sept. 10. LCP compensates livestock producers for feed losses occurring between Jan. 1, 2005 and Feb. 28, 2007, due to a natural disaster. LIP compensates livestock producers for livestock losses between Jan.1, 2005 and Feb. 28, 2007 that resulted from natural disasters, including losses due to blizzards that started in 2006 and continued into January 2007.

  • Crop Disaster Program: Eligible producers can sign-up beginning Oct. 15, if they suffered quantity losses to their crops. USDA will announce Crop Disaster Program (CDP) sign-up for quality losses later. CDP provides benefits to producers who suffered "quantity and quality losses to 2005, 2006 or 2007 crops from natural disasters if the crop was planted before Feb. 28, 2007, or in the case of prevented plantings, for crops that would have been planted before Feb. 28, 2007."
Additional information on these programs can be found at; click on Disaster Assistance Programs.

Korea Reopens Market to U.S. Beef -- South Korea has reopened its market to U.S. beef effective Aug. 27. The market was closed in July because some shipments contained ribs, which are prohibited under the current agreement. Efforts are being made by USDA and U.S. Trade Representative to negotiate with Korea to allow for the shipment of bone-in products from animals less than 30 months of age.

Appeals Court Rules Against R-CALF -- The United States Court of Appeals for the Ninth Circuit ruled against R-CALF in its efforts to overturn USDA's rule allowing the import of Canadian cattle and beef less than 30 months of age. R-CALF had objected to USDA's rule because of its concerns over bovine spongiform encephalopathy (BSE). The court said, "Having reviewed the merits of this case, we conclude that the agency considered the relevant factors and articulated a rational connection between the facts found and its decision to designate Canada a minimal-risk country." The American Meat Institute said, "This decision will help clear the way for fully restoring cattle trade with Canada, which is good for both of our countries."

Congress Returns Next Week -- Congress will return next week after its August recess with a full agenda. Key items for Congress will be trying to finish appropriation bills prior to Sept. 30. The Senate Agriculture Committee is expected to begin work on the 2007 farm bill. Senator Tom Harkin (D-IA), chairman of the Senate Agriculture Committee, is expected to release his chairman's mark of the farm bill as early as next week.

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


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

Pork Industry Calendar
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

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 or log onto

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


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Help Wanted
Cargill Meat Solutions is looking for a Pork Field Manager. This position will work directly with a designated group of contract pork producers to assist them in trouble shooting problem areas, provide solutions for improving production, help manage customer relationships as well as provide documentation of on farm reports. This position is responsible for working with the Production Manager to arrive at solutions and make decisions that will impact their area and business units profitability. Through farm visits, producer meetings and information sharing, the successful candidate will aid the producers in finding the most successful ways of maximizing production on their farm. The successful candidate should have a BS/BA degree and a minimum of 5 years experience in pork production.

Interested candidates should apply online at
referencing job #MIS00010. EOE

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