Slaughter Weights, Rates are Climbing
One of my major concerns all summer was what was going to
happen to the flow of pigs from farm to harvest when new-crop corn
became available this fall. The past few weeks have validated those
concerns as slaughter rates and weights have risen sharply.
The question now is just the opposite of last summer. Recall that in
July we were asking whether hogs were backed up or were they simply not
out there to the degree indicated by USDA’s March and June Hogs and
Pigs reports? Now we are asking, “Are the hogs being pulled forward
or did USDA undercount inventories on Sept. 1?”
Let’s look at the data. Figure 1 shows that weekly slaughter exceeded
the year-ago level last week for the first time since July 17, marking
only the sixth time that has happened this year. It also marks the third
straight week that slaughter has been above the level suggested by the
September Hogs and Pigs Report. The difference between “actual” and
“predicted” weekly slaughter has grown sharply over that three-week
period with last week’s deviation amounting to 87,000 head.
Quickly Things Can Change
Just a month ago, I wrote about producers were finally
having a nice six-month run of profits. The USDA’s Hogs and Pigs
report came in at about what the trade expected, so things were looking
positive for the pork industry going in to 2011. On Friday Oct. 8, when
USDA reported that the U.S. corn crop would only average 155.8 bu./acre,
the world changed for any pork producer reliant on buying the corn they
needed. Since then, the price of corn has shot up over $1/bu. and other
feed ingredients have followed. Producers’ breakevens that were
$135-140/market hog are now at $145-150/market hog (over $75/carcass
cwt.). This happened in a short span of about 72 hours of trading. The
cash market has dropped over $20/head since I wrote last month’s
column, adding more agony. Unfortunately, some producers will lose money
in October. U.S. pork producers are far from being in a position to
handle a period of losses again.
There Were Opportunities to Lock Up Margins – I don’t
remember how many times I have written articles stressing margin
management, but I’ll say it again – “It is critical for every pork
producer to manage their margins.” Figure 1 illustrates some of the
opportunities that were available over the last six months to lock up
profits for a considerable period of time. The chart shows the average
profit-per-head potential from the end of March until last week. You can
see there were opportunities to lock up over $20/head profit for a year.
This is based on locking up the price for your hogs and your feed –
the crush margin. Of course, these are averages and there are many
factors that play into the data in this chart, but the point is there
were opportunities for pork producers to lock up good profits for a
period of time. The chart was provided by Pat Von Tersch, Professional
Ag Marketing, and I appreciate him putting the chart together.
Rule Threatens Over 100,000 Jobs
The proposed Grain Inspection and Packers and Stockyards
Administration (GIPSA) rule would cost the economy an estimated 104,000
jobs, including 21,274 livestock producer jobs, according to a study
conducted by New York-based John Dunham and Associates. The study
found that the disruption and resulting inefficiencies in the market
should the proposed rule be implemented would increase retail meat
prices by 3.33% at a national level, causing a 1.65% decrease in
consumer demand for “potentially lower quality” meat and products.
The loss of jobs would reduce national gross domestic product (GDP) by
$14 billion and would cost a total of $1.36 billion in lost revenues to
the federal, state and local governments. The American Meat Institute
(AMI), which commissioned the study, stated, “At a time of record
unemployment, slow economic recovery and rising poverty levels, it is
unfathomable that the administration would propose a rule that could
cost one American job, let alone 104,000. As the analysis shows, these
are not just jobs in meat packing or livestock production, but in nearly
every sector of the American economy.” The complete study can be
found at www.MeatFuelsAmerica.com/GIPSA.
Congressman Pressures USDA to Reconsider GIPSA Study
Rep. Ike Skelton (R-MO) has asked the U.S. Department of
Agriculture (USDA) to reconsider conducting a comprehensive economic
study of the Grain Inspection, Packers and Stockyards Administration
(GIPSA) proposed livestock procurement rule.
USDA’s recent denial of a request by more than one-quarter of the
House of Representatives was deemed inadequate.
“While I appreciate receiving the department’s prompt response, the
correspondence does not adequately address our primary request to USDA.
Rather, it indicates that the department has already conducted, in its
view, a sufficient cost-benefit analysis…” Skelton wrote in a letter
to Agriculture Secretary Tom Vilsack.
Oct. 26, 2010: Workforce Development
Conference on Socially Responsible Pork Production, Country Inn &
for more information contact: Trudy Wastweet, Minnesota Pork Board,
(800) 537-7675, firstname.lastname@example.org
or go to www.mnpork.com/producers.
Nov. 4-5, 2010: : Iowa State University Swine
Disease Conference for Swine
Practitioners, Scheman Building, Iowa State University
for more information contact:Julie Kieffer at email@example.com or(515)
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