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Dale Miller, Editor,
National Hog Farmer
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Canada's quarterly Hog Statistics report was released
yesterday by Statistics Canada. The report showed a continuing decline
in hog numbers, especially in the market hog categories.
Canada's inventory of pigs weighing over 20 kg (44 lb.) was 7.6% smaller
on Oct. 1, 2007 compared to one year earlier. The reduction reflects
higher exports of feeder pigs to the United States, which are up 7.2%,
Canada's breeding herd continues to shrink and was 1.4% lower than one
year ago. That number is a slightly larger decline than the last
quarterly report (see Figure 1), but reflects the economic pressure that
has come to bear on Canadian producers. This marks the 10th straight
quarter in which the Canadian herd has declined relative to one year
earlier. The herd, now numbering 1.56 million head, is the smallest
it's been since October 2002, and it is 4.5% smaller than it was at its
peak in January 2005.
The decline of Canadian breeding hog numbers, when combined with growth
in the United States, leaves the Canadian-U.S. herd 0.6% larger than it
was last fall. That is about the same rate that the combined herds have
grown for the past seven quarters.
The economic pressure in Canada has increased during October and is
likely to get more intense. The Canadian dollar is beyond par with the
U.S. dollar and has gained over 35% in value over the past five years.
That gain has caused Canadian hog and pork prices to steadily erode
relative to U.S. prices. We have to remember that in the North American
pork market, the United States is the dog and Canada is the tail when it
comes to hog prices. When stated in the same currency, prices move
together, but the exchange rate is the translator that has changed
On the other side of the ledger, only about half of Canadian costs are
directly tied to the U.S. dollar. That half of costs has gone down but
the other half has remained high, putting Canadian producers in a very
bad cost-price squeeze. The real trouble arises when you factor in
higher wheat and barley prices, which have caused the dollar-denominated
costs (that should have fallen) to go up as well for producers who use
those grains as feed. It is not a good situation for the Prairie
Provinces, most notably Alberta, which saw the largest breeding herd
reduction excluding the Maritime Provinces.
I expect more reductions in Canada and I fear that they may be very
severe before this is over.
A Bit of Good News
Although many of you will see this as rather perverse -- things aren't
as bad as they should be, or at least as they could be. Many of you
will not like that statement, so I ask you to write it off to economist
pin-headedness. Let me explain.
Look at this week's Price and Production tables (below). U.S. hog
slaughter for the week that ended Oct. 20 was nearly 6% larger than one
year ago. Combined Canadian-U.S. slaughter was 5% larger. The same
percentages apply to pork production since weights were quite close to
year-ago levels. The normal relationship between percentage price
change and percentage quantity change is -3:1. I would probably use
-4:1 at present, since we are so close to slaughter capacity in the
That relationship would suggest hog prices 15-20% lower than one year
ago. Canadian prices are indeed that much lower, but that decline is
largely due to a Canadian dollar that is 16% stronger than last year!
U.S. prices are down only 6 to 8%. That says that live hog demand is
very good due to, I'm quite confident, stronger domestic pork demand,
higher export values (and, quite possibly, higher volume in recent
weeks) and, surprisingly tight packer margins (see Figure 2).
Perhaps "tight" is not the correct descriptor for last week's margin but
"tighter than they should be with 2.3 million-plus hogs every week"
would certainly be appropriate. In spite of those slaughter levels,
packers are still competing for hogs. Packers' net margins are probably
pretty good since this level of throughput would divide fixed and sunk
costs over many, many pounds and leave them just about as low on a per
unit basis as they could possibly be. One caveat is that these
computations use "net" prices, which are being helped mightily by the
Other Formula prices that we discussed last week. Margins on hogs
purchased on the spot market (i.e. negotiated prices) are considerably
And finally -- the hero in this whole mess may just be chicken. I know
it is hard to admit that, but chicken part prices are still
double-digits above last year in spite of production that is now
consistently running 2-3% higher. Let's hope that continues. We still
need all the help we can get!
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
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
Seeing Red in October
This month will not be a good month for pork producer's
balance sheets. In a cost vs. revenue comparison, most systems will lose
$10-$15/head during October. Some producers locked in some margins back
in August, but most producers did not lock up a large percentage of
their hogs with those margin opportunities.
Perhaps the reason more producers didn't lock in more profits can be
explained by reviewing the attached December futures chart. You can see
the volatility in this month. Many clients that I work with started to
hedge for the fourth quarter right around the end of July. As you can
see by the chart, it spiked up to $74 in early December. We had a
massive amount of margin call money that went out and people stopped
hedging because producers struggle with paying margin calls. The market
went down and some people hedged a little more. Then the market bounced
back up to nearly $70 again in early- to mid-September. Since, it has
been a free-fall spiral downward.
It's easy to say that you should have hedged all of your December pigs
at $74. Managing risk is very hard -- but it is easy to second-guess
your decision. It's also important to remember that since April 2004, if
you hedged your hogs, you paid margin calls.
A point I try to stress to the producers that I work with is that they
only look ahead, not back. Make decisions that you know will help
improve your bottom line. Don't second-guess your decisions.
After a very long wet spell in Minnesota, it is good to see combines
back in the fields. Based on what I have heard, yields in Minnesota are
all over the board and dependent upon the amount of moisture received
over the summer. In just a 30-mile radius of where I live, I have heard
of corn yields over 200 bu./acre and I've heard of yields less than 100
bu./acre. This is reflected in the corn basis posted in area elevators.
One of my central Minnesota clients had a drought in his area. His basis
is $0.10 under to get corn bought. But, if you go to southern Minnesota,
where they are getting very good yields, the basis is $0.35 to -$0.40
Ethanol is also affecting the basis in southern Minnesota. If there is
an ethanol plant nearby, basis is $0.10 less than if you don't have one.
I was in North Carolina last week and their basis is $0.40 over and they
are paying over $4/bu. for corn. There is a spread of almost
$0.70-$0.80/bu. on corn costs between the Southeast and the Midwest.
Doing Your Job Better
Fall is my favorite time of year. I am a runner. Every Sunday is my long
run day where I run 8-10 miles. It's when I reflect on what happened
last week and what I need to do in the week ahead. When I reflect on the
swine industry, I see many changes, but there is one common truth -- if
you do your job better than everybody else, you will be successful.
That holds true in any business, of course, but it is a thought and a
goal you should carry with you every day. Successful people are always
working at ways of doing things better and I encourage all of you to
work on maintaining that mindset.
Swine Industry Consultant
Contact Greenwood at firstname.lastname@example.org
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Senate Farm Bill
The Senate Agriculture Committee passed its version of
the 2007 farm bill, "The Food and Energy Security Act," this week. The
farm bill is expected to move to the full Senate for consideration as
early as next week. As soon as the Senate completes action, the
House-Senate conference committee will begin working out the differences
between the two bills. The leadership of the House and Senate
Agriculture Committees want to finalize the farm bill and send it to the
President before Congress adjourns this year. More details about the
Senate Agriculture Committee's action will be provided in next week's
Livestock Title -- The Senate Agriculture Committee's farm bill
includes a livestock title addressing a number of issues, including
animal health, livestock markets and enforcement of the Packers &
Stockyards Act. The livestock title:
The House passed farm bill does not include a livestock/competition
title. The packer ban, special counsel and arbitration, will be major
issues during the farm bill conference committee.
- Creates a Special Counsel on Agricultural Competition at USDA
for enforcement of the Packers & Stockyards Act and Agricultural Fair
Practices Act. Activities relating to investigations and prosecutions
will be combined into one office.
- Bans packer ownership of livestock 14 days prior to slaughter. The
bill prohibits packers to "own or feed livestock directly, through a
subsidiary, or through an arrangement that gives the packer operational,
managerial, or supervisory control over the livestock, or over the
farming operation that produces the livestock."
- Includes the House compromise on mandatory
country-of-origin-labeling with minor changes. Adds macadamia nuts as a
covered commodity under the Act.
- Expands provisions of the Agricultural Fair Practices Act to
producer members of associations or cooperatives.
- Allows for the interstate shipment of state-inspected meat.
- Makes arbitration in livestock and poultry contracts voluntary
under the Packers and Stockyards Act.
- With some exceptions, requires 90-day notice for contract
termination when the producer has made a capital investment of $100,000
or more for the sole purposes of securing the contract.
- Provides USDA enforcement authority over live poultry dealers under
the Packers and Stockyards Act.
- Requires the Secretary of Agriculture to conduct a study of
wholesale pork reporting under the Livestock Mandatory Reporting Act.
- Amends the Animal Health Protection Act to make unauthorized use of
information obtained through an animal identification system unlawful.
- Establishes parameters on the use of such information by the
- Reauthorizes the National Sheep and Goat Industry Improvement
Center, which provides assistance to sheep and goat producers for
infrastructure development, business development, production, resource
development, and market and environmental research. Provides $1 million
in mandatory funds.
- Includes a Sense of Congress outlining the threat that feral swine
pose to the domestic swine population.
- Authorizes a voluntary, national certification program for
Trade Programs & Farm Bill -- The Senate Agriculture
Committee's farm bill renews the Foreign Market Development Program
(FMD) and the Market Access Program (MAP). The bill increases the
funding for FMD by $22 million and by $94 million for MAP. These are
two very important programs for the livestock, meat and poultry
industries to compete in and to open overseas markets.
Payment Limitations -- Senators Byron Dorgan (D-ND) and Chuck
Grassley (R-IA) announced they will offer an amendment to tighten
payment limitations during the Senate's consideration of the farm bill.
The amendment would place a "hard cap" of $250,000 on crop subsidies per
farmer, a cut from the current $360,000. The payments would be tracked
to an individual and would require 1,000 hours of labor or management by
the recipients who do not provide land, equipment or capital for a farm.
Senator Dorgan said, "The farm program no longer works the way it was
intended to work. It was intended to help family farmers get through
tough times. Today, too often, it helps giant corporate farms pad their
balance sheets. We intend to change that. The way the farm program works
today diverts needed resources away from family farmers."
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.
Pork Industry Calendar
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 www.usmef.org.
Nov. 6-7, 2007: The 2007 Swine Institute, Courtyard by
Marriott, Columbia, MO; contact: Katrina Turner at the Missouri Pork
Association, (573) 882-0378.
Click here to get National Hog Farmer's
complete pork industry calendar.
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