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October 26, 2007 A Penton Media Property

Table Of Contents
Canadian Counts Slip Further
Seeing Red in October
Senate Farm Bill Passed
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Dale Miller, Editor, National Hog Farmer

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Market Preview
Canadian Counts Slip Further
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%, year-to-date.

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 dramatically.

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 United States.

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 better.

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.


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Financial Preview
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.

Harvest Update
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 under.

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.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at


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Legislative Preview
Senate Farm Bill Passed
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 column.

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:
  • 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 Secretary.

  • 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 trichinae testing.
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.

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. Visit

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

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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New Look!
Visit Our Site!
National Hog Farmer's newly redesigned web site - - 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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The Maschhoffs Inc., a leader in the pork industry, is looking for Sow Unit Managers in our Okalahoma and Illinois breed-to-wean operations.

The sow unit manager will be responsible for fostering the development of the production team though coordination of daily activities, formal and informal training and feedback, and daily leadership. The manager is also responsible for the output of their production unit. The manager will assure quality production through the development and implementation of standard operating procedures, keeping and maintaining careful and accurate records of activities, promotion of the well-being of animals in their care, and good environmental stewardship. This position requires a high school diploma with a Bachelors of Science in a related field preferred.

The Maschhoffs Inc. offers competitive wages and an exceptional benefits package. Please mail resume/salary history to 7475 State Route 127, Carlyle, IL 62231 or email

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