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Domestic Pork Demand Holding Strong
As we suspected, June was a very good month for domestic pork demand. With the receipt of USDA’s carcass-weight export data last week, we could complete our computations of the June demand indexes for the various species. All showed improvement over last year. That’s the good news.
The bad news is that demand for all three species was very soft during the first half of 2010 – the basis for the current comparisons. The challenge will be to keep them growing, relative to stronger 2010 months, the rest of this year, but let’s cross that bridge when we come to it. Stronger demand is stronger demand and we need to appreciate it and its impacts.
Figure 1 shows historic demand index data for the three major meat species. The last observation on the chart represents the index for the 12-month period ending in June. I use the lagging 12-month period for that last observation in order to include all of the seasonal (i.e. within a calendar year) variation that may exist in the demands for the respective products. The number obviously changes each month as one month is dropped and another is added. But the 12-month average is, I think, more fair than comparing a partial year’s data to entire years in the past. That comparison could be misleading one direction or the other, depending upon normal demand strength or weakness in a year’s early months.
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Market Volatility Abounds
Anyone looking at their 401K accounts during the last couple of weeks has gotten a better idea of what it is like for pork producers trying to manage their risk. As the stock market takes wild swings seemingly every day, the value of 401K accounts have seen some pretty significant drops in value. Although the market has come back some, today’s (Aug. 18) market was down over 400 points. Some of our swine clients have said, “Welcome to my world!” The amount of volatility in all markets is unprecedented. The main reason for the volatility is there is so much uncertainty about the direction the economy is headed. With no real clear path, market volatility seems to be the norm. This past week, as I looked at hog crush margins for the next 12 months, we have lost over $7/head. The main reason for this is the drop in hog futures. As Figure 1 (attached) shows, there is a seasonal tendency for margins to drop after the first week in August.
Feed Supply Tightens
The most recent crop, released last week, predicts a national yield at 153 bu./acre with a projected carryout of 775 million bushels for 2011-12. As Iowa State University Extension Agricultural Economist Bob Wisner points out in Figure 2, we are very tight on our feed supply. There is a fair amount of wheat being fed in the eastern Corn Belt and, for now, that trend will continue. Most producers are currently using multiple feed ingredients to offset a portion of their standard corn/soy diets. Nutritionists are being challenged to balance diets without sacrificing performance and carcass quality. Producers that can do this successfully gain an advantage. At current prices, a 0.05 difference in feed conversion is worth over $1.70/head. With costs so high, every little bit makes a difference.
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More Oversight of Antibiotic Use
Congresswoman Louise Slaughter (D-NY) is asking the Food & Drug Administration (FDA) for greater oversight of antibiotics used for farm animals. In a letter to FDA, Slaughter and other members are asking the FDA for progress on regulation and guidance under review, “The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals” and the “Veterinary Feed Directive.” The members said, “It is time to take action to preserve the effectiveness of antibiotics. Every year, nearly two million Americans acquire bacterial infections during their hospital stay, and approximately 100,000 die from them; 70% of these infections are resistant to the drugs commonly used to treat them.” Congresswoman Slaughter has introduced the “Preservation of Antibiotics for Medical Treatment Act” (PAMTA) that would only allow for the use of antibiotics for treatment of animals when sick and not allow their use for growth promotion, prevention and control.
GIPSA Cost-Benefits Analysis Requested – Senator Pat Roberts (R-KS), ranking member of the Senate Agriculture Committee, in a letter to the administrator of the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs, asked him to commit to reviewing USDA’s proposed GIPSA rule on livestock marketing. Senator Roberts wrote, “Unfortunately, despite the rule’s far-reaching implications, neither USDA nor your office examined the costs or benefits of the measure to industry participants, the marketplace or consumers before the rule was proposed. A thorough review of the costs and benefits to all is necessary for the Administration, the Congress and the public to understand the impacts of USDA’s proposal.”
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Ethanol Takes Lead in Corn Consumption
For the first time ever, the amount of corn used to produce ethanol in the coming year will outpace corn used for livestock and poultry production, according to Ron Plain, University of Missouri agricultural economist.
The U.S. Department of Agriculture (USDA) is predicting that the amount of corn used for ethanol production will show a modest increase to 5.1 billion bushels, compared to 4.9 billion bushels of corn for meat and poultry production. Feed usage of a U.S. corn crop hasn’t dropped below 5 billion bushels since the 1996 crop was harvested.
“We have been steadily increasing the amount of corn used for ethanol, which will be up from 5.02 billion bushels of last year’s corn crop,” Plain says.
Government support for ethanol has boosted that industry’s ability to outbid producers for the golden grain, resulting in smaller livestock and poultry production.
But perhaps working in farmer feeders’ favor is that the ethanol blender’s tax credit is due to expire Dec. 31, 2011, and there doesn’t seem to be enough legislative support to extend the credit.
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Aug. 30, 2011: Carthage Veterinary Service Ltd. 21st Annual Swine Conference, Western Illinois University, Macomb, IL. For more information contact: http://www.hogvet.com/conf-overview.htm
Sept. 8, 2011: 11th Midwest Swine Nutrition Conference, Indiana Farm Bureau Building, Indianapolis, IN. For more information contact: www.swinenutritionconference.com.
Sept. 17-20, 2011: Allen D. Leman Swine Conference,RiverCentre, St. Paul, MN. For more information contact: http://www.cvm.umn.edu/vetmedce/events/adl.
Sept. 17-18, 2011: Preble County Pork Festival, Preble County Fairgrounds, Eaton, OH. For more information contact: (937) 456-7273 or info@porkfestival.org.
Sept. 20-21, 2011: 72nd Minnesota Nutrition Conference, Holiday Inn, Owatonna, MN. For more information contact:http://www.regonline.com/72MNNutritionConf.
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