American Hog News USDA

[mikey]

September Pork Exports Regain Momentum
US - September pork plus pork variety meat exports reached nearly 154,000 metric tons (339.5 million pounds) valued at $347.8 million, the highest volume since April 2009, according to statistics released by USDA and compiled by the US Meat Export Federation.

 

Pork exports still trail 2008, but close third quarter with positive momentum
While January-September pork exports contain significant bright spots - including a continued strong performance in Mexico and Japan as well as renewed strength in Canada, Russia and the Greater China region - they trail last year’s record pace by 11 per cent in volume (1.366 million metric tons or 3.01 billion pounds) and 12 per cent in value ($3.195 billion).

Mexico’s September volume surpassed September 2008 by nearly 37 per cent, putting Mexico’s January-September export volume at 369,376 metric tons (814.3 million pounds) valued at $547.7 million – an increase of 38 per cent and 15 per cent, respectively, over the first three quarters of 2008.

“It has been a remarkable year for US pork in Mexico, especially when you consider the disruption we experienced in April and May due to H1N1 influenza,” said USMEF President and CEO Philip Seng. “USMEF worked successfully during this time to maintain our market access in Mexico, and then focused on rebuilding consumer confidence and demand. It is very gratifying to see these efforts paying off and to see the market respond so well to our product.”

The value of US pork exports to Japan increased by 3 per cent to $1.17 billion and, with a strong fourth-quarter performance, pork exports to Japan could surpass last year’s record value of $1.55 billion. Pork export volume to Japan (319,297 metric tons or 703.9 million pounds) is only slightly behind its 2008 pace.

“US pork continues to break new ground in Japan, despite the fact that Japan’s domestic pork production has increased nearly 6 per cent this year,” Mr Seng said. “Our processed items, for example, are growing dramatically in this market. Exports of US sausage to Japan have increased by more than 25 per cent this year.”

September pork exports to Canada set a new monthly volume record (17,669 metric tons or 38.9 million pounds) – jumping 37 per cent from August and surpassing last September’s total by 11 per cent. Cumulative pork exports to Canada trail their 2008 pace by 2 per cent in volume and 9 per cent in value.

September pork exports to Russia more than doubled their August volume and value, and reached the second-highest total (to July) of the year at 17,637 metric tons (38.9 million pounds) valued at $34.9 million.

Exports to the China/Hong Kong region achieved their highest volume (20,569 metric tons or 45.3 million pounds) since April, despite the continued suspension of US pork exports into mainland China. Exports to Taiwan set a monthly record in September (5,790 metric tons or 12.8 million pounds valued at $9.28 million), due in part to the impact of the recent typhoon on domestic production.

Other markets showing gains over 2008 include Australia (up 25 per cent in volume and 23 per cent in value), the Philippines (up 17 per cent and 14 per cent), the Caribbean (up 33 per cent and 26 per cent) and Central and South America (up 14 per cent and 18 per cent). US pork exports to all of these markets are expected to set new records this year.

[mikey]

Market Preview: New Rules for Risk Management
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Risk management, it seems, has always been viewed favorably by pork producers. Problem is, it’s rarely practiced to any great degree.

A key reason, of course, is that hogs have generally been profitable – especially for those whose cost of production is better than average. You don’t get the name “mortgage lifters” without actually generating the cash needed to pay off mortgages!

But it looks as though the future may require more risk management action on the part of pork producers. The primary reason is there is very little cash or equity to handle any future losses.

The severity of the industry’s cash/equity situation was driven home again last week with the announcement that Coharie Farms of North Carolina had sought bankruptcy protection as it liquidates its assets. Coharie was founded by Nelson Waters and Lauch Faircloth in 1972. Faircloth served as a US senator from North Carolina in the 1990s. His daughter, Ann, had been running the business for several years. Her statement regarding the filing sounded like this (paraphrasing): “We aren’t throwing any more of our money at this thing.” It’s probably a position being contemplated by many pork producers these days.

The most recent Pork Powerhouse rankings from Successful Farming listed Coharie as having 30,000 sows. I have heard reports that at least 9,000 of those sows would be purchased by other producers or contract growers and never go out of production. My guess is that more will be added to that number, making the net reduction in the US sow herd closer to 15,000 vs. 30,000.

Defining “Risk”
A reporter called last week and asked: “How important is this?” My answer was “It’s important, but no more so than the hundreds of smaller farms that have already been driven out of business by high costs.” I think the better question is: “How do we stop this?”

There are several answers to that question and one of them is better risk management. But before we go down that road, we must ask ourselves: “Just what kind of risk are we managing?” We have historically thought of risk in the hog business in terms of price risk – the possibility that the price of hogs will be below the cost of production. But the shift to higher feed ingredient prices and the tying of corn prices to a volatile oil market requires us to broaden our view of price risk to include, more than ever before, the risk that corn and soybean meal prices will result in production costs that are higher than any price offered for our hogs.

Then there is financial risk, the risk that the business will not have enough cash from either operations or borrowing to meet its obligations. This broader, more immediate and serious form of risk has now risen in importance for many hog producers. I do not know if Coharie Farms’ owners could not meet their cash needs or simply decided they would no longer meet them with infusions of cash from sources outside of the hog business. Still, the result was the same – the end of a business that had once provided hundreds of jobs in rural North Carolina.

The same decision process is happening every day in other parts of the country with, I fear, the same terrible consequences.

When a business has depleted its cash reserves and fully tapped its borrowing capacity, financial risk is so high that price risk must be controlled. There simply is no room for losses – or at least no room for large losses.

But just as the need for controlling price risk in many operations becomes critical, in my opinion, I am hearing a lot of talk along the lines of: “We can’t lock in small margins; we have to make back what we have lost.” I can’t argue with that, but what are the odds of covering those losses in one or even two years?

When producers’ accumulated wealth disappeared in 1998-99, it took eight years to get it back (see Figure 1). It is possible the losses can be recouped faster this time, but just how much risk of losing the entire business can you stand?


Iowa State University Extension Livestock Economist John Lawrence once wrote that the goal of pricing hogs was to not miss the boat and not sink the ship. It is difficult to capture extremely high prices without putting the entire business in peril. Conversely, it is difficult to protect the business and still achieve superior rates of return. Some balancing of those goals must be your goal – with a nod toward safety when cash and equity are low.

[mikey]

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



LEAN HOGS on the CME were higher on Monday with the exception of the nearby December. The DEC’09LH contract closed down $0.050/cwt at $54.950/cwt and $0.85/cwt lower than this time last week. FEB’10LH futures finished at $62.350/cwt; up $0.500/cwt but $0.975/cwt lower than last report. December futures suffered from late rolling of long positions into February and other deferreds. Outside markets and a weaker US dollar were supportive. USDA on Friday reported the average pork price at $57.380/cwt; up $0.26/cwt. The latest CME lean hog index was placed at $55.47/cwt; down $0.03/cwt but $0.15/cwt higher than this time last week. Packer demand is still decent. According to HedgersEdge.com, the average pork plant margin was lowered $1.20/head from last week to a positive $3.50/head. This was based on the average buy of $39.28/cwt vs. the average breakeven price of $40.59/cwt.

CORN futures on the Chicago Board of Trade (CBOT) finished up again on Monday. DEC’09 corn futures finished at $4.022/bu; up 11.75¢/bu and 16.25¢/bu higher than last Monday. The MAY’10 contract closed at $4.274; up 11.75¢/bu and 17.25¢/bu higher than last report. Outside markets, a weaker US dollar, wet weather, and the struggle to get harvest done amid wet weather were supportive factors. Gold and crude oil made significant gains. USDA late Monday put the US corn crop at 54 per cent harvested vs. the 5-year average of 89 per cent. Floor sources said the market expected 50-60 per cent. There is an additional concern with this year’s corn crop; Vomitoxin. Vomitoxin is fungus derived from wet, poor quality corn. Today the CME Group set new limits on the corn they will accept for delivery that is affected by the fungus. Even though the US dollar makes them attractive, exports were bearish as foreign traders waited to see if harvest will pick back up. With corn supplies this good there really is no fundamental reason that corn should be trading this high. USDA placed corn-inspected-for-export at 21.937 mi bu vs. expectations for 27-33 mi bu and 5.89 mi bu lower than last week. Cash corn in the US Midwest was steady to firm while corn bids in the US Mid-Atlantic states was firm ranging 2.0¢/bu - 8.0¢/bu higher. Funds started shedding net-bear positions as they get in the buying mood. Gold and crude oil are soaring providing plenty of money to hedge funds who then need to balance the books against these huge profits. Funds bought 15,000 – 16,000 contracts. It is a good idea to consider selling the rest of the ’09 corn crop and as much as 30 per cent of the 2010 crop on these market upticks.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished strong on Monday. NOV’09 soybean futures’ last day to trade was November 13. JAN’10 soybean futures closed at $10.100/bu; up 23.0¢/bu. The MAR’10 soybean contract closed at $10.156/bu; up 23.5¢/bu and 37.75¢/bu cents over last report. A weaker dollar, firm outside markets, forecasts for bad harvest weather, and speculative buying were supportive. CME Group concerns over corn Vomitoxin are seen as supportive as feeders shift protein sources from corn to soybeans. USA placed soybeans-inspected-for-exports at 59.845 mi bu vs. expectations for 50 – 60 mi bu. This was 4.192 mi bu lower than last week. USDA late Monday placed soybean harvest at 89 per cent complete. The 5-year average is 96 per cent. Even though funds bought 3,000 contracts net-bull positions declined for the week ended Tuesday. If you haven’t done so already it would be a good idea to get the rest of the 2009 crop sold and consider selling 20 per cent of the ’10 crop at this time.

WHEAT futures in Chicago (CBOT) finished up Monday strictly on technical buying by large funds and speculators. DEC’09 futures closed at $5.622/bu; up 23.25¢/bu and 42.25¢/bu higher than a week ago. The JULY’10 wheat contract closed at $6.072/bu; up 23.75¢/bu and 42.0¢/bu higher than last report. The jump in wheat prices represents a 4 per cent increase. It comes on the same strengths that fueled the corn and soybean rallies. According to one source, “Hedge funds are buying because they are flush with money from outside markets and they have to balance their books going into the holiday. That means buy, buy, and buy! In addition to that, they are borrowing money like mad on zero percent interest to speculate with. Look out.” Late in the day a statement by US Federal Reserve Chairman Ben Bernanke indicated he was concerned about the declining value of the dollar and was monitoring the situation closely as part of its commitment to both jobs growth and price stability (?). Funds bought an estimated 4,000 contracts while large speculators held huge net-bear positions. This should stimulate short covering in the coming days as there is absolutely no fundamental reason for these prices. USDA reported wheat-inspected-for-export at 15.047 mi bu vs. expectations for 14 – 18 mi bu. Exports were placed at 17.778 mi bu last week. It would be an extremely good idea to price up to 20 - 30 per cent of the 2010 wheat crop now.

[mikey]

CME: Drop in Pork Prices Seen in October
US - According to Steve Meyer and Len Steiner, retail beef and pork prices remained well below year-ago levels in October while retail broiler prices fell below year-ago levels and retail turkey prices rose to 21 per cent higher than during last October.



Those data came from USDA’s Economic Research Service this week. The data are based on retail prices gathered in October by the Bureau of Labor Statistics.


The average price for all fresh beef rose slightly in October to $3.851/lb. That is $.013/lb. higher than in September and but still 7.3 per cent lower than the October 2008 price of $4.109/lb. The October increase is the third straight since retail beef prices hit their year-todate low of $3.79/lb in July.

Pork price fell again in October, but the decline to $2.88/lb. was less than 1 per cent lower than the September price of $2.906/lb. The October pork price was 4.6 per cent lower than one year ago. That is not much of a surprise given the string of record or near-record pork disappearance months we have seen since exports faltered, largely due to H1N1 influenza back in April. Monday’s September trade data has allowed us to confirm that domestic pork disappearance set a new record for September this year.

Retail broiler prices averaged $1.735/lb. in October, 0.3 per cent lower than one year ago and 1.4 per cent lower than in September. Retail chicken prices will still very likely set a record high annual average this year after hitting a monthly record high of $1.857/lb. in May.

The species having the most success in pushing retail prices higher is turkey, whose price set another new record in October at $1.48/lb. The previous record of $1.461/lb. was set in August and October marks the sixth record-high monthly average price this year. The reason is pretty obvious: The turkey sector has reduced output far more than have the other species with year-to-date slaughter down 5.2 per cent versus last year and yearto- date production down 5.7 per cent versus last year through last Friday.

Domestic beef , chicken and turkey availability are all lower thus far in 2009 but only turkey prices are higher at the retail level. We believe those relationships are symptomatic of the ongoing (or perhaps just-finished, depending on who you read or talk to) recession where downturns in the foodservice trade have forced more beef and chicken through retail channels. Turkey’s price strength has very likely been a function of the recession as well as consumers traded down to lower-cost turkey based cold cuts and prepared meats. Even though US pork production is 1.8 per cent lower than one year ago through last week, domestic pork availability (and thus consumption) is higher. Higher pork supplies mean that retail pork prices should actually be lower than they have been this year if demand had been stable. So, among the major meat types, it appears that only pork demand is at or above last year’s levels.

We pointed out in the first paragraph that these data are based on retail price data gathered each month by the Bureau of Labor Statistics. We have mentioned several times in these pages that a resumption of USDA’s scanner-based retail price data was expected this fall but it now appears that is not going to happen. ERS has never been comfortable gathering and publishing these data and that discomfort is understandable. ERS is a research organization, not a price gathering and reporting organization. They publish the BLS-based retail price data only because is it a part of their monthly meat price spreads calculations. So, ERS has decided not to resume purchasing scanner data after bids came in this summer above the price they expected and a recently released ERS study found that there the scanner data is “less useful than BLS data for analyzing current market conditions.” The report can be found by clicking here.

The logical agency to gather retail price data is the Agricultural Marketing Service but that agency has no funding for the project, so the scanner-based system is in peril even though an improved system was a feature of the Livestock Mandatory Reporting Act of 1999, the law that, among other things, created the mandatory price reporting system for hogs, cattle, lambs and wholesale beef and lamb cuts. The BLS data have their strengths but they are based on far fewer retail cuts than they once were, raising some doubts about how well the data represent the weighted average retail value of all cuts. There will hopefully be more to this story.

[mikey]

Monday, November 23, 2009Print This Page
US Pork Production Down from a Year Ago
US - Commercial red meat production for the United States totaled 4.39 billion pounds in October, down 3 per cent from the 4.53 billion pounds produced in October 2008, according to the USDA's National Agricultural Statistics Service (NASS) in their monthly Livestock Slaughter report.

 

Pork production totaled 2.09 billion pounds, down 3 per cent from the previous year.

Hog kill totaled 10.3 million head, down 4 per cent from October 2008.

The average live weight was up 3 pounds from the previous year, at 272 pounds.

January to October 2009 commercial red meat production was 41.2 billion pounds, down 2 per cent from 2008.

Accumulated pork production was down 2 per cent from last year.

October 2008 contained 23 weekdays (including one holiday) and 4 Saturdays.
October 2009 contained 22 weekdays (including one holiday) and 5 Saturdays.

[mikey]

Monday, November 23, 2009Print This Page
CME: Frozen Pork Inventories See Positive Sign
US - USDA’s November Cold Storage report, released Friday afternoon, will likely hit livestock markets as somewhat bullish on Monday, with that sentiment probably greatest for pork, write Steve Meyer and Len Steiner in their Daily Livestock Report for 20 November 2009.



Key data for all meat and poultry can be found on page 2 of the link below.

October is almost always the largest pork production month of the year due to higher fall slaughter and the fact that October contains no holidays. So, lower frozen pork inventories on 31 October versus 30 September, especially in a year that has seen as many difficulties as has 2009 is a positive sign — and 31 October frozen pork stocks of 520.13 million pounds were 1.6 per cent lower than one month earlier. The big drivers of the monthly decline were hams (down 13 per cent ) and “Other” (down 12.3 per cent). Stocks of trimmings, variety meats and bellies were slightly lower than at the end of September while inventories of loins, ribs, butts and picnics were significantly higher.

Hams stocks were also the big reason for lower pork inventories versus one year ago at –15.8 per cent. The one possible fly in the bullish ointment would be belly inventories at 37.006 million pounds, 70.6 per cent higher than last year. The amount of ribs in storage on 31 October (68.094 million pounds, 20.7 per cent more than last year and 26.1 per cent more than last month) is a symptom of the slow pace of recovery in the foodservice sector which accounts for a large portion of the sales of pork ribs in the US. Bellies are a likely casualty of a slow foodservice sector as well.

Chicken inventories continue to be far smaller than one year ago with total chicken stocks at 632.274 million pounds, down 19.8 per cent. The biggest drivers of the year-on-year decline were legs, leg quarters and thighs — generally export products. Stocks of breast meat which is almost exclusively sold within the US were sharply lower than last yea as well, signaling some positive impact of output reductions in the broiler sector. Even the “Other” category, which is comprised of many processed chicken items and accounts for over 50 per cent of total chicken in freezers in most months, was 8.9 per cent lower this year versus last year. Total chicken stocks were virtually unchanged from last month.

Beef stocks were nearly 10 per cent smaller than last year with beef cuts accounting for a larger percentage but boneless beef accounting for a MUCH larger unit reduction, No surprise there since boneless beef usually accounts for 80-plu percent of all beef in freezers. Beef stocks were also virtually unchanged from last month.

Finally, the amount of turkey in freezers on 1 November (510.896 million pounds) was 11.6 per cent lower than one year ago. The year-onyear comparisons are far more meaningful than month-to-month comparisons for turkey since turkey stocks are so severely seasonal. That is, turkey stocks ALWAYS drop sharply in October, the question is “How do stocks compare to last year?” The answer is “relatively tight” as the turkey sector has reduced production much more aggressively than any other meat/poultry sector. We warned last summer that, without sharp reductions in output or a huge increase in movements, turkey stocks could be very large this fall. It looks like a combination of the two has occurred to get stocks below year-earlier levels.

Friday also marked the release of USDA’s monthly Cattle on Feed report which indicated that, on 1 November, 11.134 million head of cattle were in US feedlots with inventories of 1000 head and more. That number is 1.5 per cent higher than last year, marking the second straight month of higher year-on-year on-feed numbers. As can be seen in the table at right, the increase was very close to the average of analysts’ pre-report estimates. October marketings numbered 1.755 million head, 3.2 per cent lower than one year ago but within 0.4 per cent of analysts’ estimates. Those two numbers will be neutral to Monday’s trade.

October placements, though, may well be bullish. 2.474 million head were placed in October, 1.5 per cent more than last year but analysts expected that number to be 2.6 per cent larger. Smaller placements in October imply lower fed cattle supplies in March and April.

The cattle placed in October weighed, on average, 687.4 lbs., a weight that is sharply lower than the 716-lb. average weights of both August and September but is still 10 lbs. heavier than the cattle placed in October 2008. The relatively high weight of the cattle going in to feedlots suggests continued high slaughter weights next spring, potentially offsetting some of the bullish sentiment of lower-than-expected placements.

[mikey]

Tuesday, November 24, 2009Print This Page
Market Preview: Pork Exports on the Rebound
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Last week brought two more pieces of positive news for the US pork industry: September exports exceeded year-earlier levels, and 31 October - frozen pork stocks were smaller than both year-earlier and month-earlier levels.

The September export data marked the first month since March that US pork exports have exceeded year-earlier levels. September exports of 352.5 million pounds, carcass weight equivalent, were 3.8 per cent larger than one year earlier but 46 per cent larger than in September 2007 (Figure 1). The September total puts monthly exports above the 2004-2007 trends for the sixth time this year, again making my point that 2009 exports have been remarkably good when compared to anything but 2008 exports.


Year-to-date exports are still 17 per cent lower than last year, but they are 4.7 per cent higher than the 2004-2007 trend.

When we look at individual export markets, Mexico is the shining star in spite of all the H1N1-related difficulties that have been encountered there (Figure 2). September shipments to Mexico were 60 per cent larger than last year and bring the year-to-date (YTD) total back to +38 per cent for 2009. Exports to Mexico remained just over 12 million pounds smaller than Japan in September. That marks the second straight month that Mexico has been that close to becoming our largest export customer in terms of tonnage. Japan remains the clear leader in terms of value, however.


Shipments to Canada increased 9 per cent, year-on-year, in September primarily due to Canada’s stronger dollar.

Exports to China-Hong Kong were 13 per cent larger than last year, but remember that exports to China-Hong Kong had returned to earth by August and September 2008. Shipments to Taiwan were nearly 200 per cent larger this year as well.

China’s recent announcement that they would resume imports of US pork is a curious one since the data from USDA’s Foreign Agricultural Service indicate that China actually never stopped importing US pork. Shipments dropped below 2 million pounds, carcass weight, in June and July, but had grown to 4.3 million and 6.6 million pounds in August and September, respectively. And these shipments are for China only. They do not include Hong Kong. We aren’t sure why the trade suspension was really not a trade suspension.

Anecdotal evidence from packers points to good export trade in October, but readers should be aware that the October data will likely show 2009 exports lower than those of October 2008. The reason: A huge spike back to over 392 million pounds last year. Whatever October exports were, they have already played a role in our market – and may well have been one of the drivers of the cutout value rally that I wrote about two weeks ago. Just don’t be surprised if the number comes in lower than last year’s total.

Cold Storage Recap
Friday’s Cold Storage report says Oct. 31 total frozen meat and poultry inventories were 11.5 per cent lower than one year ago and 5.3 per cent lower than on 30 September. The biggest contributor to the year-on-year decline was chicken, whose stocks were almost 20 per cent smaller than last year.

Frozen pork stocks were down 1.5 per cent from last October and 1.6 per cent from Sept. 30. The biggest contributor to these reductions was ham inventories, which were 16 per cent lower than last year and 13 per cent lower than in September. Frozen pork belly stocks were sharply higher (+70.6 per cent) than last year, but down slightly from last month, while ribs in freezers jumped 20.7 per cent from last year and 26.1 per cent from last month. The bellies and ribs increases are, I believe, symptoms of continued sluggishness in the US foodservice sector.

While the amount of pork in cold storage is high relative to historical freezer inventory levels, it is about normal relative to production (Figure 3). 31 October stocks totaled 520 million pounds or 24.9 per cent of October US pork production. That figure compares to 24.9 per cent last year, 23.1 per cent in 2007 and 25.2 per cent in 2006. October usually marks the seasonal low for the stocks:production ratio, primarily because October almost always marks the year’s high for monthly pork production. The reasons is simple – lots of hogs, no holidays.


Count Your Blessings
Though the year has been difficult (there’s an understatement), there are many things for which to be thankful. Take a few minutes to “count your blessings, name them one by one.” You’ll be surprised at how long the list will be. I know I always am. Best wishes for a Happy Thanksgiving!

 

[mikey]

Tuesday, November 24, 2009Print This Page
Weekly Outlook: Pork Industry on Last Leg Down
US - Bankruptcy is a terrible word, but one that indicates the pork industry is entering the “last leg down” in this cycle, writes Chris Hurt, extension economist at Purdue University.

 Chris Hurt
Extension Economist
Purdue University
 

Attorneys for several large producers have posted the “out of business” sign in recent months. Lenders to hog operations are increasingly facing the facts for their poorest performing loans-if the producer quits now, what can the lender recover? The bleak answer, in some cases, is not much since foreclosed hog buildings may have little value if forced on the market right now.

Why did it have to come to this? The answer has many dimensions, but in general there were just too many major demand and cost shocks in the past two years for an industry that had become too inflexible to downsize. That downward adjustment is now a forced adjustment with bankruptcy for a few just revealing the 'tip of the iceberg' of the lost equity across the sector. The industry will now likely drop another three to five percent of the breeding herd to get small enough to return to breakeven.

Hog prices have improved from their lows in August, but the $40 live price in the final quarter this year is more than offset by production costs estimated at $48 per live hundredweight. In September there was some optimism that feed costs would be moderate for 2010, but that optimism has faded with a $.90 per bushel increase in corn prices. Now the anticipation is that hog production costs next year for farrow-to-finish operations will be around $50. This seems to be an insurmountable climb for prices from $40 today.

The outlook is for hog prices to average about $46 to $47 next year, moving from about $44 in the first quarter, 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. However, the current financial reality likely means the herd will decline, demand will improve, and hog prices will be higher than the current forecast.

There are others that believe hog prices will be higher, most importantly futures traders. Using lean hog futures at the close on November 20 and the average Eastern Corn Belt basis level over the last five years, the futures market is suggesting $50.50 for a farm level price next year, suggesting a breakeven price for 2010. If there is an unfortunate side to these higher prices it is that it may increase producer/lender optimism, resulting in a smaller than needed reduction of the breeding herd. If so, selling lean futures now will be positive.

Those producers and lenders facing the difficult decision of whether to continue or call it quits should consider these futures market pricing opportunities. Most lenders want their hog operations to at least cover cash outflows. That is to say, they do not degrade their current financial situation. What about the overhead costs such as depreciation and debt service on buildings and equipment, taxes, etc.? As stated earlier, hog buildings and equipment probably have little value right now in a forced liquidation. The lender may be better off to continue to work with hog producers if they do not worsen their financial situation over the next year. If they make it through, then the value of the buildings and equipment may be positive in another year.

Clearly some operations must reduce production, or shut down, to reduce total production. There are still operations with high costs, have low efficiency, are dramatically undercapitalized, or no longer willing to risk more equity erosion. That is where the additional downsizing will come.

Producers in a weak financial position who decide to hedge lean hogs with a live equivalent near $50 must cover feed costs as well.

As bleak as the outlook seems, it is ironic that the futures market provides a way to at least get through 2010. Old timers use to say that you don’t want to be short lean hog futures when the price cycle is ready to turn up, and that has been true in the past. When prices turned up, they tended to go much higher than anticipated, providing handsome rewards to those who stayed unsold on hogs.

But, this is a new era and old maxims may not hold. In addition hedging today may enable some operations to continue over the next year when the lender is ready to give up. For them the new maxim may be, survive in 2010 for an opportunity to be around in 2011.

[mikey]

Meat Promotion to Begin New Fiscal Year
US - Brand names are of increasing importance to global consumers looking for quality and consistency. Small US meat companies, however, may have an uphill battle in making their brand names familiar to international buyers.

 

The USDA’s Branded Products Promotion programmeme – the red meat portion of which is administered through the US Meat Export Federation (USMEF) – has had success in helping small companies gain entry and establish their branded products in a variety of international markets.

Companies participating in the USMEF Branded Products Promotion programme use their own money, leveraged with matching funds from the programme, to develop export markets for their US red meat exports. The 16 companies involved in the 2008 programme exported pork and beef to markets that included Mexico, Japan and Europe and reported sales of US beef and pork valued at almost $12 million. In doing so, the companies exceeded their projected sales goal by 26 per cent. Participation in the programme is limited to small companies as defined by the Small Business Administration, i.e., eligible companies with 500 or fewer employees, or be a producer cooperative or an association.

In their applications, all branded programme participants are required to set measurable performance goals based on projected export sales to targeted markets. If attending a trade show, the companies are asked to report on the number of sales made at the show, sales as a result of contacts made at the show, and sales of new products.

The branded programme is a small part of the larger coordinated USMEF effort that includes generic funding from USDA’s Market Access and Foreign Market Development programmes, private industry funds and funding from the beef, pork, corn and soybean checkoffs to promote foreign sales of US red meat.

Funds from this programme can help companies conduct a variety of activities in international markets, including:

Attend trade fairs and exhibits, including US domestic trade shows with large international attendance
Offset costs of promotional materials used in connection with a promotion
Help pay for costs of retail promotions, including fees for chefs, costumes, signs, displays and fees for demonstration staff
Help cover the cost of seminars, including interpreters, seminar materials, set-up costs/room rental, slides and production
Translate educational materials such as company brochures and product sheets
Conduct retail and HRI promotions
USMEF is now accepting applications for its FY10 fiscal year from US companies interested in receiving matching funds to promote their branded US red meat products in international markets.

Promotions funded under this programme must be conducted between 1 January and 31 December 2010. Applications will be accepted as long as funds are available.
Companies that receive funding from USMEF will be charged a 5 per cent administrative fee for participation in the programme. The fee is 5 per cent of USMEF’s contribution to the activity budget.
USMEF requires a $100 submittal fee to accompany the company's request for funding.
If the company completes the contracting process, these funds will be applied toward the 5 per cent administrative fee.

[mikey]

Pigs: Pets or Pork?
IOWA, US - The pig industry is comming under increasing pressure from animal welfare groups.


The notion of pigs as pets lies at the heart of the animosity between hog producers and their critics, pork producers and some observers say, according to Des Moines Register. The question plays into the debate over hog confinements.

"People think pigs are intelligent, so they have a hard time thinking of them as animals for the slaughterhouse, and they are particularly sensitive to stories about mistreatment of pigs," said Wes Jamison, a former Iowan and Florida communications professor who has written widely on the hog confinement issue.

A group called Mercy for Animals two weeks ago turned over a videotape surreptitiously shot in a Pennsylvania hog confinement showing pigs being euthanised by gassing and being picked up by the ears and sows confined in crates too small for movement. A similar underground tape was shot last year near Coon Rapids.

Daniel Hauff, Mercy's director of investigations, told Fox News: "It's important we look at these animals the same way we look at dogs and cats, because there is no difference. They feel the same pain, the same joy our beloved animals at home do."

That view goes beyond animal rights activists, academics say.

Janice Swanson, director of animal welfare at Michigan State University, warned livestock producers in a speech in Des Moines earlier this year that "Polls show that three-quarters of Americans believe animal welfare is as important as low food costs."

"Most urban Americans make a connection between their household pets and farm animals," she added.

"You have people in cities who will spend thousands of dollars for a hip replacement for their dog or cat who think animals that are being raised for slaughter should get the same treatment," said Professor Jamison.

Such a viewpoint has profound implications in the nation's No. 1 hog-producing state, where debate has raged over the move from the traditional open-barnyard environment to industrialized, closed confinements.

Rich Degner, executive director of the Iowa Pork Producers Association, recognises the emotions.

He said: "My wife and son and I had a dog, and when it died I cried right along with them. I can assure you that I never shed a tear when any of our pigs went to market."

Professor Jamison and Mr Degner acknowledge that the friendly, pet-like depiction of pigs in movies like "Charlotte's Web," "Babe" and "Winnie the Pooh" have had a major impact on public attitudes toward hogs and their treatment.

"Most of those books and movies are aimed at children, and so they form their opinions at an early age," said Jamison. "People grow up thinking that it's perfectly normal to give a pig a name. They have a hard time handling the idea that the pig is food, even if they like bacon or ham."

But not all hog confinement opponents are pet lovers, according to Des Moines Register.

Lisa Morrison of Van Meter grew up on a 160-acre farm near the Jasper/Story County line that was sold in the early 1970s. The farm had cattle and hogs, all raised in the barnyard.

She said: "I never thought of the pigs as pets. And I don't think pigs are particularly smart, either.

"I'm against confinements. Pigs should be able to be outdoors and run around."

In the last year, hog confinements in Iowa and elsewhere have been hit by widely scattered acts of violence, the latest being the suffocation of more than 3,500 hogs in a confinement in Sioux County that authorities said is an act of vandalism.

Joe Anderson, a Nebraska native, received his PhD in agricultural history from Iowa State University and teaches at Mount Royal University in Canada. He has published a history of Midwestern agriculture, 'Industrializing the Corn Belt'.

He said that the controversy is "a lot of shouting".

"In many ways, animal welfare has never been better. The modern confinements have climate and disease control. But when you concentrate animals together a magnitude of things can go wrong," he told Des Moines Register.

[mikey]

Indoor Pigs are Healthy Pigs
US - A study at the University of Missouri has demonstrated that pigs kept indoors are healthier.



A study by University of Missouri Extension swine experts shows that moving pigs indoors led to improved health for pigs and higher-quality product for consumers.

Since the shift to concentrated animal feeding operations (CAFOs), veterinarians have seen a significant decline in parasites, said Beth Young, swine veterinarian with the University of Missouri Commercial Agriculture Program. Dr Young spoke at the 2009 Swine Institute in Columbia on 10 November.

The Commercial Agriculture Swine Focus Team looked at changes in the swine industry since 1945.

In the 1940s, 55 to 70 per cent of pigs were infected with lungworms. By the 1970s, lungworm outbreaks only affected about 11 per cent of farms. "In the past decade, lungworms are rarely seen," Dr Young said.

"Likewise, 78 to 94 per cent of pigs were infected with kidney worms in the 1940s, and now infestations are rarely seen," she added.

Trichinella and toxoplasma also have seen dramatic drops in recent decades. Scientists believe this is because pigs are not feeding on garbage and have no access to wildlife in CAFO facilities.

Trichinella infection in humans from eating undercooked pork was once fairly common in the United States, according to the US Centers for Disease Control and Prevention. Today, the only real danger of contracting trichinella through food consumption is from eating game meat.

Toxoplasma was noted in 42 per cent of sows in the 1970s and is now down to six per cent. Because pigs are confined, they are not exposed to cats, the carriers of the parasite.

Dr Young said that many other swine diseases have seen significant decreases or eradication since the move to confined operations. The list includes swine dysentery, atrophic rhinitis, Actinobacillus pleuropneumoniae, brucellosis, classical swine fever (hog cholera) and pseudorabies.

[mikey]

Tuesday, December 01, 2009Print This Page
Market Preview: Hard Lessons for Industry Economists
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



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 US 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 per cent 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.


And, pork producers are just not behaving according to our models and assumptions. Now I realize that this factor is much more our fault than it is yours. Besides, you are the economic agents and we are the observers. It is our responsibility to use our observations to model you. It is not your job to conform to our prior notions, but cumulative losses of the magnitude we are now seeing should have caused a greater response – right? Apparently not. Again, this is a different world – in terms of industry structure, production facilities, financial expertise and management, and a host of other factors. Add them all up and the old response hypotheses are out the window as well.


The futures market continues to hold a profit carrot in front of what would otherwise be a very reluctant industry. That profit carrot has been more than just an enticement over the past few years as many producers have actually caught the carrot by using packer contracts and hedges. Some are no doubt doing the same today and the carrot got sweeter last week as summer futures reached the mid- to upper-$70s. It appears that commodities in general and agricultural commodities in particular are again attracting investment money looking for a hedge against inflation. Outside money taking long positions provides great opportunities for sellers – and further deteriorates the incentive for the output reductions that I still think are necessary to return cash markets to profitable levels. The obvious response to that situation is: “And the problem is?” My answer would be: “Nothing, as long as you actually catch the carrot!” Merely following the carrot as it dangles in your path will not pay bills.
So, as usual, we economists and analysts are begging for you patience while we try to match the real world to theory. When the relationships that have underlain your models and decisions for years change, it takes a while to figure out the new relationships and develop new models that mimic a new world. There is a lot of “news” in that sentence. We’re trying to catch up to them and become better help as soon as we can.

In the meantime, you will have to put up with something even worse than the two-armed economists once detested by President Harry S. Truman who famously asked for a “one-armed economist” because he was tired of hearing “on the other hand”. I fear we may more closely resemble the many-armed Hindu goddess Kali or Kalika who is called in Wikipedia the “goddess of time and change.” Isn’t that a coincidence?

Sorry, No Tables this Week
The data for our weekly Price and Production Summaries were not available this week due to the US Thanksgiving holiday. The summaries will return next week.


As published in National Hog Farmer's Weekly North American Preview.

[mikey]

Tuesday, December 01, 2009Print This Page
CME: Hog Slaughter Higher Than a Year Ago
US - Steve Meyer and Len Steiner write, "Since we did not get a chance to discuss it on Friday, below are some of the highlights."



Slaughter and production numbers were lower due to the shortened holiday week. Cattle slaughter for the week was 530,000 head, some 7 per cent lower than a year ago. Dressed carcass weights are currently well below year ago levels and this has further reduced the supply of beef available in the marketplace, with total beef production down 8.6 per cent for the week. The reduction in slaughter numbers was mostly a result of fewer fed cattle coming to market but also a moderate reduction in cow slaughter. Steer and heifer slaughter for the week was estimated at 422,000 head, 8.3 per cent lower than a year ago. Cow and bull slaughter for the week were estimated at 108,000 head, 3.6 per cent lower than a year ago.

Hog slaughter, on the other hand, was slightly higher than a year ago. Rising cutout values and good holiday demand for pork items, especially hams, caused packers to raise bids in order to secure hogs this week. The IA/MN hog carcass price for the week was quoted at $55.99 /cwt, 9.5 per cent higher than a week ago and now 5.6 per cent higher than year ago levels. Pork cutout values continued to advance this week and were up 4.6 per cent from a week ago and they currently are 4.4 per cent higher than year ago levels. Ham prices should be firm through the first half of December and it remains to be seen how well the pork cutout is able to hold up following the normal seasonal decline in ham values.

USDA issued its latest weekly update on US corn and soybean harvest on Monday and the results were generally within the range of expectations. Corn harvest remains well below year ago levels but, as the chart below illustrates, US farmers have made up significant ground in recent weeks following an especially slow start to the season. As of November 29, 79 per cent of the US corn crop had been harvested compared to 94 per cent a year ago and 97 per cent average for the past five years.


Harvest is well behind schedule in the Dakotas, with North Dakota corn harvest at just 40 per cent, compared to 89 per cent five year average. Harvest in Illinois was at 72 per cent, compared to 98 per cent a year ago and 99 per cent average for 2004-08. Soybean harvest, on the other hand, is in much better shape. USDA reports that 96 per cent of the soybean crop had been harvested through November 29, compared to 98 per cent a year ago and 98 per cent five year average. In a normal year, this would be the final USDA crop progress report. However, with 21 per cent of the corn crop yet to be harvested, USDA has extended the reporting window and the final report now is scheduled for 7 December. The last time we could find when the progress report was extended to such a late date was in 1992. That year was one of the slowest harvests on record, with 75 per cent completed through the last weekend in November. Corn yield in 1992 was 108.6 bu./acre, down 8.4 per cent from the prior year. The latest USDA estimate pegs 2009 corn harvest to yield on average 162.9 bu./acre, a 5.8 per cent increase from year ago levels.

[mikey]

CME: Feed Prices and Supplies Cause Concern
US - Feed supplies and prices remain a significant concern for US livestock producers, write Steve Meyer and Len Steiner.



While prices for corn and soybean meal may be down from the sky high levels that we experienced in the summer of 2008, the reality is that the ratios of livestock prices to feed, often seen as a barometer for producer profitability, still remain well below the long term average levels. A number of factors may have contributed to skew the ratio relationships but that still does not overcome the fact that beef and pork producers remain in the red as meat prices have not kept up with the appreciation in feed prices.

With corn and soybean harvest nearing the finish line, producers and market analysts are turning their attention to the demand picture. It happens every year at this time as demand unknowns outweigh supply risk. On the demand side, the market still is grappling with the implications of a slower than expected export pace. Despite a weak US dollar, US corn shipments are running behind the USDA projections. This may be due to the slow pace of harvest as well as quality issues with this year’s crop. Foreign buyers may also be bidding their time, hoping for a break given the rally in corn prices during the past three months. The rally in corn prices likely was further exacerbated by the fact that currencies of some large buyers of US corn have yet to show major gains vs. the US dollar. While US corn exports to Japan are up 4 per cent for this calendar year, exports to Mexico are down 21 per cent and exports to S. Korea are down 31 per cent. Also, feed demand in some markets has suffered due to reductions in animal units. US corn exports to Canada in 2009 are down 39 per cent compared to the same period a year ago.

Another demand factor going forward is the use of corn in ethanol production. As the chart above shows, ethanol producer margins are on the mend. According to a model developed by Don Hofstrand of IA State, ethanol margins in November were +45 c/gal over all costs and +66 c/gal over variable costs. The last time the industry saw such margins was in May 2007. The improvement in profitability reflects the steady improvement in ethanol prices. According to the IA State calculations, ethanol prices in November were up 33 per cent compared to the average price in Q1 of 2009. By comparison, corn prices in the same time frame are up just 2 per cent. Natural gas prices are also low at this time, which has helped contain production costs. With the improvement in profits, the ethanol industry has been trying hard to expand its market. The main barrier to expansion has been the 10 per cent blending limit and an ethanol industry group petitioned the EPA to waive the current blending limit and allow for up to 15 per cent ethanol use in gasoline. EPA yesterday announced that the final decision in the matter will not come until May of 2010 as more tests are needed. This should punt the issue down the road and help contain corn prices in the short to medium term. The potential for higher blending limits should make for some interesting planting decisions this spring. Higher blending limits will likely require a significant increase in corn acres. Interestingly, the decision will not come until the new crop is planted likely making for an explosive corn market in the second half of 2010 and into 2011.

[mikey]

Weekly Review: Pork Demand Higher Than a Year Ago
US - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.

 
Ron Plain
Demand for pork continues to run above a year earlier based on USDA data. The January-October index is a plus 2.6 per cent from last year. We believe the USDA data is overestimating pork price. In times when we have large supplies of pork and have special low prices by retailers, USDA uses the low price but the amount sold with the low prices is the same as the regular prices. This is not what happens in the real world; the amount sold with the special low prices can be and is most often several times the tonnage sold with the regular prices. This procedure will overestimate the average price.

Live hog demand for January-October was down five per cent from last year. Most, if not all, of the reduced live demand is due to smaller exports.

Feeder pig prices this week at United Tel-o-Auction were mixed compared to two weeks earlier. Pigs weighing 50-pounds-plus were higher and 60 pounds were lower than two weeks ago. The prices were 50-60 pounds $72-91 per cwt and 60 pounds $60 per cwt.

Nationally last week pig prices were steady to $1.00 per head higher than a week earlier. The national price per head for 10-pound-pigs averaged $37.33. Pigs weighing 40 pounds averaged $41.62 per head. The formula price for 10-pound-pigs was $37.57 per head, and the spot or negotiated price was $37.17 per head. The formula price for 40-pound-pigs was $55.31 per head, and the spot market price was $40.49 per head.

Recent gilt and sow slaughter data indicates producers are not reducing the herd much, if any. However, the futures market for April through August in the $70s is sending a message that at least the summer months next year are likely to be profitable for the average-cost producer. We still believe the odds are high for 2010 to show lower averages for the year.

Barrow and gilt weights live in Iowa-Minnesota for the week ending November 28 at 269.5 pounds were down one pound from a week earlier but up 1.7 pounds from a year earlier. Carcass weights under Federal Inspection for barrows and gilts for the week ending November 21 at 200 pounds were the same as a year earlier.

Carcass cutout through Thursday at $63.42 per cwt was up $1.81 per cwt from a week earlier. Loins at $68.22 per cwt were up $0.80 per cwt, Boston butts at $63.42 per cwt were up $1.73 per cwt, hams at $67.33 per cwt were up $6.19 per cwt, and bellies at $68.10 per cwt were down $1.72 per cwt from seven days earlier. Live hog prices on Friday morning were $1.50-3.50 higher compared to a week earlier. Negotiated weighted average carcass prices Friday morning were $3.30-3.90 per cwt higher compared to seven days earlier.

The top live prices Friday morning were Peoria $36 per cwt, Zumbrota, Minnesota, $37 per cwt and interior Missouri $40.25 per cwt.

The weighted average negotiated carcass prices by area were: western Cornbelt $60.22 per cwt, eastern Cornbelt $56.67 per cwt, Iowa-Missouri $60.23 per cwt and nation $58.22 per cwt.

It now looks like the odds are high that the average monthly low price occurred in August this year. The first time of record for the low-average month to come in August with the exception of 1945 when we had a ceiling price due to World War II.

Slaughter this week under Federal Inspection was estimated at 2267 thousand head, down 4.3 per cent from 12 months earlier.