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Market Preview
Weekly Record Hog
Slaughter Continues
If there were any doubters out there regarding the
potential for large hog supplies this fall, last week's record weekly
estimated slaughter run of 2.321 million head should serve as a dose of
very cold water. This week could well exceed those numbers, with
slaughter through Thursday up 7,000 head or 0.4% from one week ago.
Another 423,000 head run on Friday (in line with this week's daily runs)
and 218,000 on Saturday (the same as last week), and we would see
another record - -this time at 2.352 million head (see Figure 1).
Those numbers are certainly doable, especially given the fact that gross
packer margins recovered somewhat last week after being quite tight the
week of Sept. 29, when the cutout value fell by more than did hog prices
(see Figure 2). I expect gross packer margins to get back above
average very soon at these kinds of slaughter rates. One thing to
remember, though, is that packers can actually make good money at lower
gross margin levels (which is what is represented in Figure 2), since
these large slaughter runs drive average fixed costs down by spreading
plant, labor, etc. over more animals. Packing plants get very
cost-efficient at these throughput levels.
Pork Exports Rebound
USDA's Foreign Agricultural Service released data for August pork
exports this morning, and the news was definitely good for hog producers
and pork packers. August exports on a product weight basis were 10%
higher than one year ago. Year-to-date pork exports are still 3.3%
lower than last year, but that is a big improvement from July when pork
exports were 4.9% lower, year-to-date, than in 2007. See Figures 3
through 6.
More important for hog demand, though, is the status of export value.
The number for export value grew by 14.7% vs. August 2007, and is now
5.9% higher year-to-date, improving from 4.7% higher through July. Added
value for pork exports gives packers the ability to bid more for hogs.
It is not a guarantee, but at least it makes higher bids possible.
Pork shipments to Hong Kong were up 462% in August vs. one year ago,
while shipments to China were up 73%. Year-to-date, pork shipments to
Hong Kong are 118% higher than in 2006 and shipments to China are 73%
higher. Combining the numbers shows growth of 85% in pork shipments
this year.
By-Product Export Growth
The good export news also applies to pork variety meats (or
by-products). August variety meat shipments were up 5.5% in volume and
13.5% in value relative to one year ago. Those positive numbers drove
year-to-date numbers to -0.7% for volume and +6.2% for value. That
compares to -1.6% for volume and +5.2% for value at the end of July.
Is there any wonder that the average drop value per head has been at
record levels this summer and contributed mightily to packer margins and
live hog demand?
China and Hong Kong were the major drivers of August variety meat export
growth. Shipments to Hong Kong were 212% larger than last year and
those to China were 97% larger. The values of those shipments were 180%
and 128% higher than last year, respectively. Russia was also an active
customer in August, purchasing 22% more variety meats that was valued
22% more than last year.
Mexican Trade Concerns
Mexico continues to take fewer products than one year ago, but the
year-over-year monthly decline was less in August (-23.8%) than it has
been since February. Shipments of U.S. pork to Mexico are still down
30% in volume and 26% in value this year.
Variety meat shipments to Mexico (which is our largest variety meat
customer) were down 13.6% in volume and 1.8% in value in August compared
to August 2006. That performance was a bit disappointing since July saw
year-over-year growth in both of those numbers.
My guess is that higher variety meat prices in August due to heavy
interest by China/Hong Kong had an adverse impact on Mexican sales,
especially given the price-sensitive nature of the Mexican market.
I have written several times that the problem in Mexico has been
two-fold: higher tortilla prices which have reduced the amount of money
consumers have to spend on meat, and higher domestic pork supplies due
to liquidation caused by high feed prices. It appears from my contacts
that these have been, on balance, about equal in their impact on U.S.
exports. It still appears that the liquidation will slow this fall as
hog numbers reach somewhat of a minimum and feed prices fall a bit. It
certainly does not appear that Mexican demand for U.S. pork had improved
much as of August, however.
Export Shining Stars
And after all of that, let us not overlook excellent performance in our
other two big export markets. Shipments to Japan were up 15.5% in
volume and 17% in value in August, while shipments to Canada were up 24%
in volume and 30% in value.
The August data are definitely good news for the U.S. pork industry. I
have sometimes felt a little silly predicting that we were still going
to set a 16th-consecutive annual export record when the news, through
July, was pretty bleak. But I think that is definitely within reach
given these data and the fact that supplies will be ample this fall.
Export markets are price-responsive, too, and lower prices will help
move volume -- and we are going to need all the help we can get on that
count!
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com
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
Production Preview
Tackling Sow Lameness
Lameness is a common condition in pigs and it is often
linked to compromised animal well-being as well as economic loss to the
producer.
The economic impact of lameness is associated with the premature removal
of sows before they attain peak production. Locomotor problems are
reportedly a major reason for culling sows -- second only to
reproductive inefficiencies.
In a recent study in a commercial herd, researchers observed that sows
having no lameness during the periparturient period (including
lactation) were less likely to be removed within 35 days,
post-farrowing, compared to lame sows, when controlled for factors such
as parity, lactation feed intake, lactation length and number of piglets
born alive.
In the same study, it was also observed that the performance of sows
retained despite their welfare problems (such as lameness) was adversely
affected in terms of the number of sows subsequently farrowed and in the
number of piglets born alive. This suggests the long-lasting effects of
conditions like lameness on herd performance.
Unlike reproductive reasons, the removal of a lame sow may not be by
culling alone. Depending on the frequency of culling and/or euthanasia,
the death rate due to lameness may vary from farm-to-farm. The welfare
impact of lameness is not uniform across herds. Often, sows culled
because of lameness are removed at a younger age than those removed for
other reasons. This has serious economic implications for the producer.
Early removal of sows before they attain maximum litter size may have a
negative impact on average litter size, litters/sow/year and pigs
weaned/sow/year. All effectively raise the cost/weaned pig.
Given the economic effects of lameness in sows, minimizing the incidence
and consequent sow removals may increase the proportion of higher parity
sows in the herd and improve overall herd litter size and farrowing
rate.
The causal factors for lameness in sows vary, however, the most common
is the flooring. Nutritional deficiency is reported to be a major cause
of lameness in sows, also.
The integrity of the claws is another related factor. Severe claw
lesions may be painful and cause lameness, besides acting as an entry
point for infection. Unlike dairy cattle, studies on claw lesions and
their association with lameness in pigs are relatively rare. Not all
types of claw lesions in pigs may be associated with lameness.
Recent studies at the University of Minnesota have established an
association of white line lesion with lameness. We also demonstrated
that claw lesions are more prevalent in group-housed sows compared to
individually confined sows, which is alarming given the industry trend
to move to group housing systems for breeding sows.
The adverse welfare and economic effects of lameness are maximized when
lame sows are left to die. The number of non-productive days, and thus,
the number of litters/sow/year is influenced by the interval between a
production event and the removal of a sow. Therefore, timely and
adequate culling of at-risk sows is of great importance.
This may not always be possible, especially before weaning, given the
management and economic implications of removing a lactating sow and the
welfare of piglets.
In any case, lameness in gilts and sows should be prevented or treated.
Selection of gilts on the basis of conformation, floor type, provision
for bedding, group size and structure, and nutrition are important
factors in a preventative strategy. If treatment is not an option, lame
sows should be culled or euthanized immediately.
by Sukumarannair S. Anil, DVM
sukum001@umn.edu
Editor's Note: For all your agricultural news, markets and
commentaries, go to www.farms.com.
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Legislative Preview
Senate Committee
Passes Ag Package
The Senate Finance Committee passed a $16 billion
agricultural tax package that will assist the Senate Agriculture
Committee in proceeding with the 2007 farm bill. The legislation
establishes a $5.1 billion permanent agricultural disaster program.
Producers will be given the option of either cash payments or tax
credits for certain conservation programs. It provides tax credits for
cellulosic ethanol and reduces the current ethanol blender's tax credit
from 51 to 46¢/gal. Key highlights of the bill include:
- Permanent Ag Disaster Assistance Trust Fund: Creates a
trust fund for disaster relief that would cover the "shallow losses" not
covered by crop insurance. Farmers and ranchers will be required to
purchase crop insurance in order to be eligible for disaster assistance.
- Conservation Tax Credits: Producers would have to choose
between regular cash payment or a tax credit for participation in the
Conservation Reserve Program, Wetlands Reserve Program and the Working
Grasslands Protection Program. Currently, producers receive cash
payments.
- Tax Treatments of CRP Payments: Provides that Conservation
Reserve Program (CRP) payments to retired or disabled individuals are to
be treated as rental payments for tax purposes and are excluded from
self-employment taxes.
- Small Producer Credit for Cellulosic Alcohol: The proposal
creates a new production tax credit for cellulosic alcohol of
50¢/gal. (in addition to the current 51¢/gal. credit and 10
¢/gal.credit) for up to 60 million gallons of cellulosic fuel
production in a taxable year.
- Expand Expensing for Cellulosic Ethanol Facilities: The
proposal expands the eligible property qualifying for the 50% expensing
to include alcohol produced from any lignocellulosic or hemicellulosic
matter that is available on a renewable or recurring basis.
- Small Ethanol Producer Credit: The proposal extends for two
years (through Dec. 31, 2012) the 10¢/gal. tax credit on the first
15 million gallons of ethanol production for producers with annual
capacity of not more than 60 million gallons.
- Fossil-Free Alcohol Production Credit: The proposal creates
a new, small producer alcohol credit of 25¢/gal. for facilities
that produce ethanol through a process that does not use a fossil-based
resource available through Dec. 31, 2012.
- Biodiesel Tax Credit: Extends for two years (through Dec.
31, 2010) the $1.00 and 50¢ production tax credits for biodiesel.
It extends for four years (through Dec. 31, 2012) the 10¢/gal. tax
credit on the first 15 million gallons of biodiesel production for
producers with annual capacity of not more than 60 million gallons.
- Renewable Diesel Incentives: Extends for two years (through
Dec. 31, 2010) the $1 tax credit for diesel created through a thermal
depolymerization process and caps, on a per facility basis, the $1
credit at 60 million gallons/year.
- Alternative Fuels Excise Tax Credit: The proposal extends
through 2010 the alternative fuel tax credit for non-coal-based
transportation fuels. The proposal modifies the credit to include
biomass-gas-based versions of liquefied petroleum gas and liquefied or
compressed natural gas.
- Alternative Refueling Station Tax Credit: The proposal
extends the 30% alternative refueling property credit (capped at
$30,000) for non-hydrogen property for one year (through Dec. 31, 2010).
The energy-related offsets include:
- Five-cent reduction in ethanol credit: This proposal
reduces the 51¢/gal. tax credit for ethanol by 5¢ beginning
with the first calendar year after the year in which 7.5 billion gallons
of ethanol has been produced. The 7.5 billion target matches the
renewable fuel standard passed by Congress in the 2005 Energy Policy
Act.
- Extension of Tariff on Ethanol: The proposal extends the
tariff on imported ethanol for two years (through Dec. 31, 2010).
- Elimination of Certain Refunds of
Duty Imposed on Ethanol: Present law allows duties paid upon import
to be reclaimed at a later date if the same or similar product is
exported. Current law treats ethanol blended with gasoline the same as
jet fuel. The proposal terminates that treatment. Any drawback for
ethanol blended with gasoline is still allowed.
- Exclusion of denaturant from alcohol fuels credit: The
proposal excludes the volume of denaturant (a substance used to render
alcohol toxic or undrinkable) in the fuel for purposes of calculating
the volume of alcohol eligible for the alcohol fuels credit.
- Alcohol and biodiesel as taxable fuel: This proposal adds
qualified alcohol fuel mixtures and qualified biodiesel fuel mixtures to
the definition of taxable fuel as a type of diesel fuel.
Stop Canadian Cattle Over 30 Months -- Senator Byron Doran
(D-ND) has introduced a "Resolution of Disapproval" to block the
administration's rule to allow for the importation of Canadian cattle
and beef products from animals over 30 months of age. Senator Dorgan
said, "The Bush Administration based its decision to allow these imports
to resume on overly optimistic assumptions regarding the scope of
Canada's mad cow problem and the effectiveness of Canada's efforts to
control, prevent and eradicate it. The American people deserve to know,
without question, that the food they put on the dinner table is safe."
Other cosponsors of the resolution include Senators John Barrasso
(R-WY), Sherrod Brown (D-OH), Kent Conrad (D-ND), Mike Enzi (R-WY), Tim
Johnson (D-SD), John Tester (D-MT) and John Thune (R-SD). The rule is
to take effect Nov. 19 and will allow the importation of: live cattle
and other bovines for any use born on or after March 1, 1999; all beef
and beef products; blood and blood products derived from bovines,
collected under certain conditions; and casings and part of the small
intestine derived from bovines.
Public Attitude Towards Trade Declines -- In a new survey by
the Pew Research Center, the American public has grown more skeptical
about the benefits of trade. According to the survey, 59% of Americans
believe that trade is good for the economy. This compares to 78% five
years ago.
P. Scott Shearer
Vice President
Bockorny Group
Washington, D.C.
 Hermitage NGT
Hermitage NGT offers their North American clients:
- Breeding Stock (GGP/GP/Parent stock)
- Semen-fresh & frozen
- Closed herd breeding programs
- Genetic monitoring through the Hermitage BLUP recording system
Talk with our team of specialists in genetics, reproductive physiology,
nutrition, veterinary medicine, pig production management and A.I. to
design a program to allow you to take advantage of these exciting
genetics.
www.hermitagengt.com
Pork Industry Calendar
Oct. 16, 2007: The Farm Foundation Forum series,
First Floor Conference Room, Resources for the Future Building,
Washington, DC; contact: May Thompson, Farm Foundation director of
communications at mary@farmfoundation.org.
Oct. 26, 2007: Healthy Hogs Seminar, Sampson Community College,
Clinton, NC; contact: Karla McKinney at North Carolina State University
at (919) 515-4000.
Click here to get National Hog Farmer's
complete pork industry calendar.
Introducing the new PIC Camborough® Family
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Take another look at our new Camborough family, we think you will like
what you see--after all, it is just what you asked for.
www.pic.com/usa
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