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Dale Miller, Editor,
National Hog Farmer
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Prices Show Resiliency
If there is anything more remarkable than the weekly
slaughter runs we have seen thus far in October (in case you missed it,
we set another record last week at 2.353 million head), it has been the
fact that cash hog prices have held their own. If you had told me (or
anyone else for that matter) last summer that we would see this level of
slaughter in October, I would have told you I was concerned, but that
slaughter wouldn't get that big, especially that early. If you had told
me that slaughter would indeed get this big this early, and that
negotiated net hog prices would still be nearly $58, I would have
inquired about your inhaling habits!
Figure 1 shows negotiated net prices on a weekly basis. The decline in
hog prices two weeks ago was definitely no fun for those selling on that
pricing method. But slaughtering 2.321 million head two weeks ago and
2.353 million head last week hasn't triggered an unmitigated disaster.
Further, Thursday's price was higher than last week's average, and this
week's estimated federally inspected (FI) slaughter is 5,000 head more
than last week's pace through Thursday.
The cutout value has fallen as well but it remains above $60/cwt.
Again, this is not a bad showing for these kinds of supply levels.
Hams are still the only cut that is under heavy pricing pressure. Think
of where we would be had ham shipments to Mexico during the summer just
matched those of 2006.
None of this means that I'm not concerned and I'm skipping along
singing, "Don't Worry, Be Happy" to pork producers. This fall could
still be very tough on the bottom line, cash reserves and/or operating
loan balances. On average, FI hog slaughter levels out for the
remainder of October and into November before spiking about 5% in early
December to handle the hogs not slaughtered during the Thanksgiving
It will be very difficult to push 5% (about 100,000 head) more through
U.S. packing plants given the fact that last Saturday's run was 243,000
head. But U.S. packers processed 300,000-plus on a Saturday in 2003 and
2005 and almost did it last year. Oh yes -- and it happened twice in
Pork Demand Holds Prices Together
Why have things held together? Demand. Domestic pork demand is 1.9%
higher than last year through August, and export value is higher even
though export quantity is still slightly lower than last year (see last
week's North American Preview for details). Whether those
numbers are going to be large enough to soak up continued high
production remains to be seen, but they have done well so far. One
packer told me last Friday that they were remarkably "clean" (meaning
they had most of the week's production sold) going into the weekend
considering the number of hogs they had handled the past two weeks. I
hope that trend continues.
Cashing in on Futures Prices
Producers should note that the quotes for negotiated prices, whether on
the daily purchase reports or the prior day slaughter reports, will not
be a perfect barometer of producer revenues and profits this year. The
prices of hogs sold on Other Market Formulas (virtually all cash
delivery contracts tied to futures market prices) are running as much as
$10/cwt. carcass above the negotiated price. It certainly appears that
a number of you did indeed price hogs during last summer's futures
rally. Good for you!
And there are many, many more hogs that have been hedged by producers
instead of contracted through packers. Those premium prices will not
show up in a price report, since the producer will simply sell the hogs
at the negotiated or some formula-based price, and then capture the
extra profit from the future market when they lift hedges this fall.
Good for you, too!
Futures May Provide Profits in '08
Which brings us to the futures market now and what it means relative to
fundamental supply and demand. Figure 2 shows a summary of price
forecasts by four analysts or analysis groups based on the September
Hogs and Pigs Report. Note that all of us actually forecast a different
price series, but you can use the annual averages for 2006 to see the
"normal" differences that exist in these prices.
Regardless of differences, one thing is clear: none of us believe that
current fundamental supply and demand will result in hog prices anywhere
near what Chicago Mercantile Exchange Lean Hogs Futures are offering for
next year. That doesn't mean the futures are wrong. I don't like to
bet against many, many people using real money. But the fact is that
futures prices are offering positive margins for much of next year if
you have costs in the high $40s on a live weight basis or mid $60s on a
carcass weight basis. Perhaps more important, they are offering only
small losses in Q1 and Q4 of 2008 and those quarters appear quite
problematic at present.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
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Control the 'People'
In a column a few weeks back, I referred to the concept
of "processes that are robust to sources of variation." We'll use
today's space to expand on that concept.
The concept of variation seems relatively straightforward -- it can
simply be thought of as the extent to which observed values differ from
the average. Variation comes from many different sources including
season, disease and people-related factors. And while some of these
sources are outside of our control, others are not.
The concept of robust processes may seem more challenging in a
biological production system. A robust process could be thought of as a
process that is insensitive to those factors that cause variation. For
example, the use of light timers in a gestation barn can be used to make
a breeding program more robust to the effects of changing photoperiod.
And vaccination programs can be used to make a herd robust to disease
burdens. But can we make processes robust to "people" factors?
There are a few issues critical to developing processes robust to people
factors. First, it is important to understand the real sources of
variation. Distinctions must be made between coincidences and
correlations. For example, while it is easy to associate the presence
of an employee with an occurrence, the outcome may have taken place
whether that person was there or not. And second, it is important to
understand which of these factors can be controlled. For example,
vaccines can be used to improve herd immunity, but their effects can be
muted if the animals are placed into unsanitary environments.
In biological systems, some processes may be more suitable for robust
design. Take, for example, the process of breeding sows into weekly
groups. We often credit or blame the manager and breeding crew for
achieving or not achieving targets. However, for the established herd,
the majority of females bred are freshly weaned sows. A schedule that
weans a consistent number of sows week-to-week will provide a consistent
base for the breeding groups -- both in number and conception. This, in
turn, contributes to more reliable farrowing groups, and leads to more
consistent lactation lengths and more consistent piglet weaning age.
For this example, the process' robustness originates with its inputs.
Because process inputs are often a large source of variation, addressing
issues at this level has the potential to reduce and potentially even
eliminate the people factors.
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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EPA Establishes Ag
The Environmental Protection Agency (EPA) announced the
establishment of a Farm, Ranch and Rural Communities Federal Advisory
Committee to advise the EPA administrator on environmental policy issues
affecting agriculture and rural communities. The committee's membership
will include large and small farmers, ranchers and rural communities;
rural suppliers, marketers and processors; academics and researchers who
study environmental issues impacting agriculture; tribal agricultural
groups and environmental and conservation groups. EPA will ask the
committee to focus initially on three issues:
Ag Groups Oppose Increase for Ethanol -- A coalition of meat
and poultry groups has written congressional leaders urging them to
oppose any increase in the Renewable Fuel Standard (RFS) for grain-based
ethanol in the energy bill. The coalition reminded the leadership that
an expansion in the RFS as contained in the Senate-passed energy bill
would result in higher production costs, impair international
competitiveness and risk driving some production off-shore. The letter
stated, "We strongly support efforts to encourage the commercialization
of ethanol from cellulosic biomass and similar sources. Nevertheless,
we note that by all accounts, this commercialization is still some years
away. If Congress chooses to increase the RFS for cellulosic ethanol,
the law should be clear that this portion of the mandate is to be met
only with non-grains-based fuels. Those signing the letter were the
American Meat Institute, National Cattlemen's Beef Association, National
Chicken Council, National Meat Association, National Turkey Federation,
United Egg Association and United Egg Producers.
- "How EPA's policies and regulations on climate change and
renewable energy will affect the agricultural community. The
agricultural industry -- through the development of renewable energy
sources -- can play a significant role in the nation's ability to reduce
its dependence on oil imports, as well as provide a source and
repository of greenhouse gas emissions.
- An environmental strategy for livestock operations that considers
regulatory and voluntary approaches, and provides tools for producers to
attain superior environmental performance.
- Development of a constructive approach to advancing sustainable
agriculture and protection of the environment, addressing communication
between environmental and agricultural interests and urban encroachment
in rural areas."
25 by '25 -- The House of Representatives passed a resolution
expressing the sense of Congress that by the year 2005 at least 25% of
the total energy consumed in the United States should come from
homegrown renewable sources. Today, renewable energy sources provide
approximately 6% of the U.S.' total energy needs. Congressman Collin
Peterson (D-MN), chairman of the House Agriculture Committee, and Bob
Goodlatte (R-VA), ranking member of the House Agriculture Committee,
introduced the resolution.
Former Ag Secretaries Favor Peru Trade -- Four former
secretaries of Agriculture have written Congress in support of the Peru
Trade Promotion Agreement stating the agreement "will achieve a more
balanced bilateral relationship in the agricultural sector." Former
secretaries Bob Bergland, John Block, Dan Glickman and Clayton Yeutter
also reminded Congress of the gains agriculture has made because of
previous trade agreements. "Our food and agricultural exports have
grown to all-time records, due almost entirely to prior trade
agreements. Indeed, it is difficult to name an agricultural product our
farmers sell in the world market that has not benefited from earlier
trade agreements. The United States cannot stand by complacently,
however, while our competitors are negotiating preferential trade deals
around the globe, or we will soon see an erosion of our hard-won access
to key markets."
No Progress on Beef with South Korea -- No progress was made on
reopening South Korea's market for U.S. beef after two days of meetings
between South Korea, the U.S Department of Agriculture and the U.S.
Trade Representative. The United States continues to press South Korea
to follow Office of International Epizootics standards by reopening its
market for all beef products from all ages of cattle.
Grass-Fed Marketing Claim -- USDA's Agricultural Marketing
Service (AMS) finalized a voluntary standard for a grass-fed livestock
marketing claim. The grass-fed standard will be for a ruminant animal
that grass and/or forage was the feed source consumed for the lifetime
of the ruminant animal, with the exception of milk consumed prior to
weaning. The diet is to be solely from forage and animals cannot be fed
grain or grain by-products. The standard will go into effect on Nov.
Senate to Mark Up Farm Bill Next Week -- The Senate Agriculture
Committee plans to mark up the farm bill next Wednesday after an
agreement was reached between Senators Tom Harkin (D-IA), chairman of
the Senate Agriculture Committee; Saxby Chambliss (R-GA), ranking member
of the Senate Agriculture Committee; and Kent Conrad (D-ND), chairman of
the Senate Budget Committee. Details of the agreement are expected
later this week. However, indications are that farmers will be given an
option to choose between the current farm program or a state-based
revenue insurance program. Also, mandatory country-of-origin labeling
for meat is expected to be in the compromise.
More House Members Decide to Retire -- This week the 14th
member of the House of Representatives announced he would not run for
reelection next year. So far, there are 12 Republicans and two
Democrats who have announced they are either retiring or plan to run for
the U.S. Senate. There are expected to be additional announcements this
year. Only one member of the House Agriculture Committee, Congressman
Terry Everett (R-AL), has announced retirement. Five Republican
senators have announced they will not be running for reelection.
P. Scott Shearer
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Pork Industry Calendar
Oct. 26, 2007: Healthy Hogs Seminar, Sampson
Community College, Clinton, NC; contact: Karla McKinney at North
Carolina State University at (919) 515-4000.
Oct. 28-31, 2007: Global Outlook Symposium & Strategic Planning
Conference, Omni Shoreham Hotel, Washington, DC; contact U.S. Meat
Export Federation at (303) 623-6328, by fax (303) 623-0297 or log onto
Click here to get National Hog Farmer's
complete pork industry calendar.
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Visit Our New Site!
National Hog Farmer's newly
redesigned web site - nationalhogfarmer.com - features eight one-stop tabs
to carry you quickly and easily to current and archived articles in the
following main categories: Health; Genetics/Reproduction; Nutrition;
Facilities/Equipment; Environmental Stewardship; Behavior/Animal
Welfare; Marketing; and Human Resources. This is our latest effort to
serve as your "pork business authority." Welcome!
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