American Hog News USDA

[mikey]

CME: When Will Someone Blink?
US - Profit prospects for pork producers have taken a sharp turn for the worse in the past week as projected feed costs have risen and CME Lean Hogs futures have hit new contract life lows, write Steve Meyer and Len Steiner.



The graph below is a familiar one to DLR readers but it looks more negative than perhaps ever as of yesterday’s futures market close. Note that we have extended the graph to cover all of 2010 since we now have futures contracts on the board for all of those months.


Since 27 July, projected costs have increased by $5-$6/cwt carcass as corn and soybean meal futures have rebounded. Projected breakevens had gotten near $62, on average, through July 2010 in July.

The sell-off in LH futures have pushed projected cash prices for this fall BELOW $50/CWT ON A CARCASS WEIGHT BASIS. That equates to live weight prices below $37.50/cwt, levels not seen since the cycle lows of 2002 — when breakeven costs were in the mid-$50s on a carcass weight basis.

As of today, the only month that can be projected to be profitable between now and the end of 2010 is July and the projected profit is $0.76/cwt carcass or about $1.50 per head.

The question from many is "When will someone blink?" Sow slaughter through the week of 17 July was still running substantially below last year’s runs. Total sow slaughter was 11 per cent lower than in 2008 that week but deducting higher imports of Canadian sows shows that slaughter of US sows was actually 20 per cent lower than last year. Gilt slaughter data from the University of Missouri does indicate that the percentage of total slaughter accounted for by gilts remains high, averaging 50 per cent since 1 May. That is 0.5 per cent higher than the average for that time period over the past 10 years. A gilt percentage of 49.2 to 49.4 is about equilibrium so the sow herd is being reduced by lower gilt retention. The pace, however, is slow due to lower sow shipments.

Why such delay? One answer is structure. In 1997, producers selling 6000 or fewer hogs per year accounted for about 40 per cent of total marketings. Using 2008 USDA inventory data and assuming 2 marketings for each 1 animal in inventory, that number is now near 20 per cent. The remainder of the hogs — 80 per cent as of 2008 -- are in the hands of larger producers and involve large investments in fixed assets and a substantially more important part of the farm enterprise mix. For many the hog operations is the ENTIRE farm enterprise mix and, quite understandably, one they will not give up without a fight.

And this challenge in the pork sector has wide fallout. We received a recent e-mail from a friend in the cattle business chiding the pork industry with "If those guys could ever rally a bit, it may give cattle prices a chance." Indeed, pressure from lower hog prices is weighing on other species as well. Something has to eventually give, right?

[mikey]

US Herd Reduction Half of What is Needed
US - An agricultural economist with the University of Missouri estimates the US hog industry has reduced production by about half the amount necessary to stimulate a rebound in live hog prices, writes Bruce Cochrane.





Farm-Scape is sponsored by
Manitoba Pork Council and Sask Pork

Farm-Scape is a Wonderworks Canada production and is distributed courtesy of Manitoba Pork Council
and Sask Pork. 
American hog producers have lost money in 20 of the last 22 months and losses in Canada have continued even longer.

Agricultural economics professor Dr. Ron Plain says a stronger world economy and more demand for pork and more exports would help and probably, what's more realistic, is to cut back on production, tighten up supply of pork and push up prices that way.

Dr. Ron Plain-University of Missouri
Both herds are being reduced which is what needs to happen.

The reduction's been much larger in Canada than in the United States.

Again, because of the exchange rate differences, the red ink started flowing a little bit sooner and it's certainly been worse financially in Canada than it has in the United States and Canadian producers are well ahead of the United States on cutting back.

The Canadian breeding herd's down six per cent or so compared to a year ago.

The US sow herd is not quite three percent smaller so a much bigger cutback occurring in Canada than here in the United States.

Since this thing has started we've been talking about trying to and probably needing to down-size the US sow herd by about 10 per cent.

We're only down about four percent or so from that peak that we had back there in December of 2007 so we have not quite gotten half way to what I think it's going to take in order to get hog numbers low enough that we can have a very good chance of making a profit for an entire year.

Dr. Plain notes, because the US industry is three times the size of that in Canada, a cut in Canada doesn't move us as far toward getting the total pork supply down as is the case when we reduce numbers in the United States.

[mikey]

CME: Governors Urge Assistance for Pork Sector
US - USDA will release yet another highly anticipated Crop Production report (and the accompanying World Agricultural Supply and Demand Estimates or WASDE) on Wednesday, 12 August at 8:30 a.m. EDT, report Steve Meyer and Len Steiner.



The August report is the first of the crop year that uses objective data to predict yields. In addition, USDA has "re-surveyed" many areas regarding corn and soybean acreage following the July Acreage report that surprised almost everyone with the number of estimated corn acres. So, this year’s August report has a bit more intrigue than normal. Results of Dow Jones’ monthly survey of grain market analysts appear in the table below.

  Average Range USDA, July 2008
(Billion Bushels)
Corn Crop 12.472 11.792 - 12.814 12.290 12.101
Soybean Crop 3.213 3.000 - 3275 3.260 2.959
Wheat Crop, All 2.150 2.086 - 2.238 2.112 2.500
(Bushels per Acre)
Corn Yield 157.1 153.0 - 160.3 153.4 153.9
Soybean Yield 42.1 40.9 - 43.5 42.6 39.6

As a group, analysts expect the corn yield estimate to be higher than that of July while they expect USDA to reduce the soybean yield slightly. Readers should note that the 153 bushel per acre estimate that marks the bottom of the range of corn yield estimate is perhaps an outlier — the next closest estimate was 155.6 bushels per acre. Analysts also expect USDA to slightly raise its estimate of the 2009 wheat crop.

Governors of eight states sent a letter to the Obama Administration on Friday requesting assistance for struggling pork producers. The letter does not, as some reports indicated, ask for any sort of bailout for the US pork industry. It asks for three things:

A $50 million purchase of pork products for public feeding programs.
A relaxation of the current spending cap on Section 32 funds to allow their use for the $50 million purchase.
That the administration turn up the heat on China to drop its "unwarranted" ban on imports of US pork products predicated on Novel H1N1 influenza.
Three other governors indicated that they would request assistance with letters of their own but the nature of those requests were not known.

It should be noted that the first request is not at all unusual. Many producer groups make the same request when prices fall. In fact, government purchases of several products have been so large this year that they have depleted the available funds and predicated request #2. China is the only US export market of any significance that is still banning US pork.

The value of a hog purchased through a negotiated trade fell to less than $100 on Friday. That hog cost roughly $135 to produce.

[mikey]

Market Preview: Pork Industry Here to Stay
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Is there anything about this hog industry that is positive? That’s a question I keep hearing and, from an economic standpoint, it is a difficult one to answer. But the truth is that the US and Canadian pork industries certainly will not disappear. They are not destined for total destruction and there will be vibrant pork industries in both countries in the future. I write that with 100 per cent confidence and there are not very many things that I consider a certainty.

Here is why the pork industry survival is assured:

People will still eat pork. Perhaps not as much as they would if prices remained lower, but they will still eat pork. Per capita pork consumption hasn’t changed much in 50 years. That is a problem when we talk about growing demand, but it’s some consolation when we contemplate difficult times.


The United States and Canada are still among the three lowest-cost places in the world to raise pigs. Figure 1 shows the results of a PIC survey from 2006. As you can see, the United States, Canada and Brazil were among the lowest-cost countries along with China and Argentina. China is always a bit of a question mark due to shaky data and the fact that an estimated one-third to one-half of China’s pigs are raised in back yards and fed primarily garbage – pretty low cost. Argentina has, by its export policy decisions, basically abdicated its position as a low-cost player in world markets. That leaves the big three – and the United States is the biggest of those.

The United States and Canada have a huge advantage over other countries in terms of a) animal health status and b) geographic location that conveys some hope of maintaining that advantage. I read one time that the Soviets could not imagine why the United States ever felt threatened during the Cold War since we had vast oceans on both the east and west and friendly neighbors on the north and south. That isolation from international borders is an advantage when it comes to microbes and viruses as well!


Our product fits modern lifestyles better than in the past. Pork is leaner (perhaps too lean in some instances) and we offer more convenience products than ever before.


We have technical capabilities at least as good as producers in other parts of the world. Our producers know how to raise pigs. Our veterinarians are among the world’s best in managing herd health. Our packers are superior to all others in terms of efficiency. Our transportation system is better than our nearest rival, Brazil.


US and Canadian farmers will remain among the world’s best at producing large amounts of grain and plant proteins at competitive costs. As long as the United States remains an exporter of corn, high feed costs here will mean high feed costs worldwide. Our technical capabilities and the fact that we are located nearest to the world’s major grain surplus area will keep our feed costs competitive – higher than they once were, but still competitive with the world. Yes, they will share our high-cost misery.
Note, though, that I did not say that there will be vibrant US and Canadian pork industries of the same size as before. While our industries will remain among the best in the world, remaining competitive suppliers of pork and pork by-products to consumers worldwide, they will be smaller.

US citizens made a collective decision, through the actions of their government, about five years ago, to have smaller animal protein sectors for meat, poultry, milk and eggs. That aspect of our biofuels decisions and policies was hardly acknowledged and was not widely discussed until the 2007 decision to raise the levels of the Renewable Fuels Standard. Just because a decision was not acknowledged or discussed does not mean it was not made. The decision to choose course A is an implicit decision to accept consequence B. The current bloodbath in the animal protein business is consequence B – no matter how you cut it.

Limited Options
Higher costs must eventually be covered by the price of the product. In a commodity business that can happen just two ways: Demand must increase or supply must decrease.

In a world where a 2 per cent increase in demand is huge, I think it is unrealistic to think that demand will increase anywhere near fast enough to cover a 20-30 per cent increase in costs. If I am right, the only way to drive prices upward is to reduce supply and that means taking productive assets out of production – empty barns, fewer businesses.

The poultry business has already downsized substantially and continues to do so. Dairy producers have lost huge amounts of money and are struggling to get production in line with a profitable level of consumption. Ditto for pork producers – it just takes longer. Ditto again for beef producers -- it just takes longer yet. And last year’s export surges, especially for dairy and pork, merely delayed the inevitable. We hoped they would last, but was that ever a reasonable possibility?

US and Canadian pork producers still need to reduce output. That means that some will not be in the hog business next year. I am so sorry that is the case, but it is. Still, many of you will be part of a smaller, vibrant and profitable business. It still will not be easy. Never has been.

 

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME were mixed on Monday. AUG’09LH futures closed off $0.500/cwt at $48.30/cwt; $6.650/cwt lower than a week ago and a whopping $10.875/cwt lower than week before last. This is an 18.4 per cent price loss in two weeks! The hog industry is hurting so bad now that governors from 9 hog producing states have written a letter requesting intervention to President Obama. They are calling the President to ask USDA to spend $50 million buying up US hog supplies for public consumption. The DEC’09LH contract slid $0.250/cwt to $44.600/cwt; $7.100/cwt lower than last Monday’s report. The weak cash market is still killing hog prices as feed inputs climb. Short covering provided some support late in trading. Futures were oversold but gained after October fell to a near seven-year low and all months put up contract lows. The market still expects future hog herd liquidation due to low prices and that is keeping a lid on prices. One bright spot; Russia lifted the ban on meat imports from Florida, the last remaining state where restrictions were put on over fears from the H1N1 flu virus. USDA on Friday put the average pork price at $54.57/cwt, off $0.07/cwt and the lowest since early July. The latest CME Lean Hog Index was placed at $54.21lb; off $0.82/lb and $5.62/lb lower than last Monday. According to HedgersEdge.com, the average pork plant margin increased $0.20/head to a positive $7.25/head. This was based on the average buy of $35.78/cwt vs. the average breakeven price of $38.51/cwt. It would be a good idea to sell hogs when ready.

CORN futures on the Chicago Board of Trade (CBOT) closed steady to slightly higher on Monday amid unchanging fundamentals. The SEPT’09 contract closed at $3.242/bu; up 2.2¢/bu but 33.75+¢/bu lower than this time last week. DEC’09 corn futures finished at $3.304/bu; up 4.0¢/bu but 38.75¢/bu lower than last Monday. Adjustments in the more than 3-to-1 soybean/corn spread, short covering, and fund buying were supportive amid position adjustment prior to the August 12 release of USDA’s World Agriculture Supple Demand Estimate (WASDE) report. Lower than expected exports held back optimism. USDA reported corn-inspected-for-export at 35.0 mi bu vs. expectations for between 44.0-48.0 mi bu. Exporters did report a sale of 120,000 tonnes (4.72 mi bu) to Egypt. Good weather is forecast for the developing US corn crop. This is expected to further weigh on futures this week. Late Monday USDA placed the US corn crop in good-to-excellent condition at 68 per cent, the same as a week ago. The market expected a 1-2 per cent decline. Funds turned net bullish after buying over 5,000 lots. Cash corn was steady in the US cornbelt while bids for corn in the US Mid-Atlantic States ranged 8.0-15.0¢/bu lower. It is a very good idea to have up to 70 per cent of the 2009 crop sold on any upticks at this time.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed off on Monday. The SEPT’09 contract closed down 14.0¢/bu at $11.704/bu but 82.5¢/bu higher than this time last week. The NOV’09 contract closed at $10.100/bu; off 28.5¢/bu and 20.5¢/bu lower than a week ago. Position adjustment in soybean/corn spreading, long-liquidation, and profit-taking pressured prices. Exports were neutral with USDA reporting soybeans-inspected-for-export at 9.6 mi bu vs. expectations for between 6.0-13.0 mi bu. Late Monday USDA met market expectations for crop condition by lowering the good-to-excellent rating 1 per cent to 66 per cent. Hot weather forecast for the US Midwest is seen as hastening crop development casting off frost worries. Cash soybeans in the US Midwest were steady amid slow farmer sales. Cash bids for soybeans in the US Mid-Atlantic States ranged from 9.0-19.0¢/bu higher. Funds added to net bull positions buying over 3,000 contracts. Up to 70-80 per cent of the new crop should be priced on these upticks.

WHEAT futures in Chicago (CBOT) were up Monday. SEPT’09 wheat futures finished up 4.75¢/bu at $4.942/bu; but 55.0 ¢/bu lower than last report. The JULY’10 wheat contract closed at $5.620/bu; up 2.5¢/bu but 56.75¢/bu lower than last report. Short covering and positioning ahead of the USDA WASDE report supported futures. Exports were neutral with USDA reporting wheat-inspected-for-export at 14.4 mi bu vs. expectations for between 11.0-17.0 mi bu. A stronger US dollar held back exports. France increased its wheat crop production estimate to 36.08 mi tonnes (1.3 bi bu). I have to admit the French wheat crop really looked good when I passed through there a week ago. It was hard to even drive across country with so many loaded wheat carts on those narrow French roads. Taiwan is expected to tender for wheat on Friday while Bangladesh issued a new tender for 100,000 tonnes (3.67 mi bu) on Monday. Good weather persists for the final harvesting of the US Winter wheat crop. The Urals and Kazakh are seeing significant wheat crop losses due to drought there. Funds bought about 2,000 contracts while large speculators added 540 short contracts to net bear positions ending at 50,378 short contracts. Now would be a very good time to consider getting 40 per cent of the 2010 crop priced.

[mikey]

Korea Lifts Restrictions On US Hogs, Pork
US - The National Pork Producers Council yesterday hailed the Republic of Korea’s decision to inspect only a sample of US pork exports rather than 100 per cent of them and to lift a ban on live hog imports from the United States. The restrictions were put in place in the wake of the H1N1 flu outbreak.



"South Korea’s decision is good news for US pork producers," said NPPC President Don Mr Butler. "NPPC has been working closely with US and foreign government officials to terminate all remaining H1N1 restrictions on US hog and pork exports. Korea is a top market for US pork exports and an important destination for swine breeding stock. Our producers are enduring very difficult financial times, and the removal of these restrictions by Korea is appreciated."

The US pork industry since September 2007 has lost nearly $4.5 billion, and producers have lost an average of more than $21 per hog marketed since then. While high production costs – mostly feed grain prices – are the primary culprit for the industry’s economic woes, restrictions on US pork and hog exports put in place in early May by a number of countries that cited fears of H1N1 exacerbated the problems.

In 2008 South Korea was the sixth largest market for US pork, with exports valued at $284 million. In 2009 exports to Korea through May were down 10 per cent by volume and 7 per cent in value. Breeding stock exports to South Korea also are down in 2009 because of the H1N1-related ban. The country ranked as a top destination for US live hogs in 2008 with exports of $1.1 million.

Korea’s decision to lift the restrictions will reignite enthusiasm for the US-Republic of Korea Free Trade Agreement, which contains tremendous benefits for US pork producers, according to NPPC, which helped secure favorable treatment for US pork and pork products. According to Iowa State University economist Dermot Hayes, when the FTA is fully implemented, US pork exports to the Asian nation will rise to nearly 600,000 metric tons. That’s significantly more than the amount currently shipped to Japan, the No. 1 export market for US pork. Hayes also estimates that the FTA will increase by $10 the price producers receive for each hog marketed.

"This is the single most important trade agreement ever for the US pork industry, and it will generate hundreds of millions of dollars in new export sales," said Mr Butler. "We need Congress to approve the FTA with South Korea as soon as possible."

Under terms of the FTA, tariffs on all frozen and processed pork products will be eliminated by 2014. Fresh chilled pork will be duty free 10 years after implementation. US pork products currently face tariffs as high as 25 per cent. Additionally, South Korea has agreed to accept all pork and pork products from USDA-approved facilities.

The trade deal with South Korea was made possible in part because of the effective working relationship between NPPC and the National Pork Checkoff Board and their shared goal of increasing US pork exports.

[mikey]

CME: Pork Exports Drifted Lower in June
US - Export numbers for June are in and they show significant year over year declines in the case of pork, moderately lower exports in the case of chicken and only a slight increase in the case of beef, write Steve Meyer and Len Steiner.



Please note that the numbers referenced below and in the attached charts reflect shipped weight and are reported in metric ton. ERS usually follows up with another release that converts shipped weight product into carcass weight equivalent, which is useful when trying to compare to other series expressed on a carcass weight basis.

As the charts below show, pork exports continued to drift lower in June and compared to a year ago total pork exports were 102,541 MT, down 33.4 per cent and the smallest monthly export volume since December 2007. The value of US pork exports declined by a similar amount. US pork exports in June were valued at $266.1 million, $125 million or 32 per cent lower than a year ago. The graphic illustrates the primary reason for the year over year decline in US pork exports. Shipments to China/Hong Kong, which provided much of the impetus for growth last year, have declined sharply and they are now approaching the levels we saw back in 2006 and 2007.


For all the talk of a growing middle class, and thus growing appetite for meat protein in China, one tends to forget that China has the largest sow herd in the world, spread across many small farms. As such, Chinese producers have the ability to expand production quite rapidly, as demonstrated so far in 2009 following two years of disease induced output reductions. But the decline in exports to China is not the only reason why June pork shipments were lower than a year ago. Exports to Japan, Korea, Taiwan, Russia and a number of smaller markets also were lower than a year ago. Pork exports to Japan were down 5,637 MT, 16.2 per cent lower than year ago. The only positive number in the June pork export data were shipments to Mexico, which continued to show decent growth. At 24,671 MT, pork exports to Mexico were up 22.7 per cent compared to a year ago and almost 34 per cent higher than the five year average.

[mikey]

Slump Continues for US Pork Exports
US - The lingering global economic slump and low prices for domestic beef and pork products in key export markets contributed to a decline in US pork exports in June, according to statistics compiled by the US Meat Export Federation (USMEF).

 

Through the first six months of the year, 2009 is still shaping up as the second-best year for US pork exports, but it remains 9 per cent behind 2008 in terms of volume and 7 per cent in value. Thus far in 2009, the US has exported 925,339 metric tons (more than 2 billion pounds) of pork and pork variety meat valued at nearly $2.2 billion.

Compared to export totals in June of 2008 – the second-highest single month totals in history – combined pork and pork variety meat exports were down 31 per cent in June of 2009, totaling 133,594 metric tons (294.5 million pounds) valued at $320.4 million.

"The H1N1 influenza virus has been an important factor for US pork exports," said Jon Caspers, USMEF chairman and a pork producer from Swaledale, Iowa. "We have had market access issues in two of our top six pork export markets (China and Russia), which makes it all the more important to maintain a strong presence in our other key markets."

To ensure that US red meat products maintain a high profile in key markets, USMEF is employing a variety of tactics to support beef and pork exports.

"In challenging economic conditions like these, there is no one silver bullet that will drive exports, so we are looking at a whole spectrum of marketing and education programs that can be tailored to the specific market," said Philip Seng, USMEF president and CEO. "For example, we are taking the American Beef Club concept popularized in Russia and the European Union and introducing it in the Philippines. We are conducting pork cooking competitions at four-star hotels in Japan. We are training chefs in Cambodia, conducting junior chef competitions in the Middle East and providing instruction to meat buyers in Singapore, Thailand and Vietnam."

In the No. 1 market for US pork exports, Mexico, USMEF recently conducted an extensive training program for personnel in the hotel, restaurant and institutional (HRI) sector to familiarize them with US red meat. Mexico has rebounded well from its experience with the flu virus, and US pork exports there are up 52 per cent in volume to 248,694 metric tons (658.5 million pounds) for the first half of 2009. The value of those exports is up 37 per cent to $369.6 million. In June of 2009 versus one year ago, pork exports were up 22 per cent in volume but slipped 4.3 per cent in value as consumers continue to look for more affordable menu options.

The United States’ No. 2 pork market, Japan, also is up for the first half of the year. Volumes rose 1 per cent to 223,290 metric tons (492.3 million pounds) while the value of those exports is up 13 per cent to $808 million. For the month of June, export volumes to Japan dipped 13.5 per cent versus a year ago while the value of the exports slipped just under 6 per cent.

On the flip side, exports to the No. 3 market, the greater China/Hong Kong region, are off just over half for the year, dropping 52 per cent in volume (to 121,412 metric tons or 267.7 million pounds) and 54 per cent in value to $203.3 million. Russia, the No. 6 pork export market, has seen volumes drop 35 per cent to 60,826 metric tons (134.1 million pounds). The value of pork exports to Russia is down 37 per cent compared to the first half of 2008, reaching $123.9 million.

The story is not the same for exports of pork muscle cuts and variety meat in the first half of 2009 versus 2008: pork variety meat exports are up 27 per cent in volume to 245,984 metric tons (542.3 million pounds), and the value of those exports is up 29 per cent to $379.2 million. At the same time, the market for pork muscle cuts is down 18 per cent in volume to 679,355 metric tons (nearly 1.5 billion pounds) valued at almost $1.8 billion, a 12 per cent decline.

[mikey]

Governors Urge Obama to Help Pork Producers
US - The National Pork Producers Council has commended the governors from a number of the nation’s top pork-producing states for urging President Obama to take immediate action to help US pork producers through a nearly 2-year-old economic crisis.



In a letter sent to the president on Friday (7 August), the governors of Colorado, Illinois, Iowa, Kentucky, Michigan, Nebraska, North Carolina, Oklahoma and Wisconsin asked the administration to:


--------------------------------------------------------------------------------
*
"For the pork industry to remain as vibrant entities in rural communities, we need your prompt actions to assure that our communities and the US pork industry remain competitive world wide." 
US Governors in a letter to President Obama
--------------------------------------------------------------------------------
 
Support at least an additional $50 million of pork purchases for government feeding programs. (The US Department of Agriculture annually buys pork for federal food programs; it bought nearly $62.6 million worth in 2008, for example.)

Remove a spending cap on USDA’s Section 32 food-assistance program so that additional purchases of surplus agriculture products, including pork, can be made. (Congress imposed the cap as part of USDA’s fiscal 2009 budget.)

Urge China to quickly lift a ban on US pork that was put in place because of the H1N1 flu outbreak and to eliminate other barriers to US pork exports.

"Today, the pork industry is facing an economic crisis that is catastrophic in nature," said the governors in their letter to the president. "For the pork industry to remain as vibrant entities in rural communities, we need your prompt actions to assure that our communities and the US pork industry remain competitive world wide."

Since September 2007, the US pork industry has lost nearly $4.4 billion, with producers losing an average of $21.37 per pig over the past 21 months. Many pork producers have gone, or are in jeopardy of going, out of business, threatening thousands of the more than 550,000 mostly rural jobs they help support.

"US pork producers, who provide America’s families with a safe, wholesome, nutritious product, are grateful to the governors for intervening on their behalf with President Obama," said NPPC President Don Butler. "These state executives recognize that pork production is a significant value-added industry for their states and for our country."

[The following governors signed the letter: Bill Ritter, D-Colo.; Pat Quinn, D-Ill.; Chet Culver, D-Iowa; Steven Beshear, D-Ky.; Jennifer Granholm, D-Mich.; Dave Heineman, R-Neb.; Beverly Perdue, D-N.C.; Brad Henry, D-Okla.; and Jim Doyle, D-Wis.]

[mikey]

Weekly Review: Lower Feed Prices Positive for Hog Industry
US - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.

 
Ron Plain
Corn production in 2009 is forecast at 12.8 billion bushels, up 5 per cent from 2008 but down 2 per cent from 2007. If this forecast holds, it will be the second largest crop of record trailing only 2007.

Corn yields are expected to average 159.5 bushels per acre, up 5.6 bushels per acre from last year and the second largest crop yield of record exceeded only by 2004.

Soybean production for this year is forecast at a record-high 3.2 billion bushels. The yield for 2009 is forecast at 41.7 bushels per acre, up 2.1 bushels per acre from 2008. Acres for soybean harvest are forecast at 76.8 million acres, up slightly from June and 3 per cent higher than 2008.

The USDA estimated farm price for corn for the 2009-2010 marketing year is $3.10-3.90 per bushel, down from $4.00-4.10 per bushel for the current marketing year. The estimate by USDA for soybean meal prices for the 2009-2010 marketing year is $260-320 per ton, down from the $325 per ton for the 2008-2009 marketing year.

These lower prices for corn and soybean meal will be positive for the hog industry, but the US breeding herd still needs to be reduced by at least five per cent from the current level and possibly a ten per cent reduction will be necessary to get production in line with demand to provide profits for the average-cost hog producer.

Live barrow and gilt weights last week at 267.5 pounds were up one pound from a week earlier and up 10.4 pounds from a year earlier. This is a record-high change for a year.

The average carcass weight for barrows and gilts under Federal Inspection for the week ending August 1 at 197.0 pounds was up 6.0 pounds from a year earlier.

Feeder pig prices last week on a national basis were $2-7 per head below a week earlier. The average price per head for 10-pound-basis pigs was $25.37. Pigs weighing 40-pounds sold for an average of $24.62 per head. The formula price for 10-pound-basis pigs was $31.85 per head, and the formula price for 40-pound-basis pigs was $43.83 per head. The negotiated or spot price for 10-pound pigs was $11.02 per head, and the spot price for 40-pound-basis pigs was $23.16 per head.

The price for pigs at United Tel-o-Auction was $1-20 per cwt below two weeks earlier. The pigs at United weighed between 40 and 50 pounds and sold for $49 per cwt.

Pork exports in product weight in June were down 33.4 per cent. For January-June pork exports in product weight were down 18 per cent from a year earlier. However, the value of pork exports for January-June was down only 12 per cent. Pork exports in carcass equivalent will be in next week's letter.

Pork cutout per cwt of carcass for Thursday afternoon at $52.31 per cwt was down $2.33 per cwt from a week earlier. Loins at $68.50 per cwt were down $2.29 per cwt, Boston butts at $59.29 per cwt were down $1.17 per cwt, hams at $40.34 per cwt were up $2.27 per cwt, and bellies at $55.99 per cwt were down $13.04 per cwt from a week earlier.

Live hog prices Friday morning were $4-6 per cwt lower compared to seven days earlier. Weighted-average negotiated carcass prices Friday morning were $0.90-2.11 per cwt lower compared to a week earlier.

The top live prices Friday morning were: Peoria $26 cwt, Zumbrota, Minnesota, $29 cwt and interior Missouri $30.50 per cwt.

The weighted-average negotiated carcass prices by area Friday morning were: western Cornbelt $46.39 per cwt, eastern Cornbelt $44.73 per cwt, Iowa-Minnesota $46.43 per cwt and nation $46.06 per cwt.

Slaughter this week under Federal Inspection was estimated at 2,240 thousand head, up 4.5 per cent from a year earlier.

[mikey]

Could Viruses Promote Health?
US - Agricultural Research Service (ARS) scientists think that virus enzymes may promote human and animal health.



Could viruses be good for you? Scientists with the Agricultural Research Service (ARS) have shown that enzymes from bacteria-infecting viruses known as phages could have beneficial applications for human and animal health.

Phage enzymes called endolysins attack bacteria by breaking down their cell walls. Unlike antibiotics, which tend to have a broad range, endolysins are comparatively specific, targeting unique bonds in the cell walls of their hosts. This is significant because it means non-target bacteria could be less likely to develop resistance to endolysins.



ARS studies have shown that enzymes from bacteriophages (like the one shown) can be used to fight multi-drug-resistant bacterial pathogens, such as MRSAResearchers at the ARS Animal Biosciences and Biotechnology Laboratory in Beltsville, Maryland, in collaboration with federal, university and industry scientists, have developed and are patenting technology to create powerful antimicrobials by fusing genetic material from multiple cell-wall-degrading endolysins. Now the researchers are collaborating with biopharmaceutical companies to evaluate and further develop the technology.

Studies led by ARS biologist, David M. Donovan, show that phage enzymes could be used to wipe out multi-drug-resistant pathogens that affect both animals and humans, such as methicillin resistant Staphylococcus aureus, also known as MRSA.

The scientists showed that the enzymes can knock out pathogens in biofilms, which are matrices of microorganisms that can attach to a variety of surfaces. Biofilms are resistant to antibiotics and contribute to many human infections.

In a related study, the scientists showed that using the endolysins lysostaphin and LysK in concert inhibited the growth of staphylococcal strains that cause mastitis in cattle and staph infections in humans.

This research was published recently in the journal, Biotech International.

[mikey]

Tuesday, August 18, 2009Print This Page
NPPC Asks USDA to Save US Pork Industry
US - Asking for help to save the US pork industry and thousands of jobs, the National Pork Producers Council yesterday urged the US Department of Agriculture to lend assistance to US pork producers to help them weather a nearly two year old economic crisis.



In a letter sent to Agriculture Secretary Tom Vilsack, NPPC requested $250 million in financial assistance and other actions that should help producers, who since September 2007 have lost an average of more than $21 on each hog marketed. It asked the agency to:

Purchase immediately an additional $50 million of pork for various federal food programs – other than ones in USDA’s Section 32 program – using fiscal 2009 funds. Fiscal 2009 ends Sept. 30. The funds would not come from USDA’s Section 32 program. (USDA annually buys pork for food programs; it bought $62.6 million worth in 2008, for example.)

Urge Congress to lift a spending cap on the Section 32 program, and use $50 million of $300 million available to purchase pork for the program, which uses customs receipts to buy non-price-supported commodities for school lunch and other food programs.

Buy on 1 October a minimum of $50 million of pork, using fiscal 2010 funds. Fiscal 2010 begins 1 October. The purchase would be in addition to USDA’s annual buy.

Use $100 million of the $1 billion appropriated for addressing the H1N1 virus for the swine industry. This would include $70 million for swine disease surveillance, $10 million for diagnostics and H1N1 vaccine development and$20 million for industry support.

Work with the US Trade Representative to open export markets to US pork. Several countries, including China, continue to impose unwarranted bans on US pork because of the H1N1 flu.

Study the economic impact on the livestock industry of an expansion of corn-ethanol production and usage. The US Environmental Protection Agency has proposed raising the cap on blending ethanol into gasoline to 15 per cent from its current 10 per cent.

"U.S. pork producers are in desperate straits right now, and they need a little help from USDA," said NPPC President Don Butler. "The request NPPC has made today not only will help pork producers and Americans who benefit from government feeding programs but tens of thousands of mostly rural jobs supported by the US pork industry."

Governors from nine states on 7 August also asked the federal government to help US pork producers, urging USDA to make a supplemental $50 million purchase of pork and to lift the Section 32 spending cap to make additional pork buys.

[mikey]

CME: Pork Markets Still a Topic of Interest
US - Following up on Friday's discussion about sow prices reported by USDA, it was pointed out to us that the quoted USDA sow prices reflect the price of sows slaughtered the day prior, reports Steve Meyer and Len Steiner.



Those sows were naturally bought earlier than their slaughter date and, as a result, do not reflect actual sow prices for that specific day. In addition, one should point out that there are two separate USDA reports that cover the sow market. One of them is a mandatory report and the other is a voluntary report. The prices quoted in the Friday issue were from the voluntary report, not the mandatory report. You can see the actual USDA numbers for mandatory sow report and voluntary sow report.

Pork markets remain a topic of interest and it was interesting to see on Friday an announcement by the Canadian government that it was stepping in to support their struggling hog producers. The Canadian hog industry has been in a contraction mode since 2005 but the contraction has accelerated in the last two years following sharply higher feed costs, lower hog prices as well as the implementation of the Country of Origin Labeling Law in the US, which distorted demand for Canadian born feeder pigs.

The most recent Canadian government support program envisions a CAD$75 million fund (~US$68 million), which will provide support to producers that wish to stop or suspend production for at least three years. The program also would create a CAD$17 million fund to support global marketing efforts to promote Canadian pork. Furthermore, and likely just as important, there is a provision that would allow banks to provide “long-term loans with governmentbacked credit.” This is important since many Canadian hog producers are finding it difficult to secure credit in the current environment.

According to the news release "The Government of Canada will share the loan loss risk. Lending organizations will be required to ensure that the borrower has a credible business plan..." Clearly the Canadian government wants to prevent a complete collapse of this once fast growing industry, a collapse that would have significant social and economic consequences for many farming communities.

[mikey]

Market Preview: No Banner Year for Packers Either
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



The situation with pork packing margins has been somewhat of a mystery this year. There is always mystery regarding the actual level of packers’ profit margins since they are quite understandably reluctant to publicize those numbers beyond what is required of the publicly traded companies, such as Smithfield Foods, Tyson Foods and Hormel Foods.

I think it is safe to say that most pork producers feel the same way about their financial performance data. But we do have enough data to estimate pork packers’ gross margins (i.e. the margins that they achieve above the amount they pay for hogs) by comparing the pork cutout value to the cost of hogs and then adding in an estimate of by-product revenue. Figure 1 shows these estimates for 2008 and 2009, year-to-date, as well as the five-year average.


It is easy to see that 2009, as bad as it has been for pork producers, has not been a banner year for pork packers either. The first week of July was the lowest estimated gross margin in the history of my data, which goes back to January 1992. That $3.22/head estimate is even more shocking considering the fact that packer margins were at their highest level since 1999 just last summer when export demand added significant value to both pork and pork by-products.

Following that abysmal record, packers successfully pushed margins back to longer-term averages by mid-July when a few reduced-throughput days drove cutout values higher. Those did not last long, however, when packers returned to more normal hours and chain speeds. Cutout values fell back to pre-slowdown levels and packers have reduced hog bids since that time in an effort to maintain margins.

So, is this good or bad? The answer is "Both". Packers cannot operate forever on low margins. They proved that by reducing throughput in July. While not popular with producers, packers are in a much better position to manage margins and they will do so. Higher margins will keep hogs moving – an imperative given the size of the hogs coming to market. We have to keep animals moving and low packer margins may not get that done.

Finally, these packer margins are not large by any stretch – and probably do not represent net profits after packers pay for labor, utilities, packaging, transport and fixed costs. Their misery may not be as large as producers’, but they aren’t rolling in the roses, either.

The Question of "Accuracy"
There is just one more point to make: Are these computed gross margins accurate? I compute them using the best information I can access, but the fact that gross packer margins were so low for so long makes me question how accurate they may be.

I’m confident about the hog price. I use the national total net weighted average price, which should reflect the average hog cost for packers. Further, it comes from the mandatory price reporting system. USDA audits the packer data, so it should be dependable – at least over time.

I’m reasonably comfortable about the by-product value. It comes from the Livestock Marketing Information Center in Denver, uses publicly quoted prices and has been computed in the same manner using the same weighting factors for the entire position in question.

That leaves the cutout value. I know how USDA computes it and I know that their procedure changes from time to time. It changed rather sharply in 1998 and has changed some since then as USDA has updated yield coefficients for various cuts. I’m not aware of any changes during the period in question, but it appears from Figure 2 that the relationship between hog price and cutout value began to change in 2007. The cutout has fallen so much relative to hog prices that the difference (i.e. the "meat margin") has been positive in only four of 32 weeks thus far in 2009.


Can that be? Is there something amiss here? UDSA’s computations do not include “overages” that packers get for certain specifications. So, have base values fallen and “overage” increased over the past two years? Has the growth in the number of hogs priced off the cutout value caused packers to report lower product prices? That hardly seems reasonable since a high proportion of pork cuts are formula priced but . . .

I don’t know the answer to those questions, but I will try to find out more. And there is, hopefully, some help on the way. The Obama Administration finally got some key positions filled at USDA this summer and that got a Congress-mandated study of wholesale pork price reporting off dead center. The project will be carried out by researchers from Kansas State University, Michigan State University and the University of Missouri with results reported back to USDA this fall. The ultimate question is whether the pork industry would benefit from a mandatory wholesale pork price reporting system similar to the one that already exists for beef. The entire industry is, I think, looking forward to that answer.

[mikey]

Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME were off on Monday with the exception of the nearby October. OCT09LH futures finished up $0.050/cwt at $44.700/cwt. The DEC09LH contract closed down $0.250/cwt at $44.575/cwt. While lower commodities and outside influences put a drag on prices short-covering and bull spreading made up for the a mixed bag of prices. In addition, lack of any fresh news regarding increased sow slaughter, expectations for persistent large hog supplies, and slow exports continued to pressure prices. USDA on Friday put the average pork price at $52.52/cwt, off $2.05/cwt from this time last week. The latest CME Lean Hog Index was placed at $49.73/lb, down $0.56/lb. Canada is reportedly offering to pay producers to stop raising hogs by offering loans to help restructure and paying a premium of $500.00 C per sow to the producer. Cash hog prices were generally steady with HedgersEdge.com lowering the average pork plant margin $1.00/head to a positive $6.25/head. This was based on the average buy of $34.65/cwt vs. the average breakeven price of $36.99/cwt. Move market hogs when ready.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The SEPT’09 contract closed at $3.142/bu; off 5.0¢/bu. DEC’09 corn futures finished at $3.216/bu; down 6.0¢/bu. Pressure from falling stock prices, lower crude oil futures, a higher US dollar, weak exports, and good corn-growing weather all weighed on prices. Sell stops were noted in December 2009 futures. USDA placed corn-inspected-for-export at 40.881 mi bu vs. expectations for 44-48 mi bu. The latest Pro Farmer Midwest Crop tour is finding a good crop growing in the fields. Cash corn was steady in both the US Midwest and US Mid-Atlantic states. Large speculators added 2,126 contracts to net bull positions while funds sold between 8-10 thousand contracts. Hopefully 70 per cent of the 2009 crop has been sold.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed off again on Monday. The SEPT’09 contract closed down 36.5¢/bu at $9.880/bu. The NOV’09 contract closed at $9.544/bu; off 27.0¢/bu. The same pressures affecting corn weighed on soybeans. Funds and other non-commercials noted long-liquidation, selling over 5,000 lots. Exports were disappointing with USDA reporting soybeans-inspected-for-export at 5.620 mi bu vs. expectations between 6-13 mi bu. The US crop tour kicked off this week expecting to see a good crop. Speculators added to net bull positions as cash soybean prices plummeted in the country. Up to 70-80 per cent of the new crop should be priced at this time.

WHEAT futures in Chicago (CBOT) were off on Monday. SEPT’09 wheat futures finished down 10.0¢/bu at $4.710/bu. The JULY’10 wheat contract closed at $5.412/bu; off 9.5¢/bu. Futures are technically weak with contract lows posting in many months. Exports were neutral with USDA posting wheat-inspected-for-export at 13.915 mi bu vs. expectations for between 11-17 mi bu. Funds sold about 4,000 lots while large speculators added to net bear positions posting 54,196 sold contracts as of 11 August.