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National Hog Farmer Weekly Preview
November 30, 2009
 
In this issue:
  Hard Lessons for Hog Industry Economists
  Liquidation is a Slow Process
  Ag Trade and Cuba
  Consider Locking in Futures Prices to Survive in 2010

MARKET PREVIEW
Hard Lessons for Hog Industry Economists
Why are we analysts more mushy-mouthed than usual about the hog price and profit forecast? Well, maybe the old adage about laying all of the economists in the world end to end and never reaching a conclusion contains a great deal of truth. Actually, there are several reasons – none of which are probably good enough for those of you seeking our hopefully wise council – but consider:

    • The world has changed. Sure, sure – blame the world around you when you can’t get it right! Yes, it is somewhat flimsy, but it’s nonetheless true. When new policies regarding biofuels and gasoline oxygenate took effect in 2005, everything changed in the U.S. corn market. A quantum increase in corn demand could not be matched by a quantum increase in corn supply year after year. In fact, corn supply has yet to catch up with corn demand at prices anywhere near the pre-ethanol levels. And when corn prices changed, so did the cost structures of every livestock species, setting off the adjustments that are still underway. Economists and analysts had not dealt with a permanent change in costs since the early 1970s. There were a few of us in the business at that time, but I was in high school and my interests were far more focused on FFA and girls, not necessarily in that order. I did not learn much about either markets or girls in those days, it seems.

    •The world has changed again. Just when we were getting a bit of a handle on the dramatic production cost increases and, thus, long run supply decreases, along comes the economic crisis and the novel H1N1influenza virus to screw things up on the demand side. It is true that neither factor has damaged domestic pork demand badly, but the soft economy has reduced demand for both chicken and beef and various export difficulties have contributed to pork demand that is nearly 5% lower than one year ago through October. The export situation is complicated by last year’s pork exports being off the charts through July – masking a supply-demand situation that would (or should) have resulted in lower prices and much larger losses had it not been for extraordinary trade impacts.


FULL ARTICLE

FINANCIAL PREVIEW
Liquidation is a Slow Process
At the risk of sounding like a broken record – the U.S. pork industry has sustained two years of losses totaling over $5 billion. Current economics show costs very close to $130 to $135/market hog, with revenue lingering around $100-$105/head. It seems that we have been averaging over $25/head losses forever. The industry continues to downsize, but we still have plenty of supply in the pork chain that we need to work through to get to a level of profitability. Most producers do not have a lot of liquidity left to help manage through sustained losses. The industry must get to a profitable level soon.

Who is liquidating and why aren’t sow slaughter numbers higher? I get this question everyday from producers and others who are watching our industry. Liquidation is occurring. Producers are downsizing or getting out of the business, but as I’ve said many times, this will be a slow process. We will need to average 60,000 to 70,000 sows per week for an extended period of time – probably through March of 2010 – to get sow numbers down to a level where pork supply is in line with demand. The issue for many producers is to maximize value for their business even if they are liquidating. Producers will not sell all of their sows in a short period of time. If sows are confirmed pregnant or close to farrowing, they will want to capture the value of the weaned pigs. The decision to liquidate, whether by the producer or the lender, is never quick or easy.

FULL ARTICLE

LEGISLATIVE PREVIEW
Ag Trade and Cuba
The issue of the Cuban embargo and agricultural trade to Cuba is beginning to gain congressional attention. Indications are that Congressmen Jerry Moran (R-KS), Collin Peterson (D-MN), chairman of the House Agriculture Committee, Rosa DeLauro (D-CT), chairwoman of the House Agriculture Appropriations subcommittee, and Jo Ann Emerson (R-MO) will be advocating for legislation to expand agricultural trade to Cuba. According to reports, the bill would: 1) eliminate the need to go through banks in other countries to conduct agricultural trades; 2) require agricultural exports to Cuba to meet the same payment requirements as exports to other countries by requiring payment when the title of the shipment changes hands; and 3) allow U.S. citizens to travel to Cuba, reducing the bureaucratic red tape required for agricultural association, agribusinesses, and others to make agricultural sales. Former President Bill Clinton signed legislation in 2000 to allow some agricultural and medical shipments to Cuba. Total exports have grown from $7 million in 2000 to $711.5 million in 2008. Agricultural exports to Cuba in 2008 were: corn, 27%; meat, poultry and fish, 21.5%; wheat, 19%; soybeans, 9.4%; animal feed, 8.4%; and other agricultural goods, 11.2%. Agriculture has been one of the strongest proponents to end the Cuban embargo.

FULL ARTICLE

NEWS FLASH
Consider Locking in Futures Prices to Survive in 2010
Pork producers facing the prospects of a third year in a row of losses might want to consider locking in prices for 2010 given current hog futures prices, according to Purdue University Extension Economist Chris Hurt.

Hurt predicts hog prices will average about $46 to $47 per hundredweight next year, starting at $44 in the first quarter, moving to near $50 in the second and third quarters and back to the mid-$40s in the final quarter.

“Given the assumption of $50 costs, this would still leave $10 of loss per head, the third year in a row of losses,” Hurt says. However, the current financial realities could mean the herd will decline, demand will improve and hog prices will track higher than the current forecast.

FULL ARTICLE

PORK INDUSTRY CALENDAR
Dec. 1, 2009: Ventilation Systems Workshop, Animal Sciences Building, The Ohio State University, Columbus, OH; contact: Dale Ricker at (419) 523-6295 or ricker.37@osu.edu.

Dec. 4-5, 2009: 2009 International PRRS Symposium: Molecular, Immunological, Genetic and Epidemiological Approaches for PRRSV Control,
Downtown Marriott, Chicago, IL; contact: http://www.prrssymposium.org.

Dec. 8, 2009: Pork Profit Seminars, Nevada, MO; contact: Missouri Pork Association at (573) 445-8375.


FULL ARTICLE

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 BLUEPRINT

BIOSECURITY SOLUTIONS
The news reports announcing the discovery of the H1N1 Flu Outbreak Virus on April 24, 2009 increased the urgency for proper biosecurity measures in hog operations. Producers continually face the challenge of managing the biosecurity of pigs, people, packages and pests as they redouble efforts to stave off costly swine diseases and retain their access to pork markets in this age of economic uncertainty. Click here for the complete Blueprint archive.

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 MAGAZINE HIGHLIGHTS

This month's focus: Viral Swine Diseases
Straight Talk About Hog Barn Ventilation Screw-Ups
In the last 12 months, the Mankato, MN-based specialist says he has spent a great deal of his consultancy time on what he describes as the “screw-ups that happen with ventilation.”
Now May be the Time For PRRS Eradication
Through trial and error spanning more than 20 years, the pork industry has fought to get rid of the elusive porcine reproductive and respiratory syndrome (PRRS) virus. On-farm control programs have been improved, pilot regional control programs are expanding, and pork industry groups are beginning to build support for a grassroots effort to finally stamp out the costly virus.
Risk Assessment Tool Helps Fight PRRS
It has been almost three decades since the PPRS virus was first recognized as the infectious agent responsible for reproductive failure in sows and severe pneumonia in piglets.

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 POSTERS

FREE SELECTION GUIDES AND MANAGEMENT POSTERS
National Hog Farmer offers 10 posters targeting key production areas, offering guidance in critical areas such as feet and leg soundness and reproduction traits soundness in replacement gilts. Others include pig anatomy, heat detection, sow condition, etc. All posters are in English. Select posters are translated to Spanish, Chinese and Japanese.

 SUBSCRIBER TOOLS

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Denagard® 10 gets pigs off to a fast start and keeps them healthy through the stresses of post-weaning, nursery and movement into the grow-finish unit, so they perform closer to their full potential. If you’re looking to achieve and maintain healthier pigs, call Novartis Animal Health at 1-800-843-3386 or visit www.livestock.novartis.com today.

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