American Hog News USDA

[mikey]

Kansas Researchers Seek Best Option for Topping
Topping is the removal and marketing of the heaviest animals from a pen of finishing pigs. The practice improves growth performance of the remaining pigs, and topping two pigs once is the best option, according to a paper by Jacela and others presented at Kansas Swine Day 2009.


The economic impact of removing the heaviest pigs (topping) before marketing a finishing group and the effect of topping on performance of the remaining pigs were determined in two studies, explained J.Y. Jacela of the College of Veterinary Medicine at Kansas State University and co-authors from the same university.

In Experiment 1, a total of 1,126 pigs (bodyweight = 241 lb; 25 pigs per pen) were randomly assigned to one of three treatments: topping 0, two or four pigs per pen 15 days before marketing the remaining pigs in the group.

After topping, floor space per pig was 7.2, 7.8 and 8.6 square feed for pens with 0, two and four pigs topped per pen, respectively.

Overall (days 0 to 15), increasing the number of pigs topped per pen improved average daily gain (ADG; P<0.02), average daily feed intake (ADFI; linear; P<0.03) and feed conversion (F/G; quadratic; P<0.04). Revenues were similar (P>0.76) for all treatments but feed usage and cost was reduced (quadratic; P<0.01) as more pigs were topped per pen. However, there was no impact on income over feed cost (IOFC).

In Experiment 2, a total of 1,084 pigs (bodyweight = 234 lb; 27 pigs per pen) were assigned to one of five treatments. On day 0 (20 days before close-out), two pigs were topped from each pen excluding the control pens (0 top). Pens that were topped at day 0 had an additional 0, two, four or six pigs per pen topped on day 10. Floor space per pig was 6.7 square feed in control pens and 7.2 square feed for the remaining pens from days 0 to 10. After topping on day 10, floor space per pig was 7.8, 8.6, and 9.5 square feet for pens with two, four or six more pigs topped, respectively.

From days 10 to 20, the remaining pigs had increased (linear; P<0.01) ADFI, which led to a linear increase (P<0.01) in ADG. Overall, ADG and ADFI increased (linear; P<0.05) with increasing number of pigs topped, and F/G improved (P<0.01) in topped pens relative to intact pens.

Weight discounts were higher in intact pens (P<0.02) than topped pens. Revenue decreased (P<0.05) as additional pigs were topped after day 10 in pens topped at day 0.

Feed usage was highest (P<0.01) in intact pens. As more pigs were topped on day 10, IOFC tended to decrease (P=0.07).

Topping, regardless of number of pigs, did not affect (P>0.23) any of the carcass traits measured.

Jacela and co-authors concluded that topping improves growth performance of the remaining pigs. Based on IOFC, topping two pigs once is the best option. Improvements in performance from topping more than two pigs were not great enough to overcome the reduction in total weight produced by the pen.

References
Jacela J.Y., S.S. Dritz, M.D. Tokach, J.M. DeRouchey, R.D. Goodband and J.L. Nelssen. 2009. Economic impact of removing pigs before marketing on the remaining pigs' growth performance. Proceedings of the Kansas Swine Day 2009, 262-269.

[mikey]

Market Preview: An Economist’s Reflections
US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.



Last week’s World Pork Expo was quite understandably the most positive meeting of pork producers in recent memory. Profits can do that, especially after such a long dry spell. Producers were happy to be in the business, but most are still stinging from 2008 and 2009, and the huge drains on their equity.

Still, it was easy to see optimism. Although no attendance figures have been announced, it was very likely lower than in the past. That is no indictment of the Expo, but rather a reflection of the changes in the pig-producing world.

Producer numbers are lower. As the USDA’s Farms, Land in Farms and Livestock Operations report published in February noted, there were 71,450 hog operations (i.e., farms on which there was a pig on 1 December) in 2009. That is 2,300 fewer than in 2008 and 4,000 less than in 2007. Of the current count, 63,300 were owners of hogs and pigs. There were 3,610 entities owning over 2,000 head and they accounted for 80.7 per cent of the inventory. The 3,610 owners involved 8,200 operations – the difference being contract producers at some point in the production process.

World Pork Expo was once a combined trade show and pork consumer event. Free food and a number of entertainment activities attracted a lot of non-producers. Today’s Expo is a producer-focused trade show and educational event. That is good for producers and exhibitors – many who reported some apparent pent-up demand for equipment this year. One can hold a farm together just so long with bailing wire, zip ties and duct tape!


When Will Expansion Come?
The most frequent question I heard last week was, “How long until we start expanding?” My answer is, “Not immediately, but it will probably not take as long as in recent years.” Here is why.

First, the vast majority of producers are indeed in a financial pickle. Equity losses have been massive and a good proportion of producers have put personal capital and equity at stake to stay in the hog business. An overt decision to not put more of their personal money at stake in hogs was the final straw in the Faircloth family’s decision last summer that led to Coharie Farms’ bankruptcy. Some producers made the same decision while others pledged farmland, outside businesses and even homes as collateral to weather the financial storm. I presume that most would like to get these non-hog assets free and clear once more before expanding – and their bankers may require them to do so.

Second, we have only seen three profitable months in the United States and, while profits were quite healthy in March, the forecast for the rest of this year and next are okay – but not great. 14 June Chicago Mercantile Exchange (CME) Group futures prices for corn, soybean meal and lean hogs suggest profits of just under $20/head for the rest of 2010 and just under $19/head for the first half of 2011. With the exception of the “hurry-up-and-expand-to-beat (you fill in the blank)” years of the mid-1990s, it has taken higher profit rates than that to get any significant expansion. Further, a year’s worth of profits is usually required to get expansion going.

Third, profits may have returned to the United States, but Canadian producers are still facing losses driven, again, by a strong Canadian dollar. The year-on-year rate of decline for Canada’s breeding herd increased to 5.8 per cent in April after getting to -4.5 per cent in January. I think that rate will slow some when their July numbers are published in August, but would not be surprised to see a decline near 4 per cent. So, even if the US herd grows slightly, Canadian liquidation could still push U.S-Canadian supplies lower through 2011.

But the arguments that growth is coming soon are strong as well. Among them are:

There are empty breeding/gestation, farrowing, nursery and finishing buildings available. One does not have to build a hog farm to start (or expand) production this time. This factor almost has to speed up the response to profits.


There is a lot of money sitting in cash or near-cash assets earning a return of near zero. It doesn’t take much of a return to “beat the market” right now. Further, equity markets look anything but safe after the European Union-induced selloff of the past few weeks. Some people could conclude that the pork industry is a relatively safe place to risk some of those dollars.


High returns attract what I call “stupid money”. A more charitable, and probably more accurate, name would be “ignorant money.” I doubt very seriously that the prospect of $20/head profits will attract those funds when the total capital requirement is now $130/head or more vs. an average of $103.50/head for the decade prior to 2008. But $40/head might turn some heads. It seems a paradox, but producers may be much better off in the long run if these profits remain good but modest.
Suffice it to say that I see no evidence of expansion yet. US slaughter of US sows as a percentage of the US breeding herd has been almost precisely the same size this year as one year ago. Gilts have frequently accounted for over 49.5 per cent of total barrow and gilt slaughter. It is very difficult to expand a sow herd when sow and gilt slaughter are both holding steady!

Good times are not here to stay, but it appears they may linger for a much-needed while.

[mikey]

Smithfield Foods Cuts its Losses
US - US pig meat and food processing giant, Smithfield Foods made a net loss over the last year of $101.4 million.



However, in releasing its fourth quarter and end of year results, the company said that this was an improvement of $97.0 million over the pevious year year.

Smithfield said that comparative operating results in every segment improved significantly and consolidated results improved by $286.7 million, or 128 per cent from last year.

Sales for the fourth quarter of 2010 financial year were $2.9 billion, up two per cent compared to the fourth quarter of the 2009 financial year.

Sales for the full financial year were $11.2 billion compared to $12.5 billion last year. The effect of an extra week in the third quarter of 2009, combined with lower average unit selling prices, currency fluctuations and planned volume reductions resulting from the Pork Group restructuring plan, all contributed to the year on year decline.

The company reported a net loss in the fourth quarter of $4.6 million compared to a net loss of $81.2 million last year, an improvement of $76.6 million.

For the full fiscal year, the net loss totaled $101.4 million compared to a net loss of $198.4 million in the previous fiscal year, an improvement of $97.0 million. Last year's net loss included income from discontinued operations, net of tax, of $52.5 million.

The fourth quarterly results include a number of significant items affecting pre-tax figures, including a $73.0 million unfavourable mark-to-market adjustment on open derivative positions and charges for a new Hog Production segment cost savings initiative and the final stages of the Pork segment restructuring totaling $12.9 million.

The effective income tax rate for the quarter was higher than anticipated and had a favourable impact on earnings because it is applied to a pre-tax loss.

"The last two years were by far the most challenging in over 30 years. The contributing factors - global recessionary conditions, unfounded fears about A(H1N1) and the resultant closures of some key export markets, spiking grain prices and extended low hog prices tied to a significant oversupply of live hogs - are all well documented. These factors, combined with the extremely slow pace of herd liquidation in spite of mounting industry losses, all conspired to make for one of the longest and deepest downturns ever in live hog production," said C. Larry Pope, president and chief executive officer.

"Finally, the hog production cycle has turned. Live production losses, particularly on the cash side, have abated. Although our fourth quarter Hog Production segment results do not yet reflect the full benefits of the recently improved live hog production environment, the recovery in the cash and futures markets for hogs is encouraging and has allowed for significant year over year improvements in that business," he added.

"While this is good news, we are not satisfied with our Hog Production segment cost structure and we are initiating a new Hog Production cost savings initiative aimed at significantly improving our competitive position. Although the benefits will not be immediate, the long term impact should be very beneficial," Mr. Pope said.

"Beyond the losses in live production, we have had a number of bright spots. In fiscal 2010, we continued to deliver quality and consistent earnings in our Pork segment, with another record year in our packaged meats business. We completed all of the action items called for in the Pork Group restructuring plan on or ahead of schedule and achieved our targeted annual profit improvement of $55 million in fiscal 2010. The Pork segment has realised strong bottom line growth, as it has reaped the benefits of a substantially improved cost structure and improved product mix.

"We have also made significant improvements to our balance sheet, with a strong concentration on reducing leverage, maintaining ample liquidity, extending maturities and eliminating covenants.

"In addition, notwithstanding the closure of the Chinese and Russian markets for much of the year, fiscal 2010 was the second best year ever for Smithfield fresh pork exports. We are pleased that these markets have recently reopened," Mr Popoe said.

Fresh Pork
The fresh pork environment improved in the quarter and operating margins were $28.6 million higher than last year, despite a 23 per cent increase in live hog market prices and a 12 per cent decrease in volume.

The volume decline was a result of lower available hog supplies; slaughter levels were 11 per cen below the same quarter last year. In addition, current results include a $14.9 million unfavourable mark-to-market adjustment in the Pork segment's open derivative contracts.

Fourth quarter export volume declined, but was strong on a historical basis. Border restrictions in China and Russia, which began in April 2009, together with the recession in Japan, negatively impacted export volume this year.

In the first half of the year, fresh pork margins were squeezed as the industry coped with an oversupply of hogs and depressed prices. This was partially offset in the second half of the year as herd liquidations reduced live hog availability and had the impact of improving selling prices. Excluding the extra week in fiscal 2009, volumes declined 7% as 6% fewer head were processed compared to the prior year.

Both years reflect nearly even impacts of impairments and restructuring charges from the closing of the Sioux City plant this year and the Pork Group restructuring plan, which primarily impacted last year's results.

Export volume declined 17% for the year. Losses from the Chinese and Russian border closings early in fiscal 2010 were partially replaced by demand in other markets during the year. Though down, exports volume remained strong in historic terms.

Packaged Meats
Packaged meats operating profits declined from last year's record results due to considerably higher raw material costs. Operating margins remained historically strong at $.14 per pound, or 7.6 per cent of sales, and continued to benefit from the restructuring plan which enhanced pricing discipline, rationalized unprofitable business and lowered overhead.

Over teh whole year, packaged meats reported another record year. Operating profits improved by $165.8 million, or 52 per cent, to a record $484.9 million, or 9.4 per cent of sales. Margins improved $.07 per pound to $.17 per pound for the year.

Pricing discipline and planned rationalisation of low margin business resulted in increased profits, even as sales volumes declined seven per cent, excluding the additional week last year. Restructuring charges of $67.1 million are included in last year's results while $13.4 million are included in the current year.

International
International segment results were well above those of a year ago driven by strong profits in Poland where operating profit improved $10.7 million on a 26 per cent volume increase. Campofrío Food Group results improved despite recessionary conditions throughout Western Europe.

Over the year, the international segment operating profit was positively impacted by record results in Poland, with 21 per cent volume increases, and an improvement in equity income as Campofrío Food Group benefited from merger synergies and cost reduction programmes

.
Hog Production
Hog Production results dramatically improved in the fourth quarter as live hog market prices in the U.S. increased 23% to $52 per hundredweight compared to $43 per hundredweight last year. Domestic raising costs decreased to $53 per hundredweight from $62 per hundredweight in the prior year.

A sharp rise in hog futures at the end of fiscal 2010 created a $58.1 million unfavorable mark-to-market adjustment in the Hog Production segment's open derivative contracts. Most of the current fourth quarter loss was the result of this mark-to-market adjustment and $9.1 million in charges associated with a new Hog Production cost savings initiative. This initiative is a long-term program to improve the segment's overall cost structure. The benefits will take effect over several years.

International hog production operations continued to show improvement with a $10.2 million increase in operating profits over last year's fourth quarter. Hog operations in Romania and Poland also delivered strong performance.

Hog Production operating losses for the year declined due primarily to significantly lower feed costs. Domestic raising costs decreased to $54 per hundredweight from $61 per hundredweight in the prior year. Improvements in raising costs were partially offset by lower live hog market prices, which decreased to $44 per hundredweight compared to $48 per hundredweight last year.

International hog production operations dramatically improved in fiscal 2010 contributing an improvement of $108.3 million to the segment. Hogs sold in Poland and Romania combined increased by seven per cent and hog prices were at record highs.

Other
Butterball, LLC results were positively impacted by lower live bird pricing. Prior year results include losses from live cattle operations which were liquidated in the first quarter of fiscal 2010.

Operating results for the year in the Other segment improved due to the prior year inclusion of losses related to the company's live-cattle operations, as well as improvements in Butterball, which reflected significantly lower raw material costs.

"While the banner headline for fiscal 2011 is likely to be 'Hog Production has returned to profitability,' we are focused on continuing to maximie margins in our Pork segment, leveraging our restructured Pork Group, and investing in strategic brands for top line growth. Raw material costs will be higher and there will be pressure on margins; however, we expect to continue to deliver very solid earnings to our shareholders in this business," said Mr. Pope.

"We look forward to the return to profitability in the Hog Production segment. We do not see significant herd expansion on the horizon, which should stabilize hog supplies at healthier price levels. Corn prices have remained below $4 a bushel without much upward pressure; however, the EPA has indicated that they will announce their decision on increasing ethanol blending rate from 10% to 15% in July. An increase will pressure corn pricing," he continued.

"Given current favorable industry conditions and declining hog slaughter levels, as well as the considerable cost and operational improvements we have accomplished to date, we believe that Smithfield is poised to deliver a strong year in fiscal 2011," he concluded.

[mikey]

US Pork Outlook Report - June 2010
As usual, the three largest foreign destinations for US pork exorts in April were Japan, Mexico and Canada, according to the USDA's Economic Research Service (ERS) Livestock, Dairy and Poultry Outlook report for June 2010.


Summary
For 2010 in total, pork production is expected to be 22.1 billion pounds, or 3.8 per cent below 2009 levels, as production in the second and third quarters will be lower than year-earlier. Hog prices (51-52 per cent lean) continue to reflect lower supplies and recovering consumer demand. Second-quarter prices are expected to average $59 to $60 per hundredweight (cwt). Although hog prices have probably peaked, they are expected to continue much above last year’s levels and should exceed producer break-even levels for 2010 and into 2011. April pork imports rose almost 36 per cent, likely due to higher US pork prices and a stronger dollar.

Lower Slaughter Numbers Reduce Second-Quarter Pork Production Slightly
Hog slaughter has slowed more than anticipated since the beginning of the second quarter. Slightly higher average dressed weights are expected to mitigate some of the production effects of lower slaughter numbers, but even so, USDA reduced the second-quarter pork production estimate by 95 million pounds. Third-quarter production was also reduced by 20 million pounds, in anticipation of slightly lower slaughter numbers. Second-quarter commercial pork production is forecast at 5.22 billion pounds, 5 per cent below production a year ago. Third-quarter production of 5.4 billion pounds is anticipated, 5.3 per cent below the same period last year. For 2010 in total, pork production is expected to be 22.1 billion pounds, 3.8 per cent below production in 2009.

Through May of this year, prices of live equivalent 51-52-per cent lean hogs are averaging 28 per cent above prices of a year ago. Lower slaughter numbers and slowly recovering consumer demand for pork products—both domestic and foreign—are the likely factors that have driven prices higher this year. As indicated in the figure below, hog prices are well above those of last year. Although prices have likely achieved their seasonal high, they are expected to remain well above last year’s prices in the second half of 2010. Given USDA’s forecasts for corn and soybean meal, hog prices are expected to remain above most hog producers’ breakeven levels for the remainder of 2010 and into 2011. Hog prices are expected to average $59 to $60 per cwt for the second quarter, and $54 to 57 per cwt for 2010.

USDA will publish the Quarterly Hogs and Pigs report on 25 June 2010 providing an opportunity to understand and quantify hog producers’ response to recent positive returns.


April Pork Exports Increase Year-Over-Year
The pace of US pork exports was steady in April, with US companies shipping almost 353 million pounds of pork products to foreign destinations, 2.2 per cent ahead of April 2009. The three largest foreign destinations were, as usual, Japan, Mexico, and Canada. Japan accounted for more than 36 per cent of US pork exports in April, importing 6.4 per cent more US pork than a year ago. Exports to Mexico were 30 per cent higher than April 2009. Mexico’s share of US pork exports in April was 22 per cent, and when compared with its April 2009 share of 17 per cent, demonstrates Mexico’s increasing importance as a US export destination. Canada remained a solid export market in April: shipments were almost 18 per cent above a year ago. Canada accounted for almost 9 per cent of US shipments in April. With the exception of Japan and Taiwan, where US exports increased by 13.7 per cent, US exports to Asia were almost uniformly lower than in April 2009, including to South Korea (-28 per cent), China (-91 per cent), and Hong Kong (-0.6 per cent).

US pork imports were 4.6 per cent lower in April compared with those of a year ago. Lower purchases of Canadian and Danish pork accounted for most of the reduction. April swine imports were also year-over-year lower (-14.4 per cent), with lower segregated early-weaned animals and heavier animals for finishing accounting for most of the reduction.

[mikey]

Wednesday, June 23, 2010 US Swine Economics Report
US - On 25 June, USDA will release the results of their latest survey of the US swine inventory, writes Ron Plain in his Swine Economics Report.

 
Ron Plain
My estimates are that the breeding herd is 3.7 per cent smaller than a year ago; the market hog inventory is 3.3 per cent smaller; and the total herd is 3.4 per cent smaller than in June 2009. My estimates of the June 1 market hog inventory by weight groups are: 180 pounds and heavier 97.2 per cent, 120-179 pounds 96.0 per cent, 50-119 pounds 96.5 per cent, and under 50 pounds 96.9 per cent of a year earlier.

Slaughter of barrows and gilts was down 1.7 per cent during March-May as was slaughter of US raised barrows and gilts. After being below year-earlier for 8 consecutive quarters, imports of Canadian hogs for slaughter during March-May 2010 were even with year ago. Slaughter of US raised barrows and gilts was equal to that implied by the March inventory report. I am not expecting any major changes by USDA in their March market hog inventory estimate.

In their last inventory report, USDA predicted that March-May farrowings would be 4.0 per cent smaller than a year ago and June-August farrowings would be 2.4 per cent lower than a year earlier. I agree that spring farrowings were down 4.0 per cent. I am forecasting summer farrowings will be down 3.0 per cent and fall farrowings to be down 2.0 per cent compared to September-November 2009.

December-February sow slaughter was down 2.3 per cent and March-May was down 3.0 per cent compared to 12 months earlier. The decline was even smaller when adjusted for the number of Canadian sows coming south for slaughter.

I believe pigs per litter were up 1.2 per cent this spring. My estimate is the March-May pig crop was 97.2 per cent of a year earlier. Feeder pig imports during March-May were 18.6 per cent below last spring's level, so the light weight inventory should be down more than the pig crop.

My estimate of hogs in the 50-179 weight groups implies that third quarter hog slaughter will be roughly 3.7 per cent below year-ago levels, if the inflow of slaughter hogs from Canada continues at year-earlier levels. I expect hog slaughter during the fourth quarter of 2010 to be 3.0 per cent lower than the number slaughtered in October-December 2009. I expect live hog prices to average close to $58/cwt ($77/cwt carcass) in the third quarter of 2010 and $52/cwt ($68/cwt carcass) in the fourth quarter.

[mikey]

Wednesday, June 23, 2010Print Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.



LEAN HOGS on the CME closed up on Monday. The JULY’10LH contract closed up $1.125/cwt at $82.000/cwt and. AUG’10LH futures finished at $84.350/cwt; up $1.700/cwt. Higher cash pork prices, lower corn prices, the monetary policy change for the Chinese yuan, and a higher DOW Jones were supportive. Technical buying was triggered as futures extended gains. Floor sources believed that the better DOW performance had more to do with higher pork prices than other factors today. They said that better performing stock markets should support US and overseas demand for the more expensive pork products. Spreading into the August out of both July and October futures was noted. Spreading involves trading two or more months at the same time while trying to capitalize on the price differences between them. USDA put the average pork price at $83.74/cwt; up $0.96/cwt from Friday and $0.25/cwt lower than a week ago. The CME lean hog index was placed at 79.10; up 0.73 and 1.17 over last report.

According to HedgersEdge.com, the average pork plant margin was lowered $4.55/hd from last report to a positive $5.35/hd. This was based on the average buy of $58.17/cwt vs. the average breakeven price of $60.09cwt.

CORN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The JULY’10 contract closed at $3.550/bu; down 5.75¢/bu. DEC’10 corn futures closed off 5.75¢/bu at $3.746/bu. Over bought conditions, a stronger US dollar, and brisk farmer selling pressured prices. There was no fresh fundamental news. Cash corn prices held steady where elevators needed the commodity. That won’t last long at the pace corn is leaving farm grain bins. Corn prices tended bullish on the opening amid news that China would let its currency float. However, buying enthusiasm waned quickly on ample supply side economics. Technical trading pushed declines lower toward the end of the session. Speculative funds sold nearly 14,000 contracts. Fund activity is a measure of investment money flow into or out of the market. Exports were bearish with USDA putting corn-inspected-for-export at 24.488 mi bu vs. expectations for 35-38 mi bu. Hopefully the rest of the 2010 crop and up to 20 per cent of the 2011 crop were priced on advice from last report.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The JULY’10 soybean contract closed at $9.632/bu; up 2.25¢/bu. SEP’10 soybean futures finished up 6.25¢/bu at $9.440/bu. NOV’10 futures closed at $9.390/bu, up 8.5¢/bu. Excess rain on some areas is slowing planting and worries over hot dry weather in the Mississippi River Delta area added support on fears that the recently planted crop is suffering. USDA late Monday put the US soybean crop at 93 per cent planted and in 69 per cent good-to-excellent shape vs. a 73 per cent rating this time last week. The bearish influence of a stronger dollar was offset by news that China would have more buying power due to recent moves in its financial markets and decisions by their government to let the Chinese yuan float on market demand. Even though China confirmed a buy of 120,000 tonnes (4.41 mi bu) of old-crop US soybeans it had little effect on the market. According to several floor sources this deal had been expected for several weeks and was factored into prices already. USDA put soybeans-inspected-for-export at 7.151 mi bu vs. expectations for 7-9 mi bu. Cash soybeans were steady to firm amid slow farmer selling. Funds bought over 4,000 lots of soybeans. Fund activity is a measure of investment money flow into or out of the market. Selling takes money out of the market and buying puts money in. It would be a good idea to sell another 10 per cent of the 2010 soybean crop taking you to 80 per cent sold.

WHEAT futures in Chicago (CBOT) finished lower on Monday with the exception of the July contract. The JULY’10 wheat contract closed at $4.620/bu; up 0.25¢/bu. JULY’11 futures finished down 1.25¢/bu at $5.5684/bu. Futures traded both sides until near the close. Traders noted that harvest-weather forecasts in Canada were the biggest price influencers on Monday. It is very wet there. Wheat supplies in the US continue to come on line and influence supply amid very good harvest conditions. CBOT wheat was unable to find gains as wheat on the MGE and KCBT exchanges found some, even though they were small. Funds sold an estimated 2,000 contracts in Chicago. Exports had a bearish influence as Egypt and Saudi Arabia turned up their noses at sizable tenders for US wheat this past weekend. Saudi Arabia booked 990,000 tonnes (36.38 mi bu) of German and Canadian wheat while Egypt bought 120,000 tonnes (4.41 mi bu) of Russian and Kazakh wheat. USDA put wheat-inspected-for-export at 11.465 mi bu vs. expectations for 12-14 mi bu. Last week Canada was seen as having production problems. They scored big this week on a wheat sale to Saudi Arabia with an effective price of $228.00/tonne ($6.205/bu). Hopefully 70 per cent of the 2010 crop and up to 40 per cent of the 2011 crop were priced last week.

[mikey]

, June 29, 2010 Weekly Outlook: $60 Hogs - Rarer Than a Blue Moon
US - In May 2010, live hog prices averaged about $63 per live hundredweight, writes Chris Hurt, extension economist at Purdue University.

 Chris Hurt
Extension Economist
Purdue University
 

It is rare for a monthly average hog price to exceed $60. Since 1970, that has occurred only 13 times. There have been more blue moons since 1970, a total of 15 (defined as two full moons in the same calendar month at a rate of once every 2.7 years according to Wikipedia.org).

The outlook is for strong and profitable prices to continue for some time, although with prices generally below the rare $60 mark. USDA’s quarterly June survey of hog producers found the breeding herd remains down three per cent from year-ago levels, a decline of 180,000 sows. The North Carolina herd accounted for 110,000 of the smaller total and the Texas herd for 40,000. These two states primarily represent downward adjustments in the herds of large hog production corporations, or bankruptcies. These adjustments came last fall and winter.

The breeding herd was at a peak in September 2007, when losses began to set in due to high feed prices and collapsing hog prices. Losses continued through February of 2010, finally shifting to profitability in March of this year.

The extraordinary profits this spring have some asking if producers will quickly expand. Losses eroded much of the equity of many producers, so they and their lenders want a period of profits to stabilise their financial position. As mentioned already, the extremely high May hog prices were a short-term aberration. Retail pork prices will continue to move higher this summer and will slow pork consumption. Retail pork prices already reached record highs in May at $3.04 per retail pound and the climb will continue into the summer. The economic recovery is slow and unemployment will remain high, contributing to overall weak retail demand and more moderate live hog prices.

Pork supplies will be down about four per cent for the last-half of 2010, reflecting almost four per cent fewer pigs in the market herd. Given the expectation of lower feed costs, weights are expected to rise in the last-half of the year after being down fractionally in the first-half.

Farrowing intentions are down two per cent for this summer, but only one per cent for the fall. This means that pork supplies will rise slightly in the first-quarter of 2011 and by about two per cent in the second quarter. Some additional increases in production should be expected for the last-half of 2011 with perhaps three to four per cent more pork. This would increase 2011 annual production by two to three per cent over 2010.

Live hog prices are expected to be in the higher $50s for the rest of the summer and then begin a seasonal decrease in September. Third quarter prices are expected to average in the $56 to $59 range. For the final quarter of 2010, the average price is expected to fall in a range from $50 to $53 with winter prices slightly lower. For 2011, prices may average around $55 in the spring quarter and around $53 in the summer. Further build- up of pork production by the fall of 2011 might pressure prices back into a range from $45 to $50 for the final quarter of 2011.

Feed costs for the coming 12 months now appear to be the lowest since 2007. That will drop total costs per live hundredweight into an estimated range of $46 to $48 per live hundredweight over the coming 12 months. This compares with estimated costs of $54 in 2008 and $50 in 2009.

Profit levels in the second quarter of 2010 were estimated to be near $33 per head and are projected to be $29 per head in the third quarter and about $15 in the final quarter. If so, this means 2010 profit per head would be near $21 compared to $24 of loss in 2009 and $17 of loss in 2008. The profit outlook for 2011 is positive, especially through the summer of 2011. By the fall, prices could fall closer to costs of production. Yield uncertainty for the 2011 crops could also greatly impact feed prices. Early projections for 2011 are for $11 per head of profits, but all coming in the first three quarters.

Over the past two years the pork industry has been forced to adjust production downward to accommodate corn prices at $4.00 per bushel or higher. Now corn (and meal) prices are lower. Those who believe corn prices will generally move back to $4.00 or higher would not want to expand hog production. Alternatively those who believe corn will be under $3.50 might elect some moderate expansion in the range of three to five per cent. Only time will tell who is correct.

[mikey]

Commentary: 1 June 2010 Hogs and Pigs Report
US - Dr Mike Brumm, Extension Swine Specialist, University of Nebraska comments on the latest USDA Hogs and Pigs report.


Mike Brumm
Many other commentaries regarding the latest hogs and pigs report have noted the lack of surprise in this report relative to the expected numbers. While there are no signs of expansion in the breeding herd numbers, the continued improvements in breeding herd productivity are resulting in a smaller decline in the kept for market category than most observers are used to seeing.


Pigs per litter for the 1 March through 31 May period averaged 9.81, the highest on record. The number of pigs weaned per litter has been growing at 0.01 pigs/month since January 2002, with the productivity increase mostly above the trend line for the past 2 years. This productivity increase in the US breeding herd has partially offset the decline in Canadian feeder pig imports. There were 5 states that weaned over 10 pigs per litter for the 3 month period – Minnesota, 10.15; Missouri, 10.05; Nebraska, 10.15; South Dakota, 10.30 and Utah, 10.00. South Dakota producers have had the highest or second highest pigs per litter for the past 2 years.

Canada will release the results of their 1 July inventory in mid-August. When the 1 March USDA and 1 April Stats Canada numbers were combined, the estimated North American inventory of market pigs was 68.389 million head. This was down 7.833 million pigs from the inventory peak on December, 2007 and January, 2008. All expectations are that there will be further decline in this number as the results of the Canadian sow buy-out work their way thru their production systems. It is expected that the combined North American breeding herd inventory will be very close to 7 million head.

In the US, the biggest relative declines in breeding herd inventories this past year were in North Carolina and Texas. In North Carolina, a large part of the decline was due to the bankruptcy declaration of 2 production systems, while the Texas decline was almost all due to the closure by Smithfield of their Premium Standard production sites. Based on my conversations with producers, lenders and other allied industry, a majority of the decline in the breeding over the past 2 years elsewhere was due to a careful weeding out of under producing females in herds, rather than closures of production facilities. This weeding out of under producing females explains in part the dramatic increase in the reproductive performance of the US breeding herd.

In North Carolina, the breeding herd of 880,000 head is the lowest 1 June inventory since 1 June 1995, when there were 840,000 breeding animals in North Carolina. The 1 June kept for market number of 8.2 million pigs was the smallest 1 June number since 1996. North Carolina now has 13.8 per cent of the US hogs and pigs inventory, their smallest share since a 13.4 per cent share on 1 September 1995.

On the other hand, the Illinois breeding herd inventory of 490,000 head was the largest 1 June number since 1998. That state now has 8.3 per cent of the US breeding herd, their highest per centage of the breeding herd since 1 June 1998.

Minnesota continues to grow in their share of the kept for market category with 11.9 per cent of the US number in the latest report.

Producer’s optimism about the potential for profit in coming months is reflected in the prices they are currently paying for weaned pigs and 40 pound pigs. Historically, SEW pig prices drop $8.50 per head from late December to late summer. So far this year, the weighted average price reported by USDA has remained within $4 of the January high price. Further proof of producer optimism is the fact that last week, the spot cash market for SEW pigs was $7.30 per pig higher than the average contract price, which is mostly based on formulas linked to the 5 month futures contract.

Finally, the continued heavy live weights being delivered to slaughter plants by producers in the Iowa and Southern Minnesota region reflect the continued decline in feed costs. The USDA Minnesota Ethanol Plant report for this morning (29 June) reported cash corn bids in Minnesota ranging from $2.80 to $3.09 per bushel with DDGS prices ranging from $87 to $95 per ton.

[mikey]

AMI Defends Importance of Meat in Diet
US - The American Meat Institute (AMI) has defended the importance of meat and poultry in the diet in comments to the Departments of Agriculture (USDA) and Health and Human Services (HHS).



The comments were given in response to the recent release of the Dietary Guidelines Advisory Committee Technical Report.

AMI Director of Scientific Affairs, Betsy Booren, Ph.D., noted in her testimony that meat and poultry is allocated a relatively small part of the pyramid, yet the benefits from its share of the pyramid are significant.

Dr Booren pointed out that in addition to protein, meat and poultry also are important and rich sources of micronutrients such as iron, selenium, vitamins A, B12 and folic acid. These nutrients are not present in plant foods or, if they are, they have low bioavailability. Supplementation, while useful, does not completely address issues of bioavailability.

Also significant was the discussion during the May 2010 meeting of Dietary Guidelines Advisory Committee (Committee) that the meat, poultry, fish, eggs, nuts food group is currently consumed at or less than the current recommended amount. This conclusion may be a surprise to many who are under the mistaken impression that Americans over-eat meat and poultry products, Dr Booren said.

She explained: "As you develop the Dietary Guidelines, we urge you to word the recommendation in such a way that does not lead consumers to reduce their meat, poultry, and beans consumption. Language in the technical report recommending that consumers 'moderate' their meat and poultry consumption may be perceived as advice to 'reduce' their consumption, which could have unintended consequences by creating nutritional deficiencies, Dr Booren told USDA and HHS.

Concerns about unintended consequences are not a new concept to the Committee. At the April 2010 meeting, Committee member, Dr Eric Rimm, discussed his concern that a recommendation to eat a low fat diet in the 1970s led in part to over-consumption of simple carbohydrates and this change in diet may have contributed to Americans' current obesity epidemic. AMI encouraged the agencies to consider this with respect to meat and poultry guidelines and not create a similar mistake.

Dr Booren also addressed some sections of the report that reveal a strong bias against processed meats, largely due to concerns about sodium levels in some products.

She said the industry is actively involved in efforts to reduce sodium in its products with over 50 per cent of the processed meat and poultry market undergoing recent sodium reduction reformulation. Some companies are promoting their efforts through labelling 'reduced sodium'. Others are handling it more quietly, fearing that such labelling is the adverse marketing equivalent of a 'Mr Yuck' sticker on a package. The Dietary Guidelines for Americans was first released in 1980 and is the basis for federal nutrition policy and education. The Dietary Guidelines Committee's technical report will serve as the basis for a revision of these guidelines. HHS and USDA are expected to publish their revisions later this year.

AMI has been actively engaged in the development of the 2010 Dietary Guidelines for Americans, participating in all six Committee meetings and twice submitting detailed comments concerning sodium's role in meat and poultry products and the health benefits of consuming animal-based proteins as part of a balanced diet.

[mikey]

US Sow Slaughter Down
US - Sow slaughter has dropped off in recent weeks, write Glenn Grimes and Ron Plain in their weekly Hog Outlook report.

 
Ron Plain
During the seven weeks ending on 26 June, sow slaughter was down 12.4 per cent compared to a year earlier. Part of the decline was due to a nearly 22 per cent drop in imports of cull sows from Canada. Part was due to fewer US sows available for slaughter – spring farrowings were down 4.7 per cent. Adjusted for these two factors, sow slaughter was still down five per cent compared to a year earlier. Producers are once again making money, so reduced sow slaughter is not surprising. It is very important for the industry that the sow herd not grow too quickly pushing up hog slaughter and forcing prices back below break-even. There is a real need to rebuild equity.

Compared to their June forecast, USDA's July corn supply and demand estimates are for smaller stocks and lower, but still record, corn production. They are now forecasting a corn price close to $3.55/bu for the marketing year ending on August 31 and a price close to $3.75 for the year beginning 1 September.

USDA raised their forecast of this year's soybean harvest by 35 million bushels, but they also raised their forecast of crush and exports. The result is a soybean price forecast of about $8.85/bu, up a dime from last month's prediction. They are forecasting soybean meal at $240-280 per ton for the 2010-11 marketing year.

USDA's Thursday afternoon calculated pork cutout value was $82.94/cwt, up 62 cents from the previous Thursday.

The national weighted average carcass price for negotiated hogs Friday morning was $74.79/cwt, $1.77 lower than the previous Friday. Regional average prices on Friday morning were: eastern corn belt $74.85, western corn belt $74.63, and Iowa-Minnesota $75.29/cwt. The top live hog price Friday at Sioux Falls was $55/cwt. Peoria topped at $52 on Friday and Zumbrota, MN had a top price of $54. The interior Missouri live top Friday was $52.75/cwt, down $1.50 from the previous Friday.

This week's hog slaughter totalled 1.716 million head, down 13 per cent from the week before and down 12 per cent compared to slaughter during the same week last year, which did not include 4 July. Year-to-date, pork production is down 4.1 per cent.

The average carcass weight of barrows and gilts slaughtered the week ending 26 June was 199 pounds, down one pound from the week before and up two pounds compared to a year ago. Iowa-Minnesota live weights last week averaged 268.4 pounds, up 5.2 pounds compared to a year earlier. Weights should continue to decline due to high summer temperatures.

The July lean hog futures contract ended the week at $78.62/cwt, up 42 cents from the previous Friday. The August contract settled at $80.02 down 3 cents for the week. October closed the week $1.35 higher at $75.10/cwt and December ended the week at $72.65/cwt.

The July corn contracted ended the week at $3.75, up 11 cents from the previous Friday. July soybean meal futures gained $19.20 this week to settle at $314.10/ton.

[mikey]

Tips on Keeping Animals Comfortable, Safe
US - With rising outside temperatures and predictions of high humidity in the coming weeks, livestock and poultry producers in Minnesota and the upper Midwest need to ensure that their barn ventilation systems are keeping animals as comfortable as possible this summer.

 

Here are a few items to check on:

If the barn is fully mechanically ventilated (permanently closed curtain or solid walls), make sure the barn does not have large undesigned openings, such as open walk in doors or windows. The barn needs to have a sufficient static pressure so that when the exhaust fans are operating, there is sufficient air inlet velocity to reach animals in pens and stalls. A static pressure target level for a barn is 1/8 inch of water gauge when all exhaust fans are operating. This will produce inlet air speeds of 10-plus miles per hour, which will provide excellent barn air mixing and assist in cooling housed animals.

Stay ahead of the heat build-up in the barn. In mechanically ventilated systems, make sure the controller’s set points are low enough so summer exhaust fans and sprinklers are activated early in the day. For mature birds or animals, all the fans should be operating by the time room temperatures reach 75°F or even lower. Cooling systems should also be activated at mid-70s (indoor temperatures) for large mature animals and by 80°F for younger animals.

For naturally ventilated or “curtain barns,” sidewall curtains or vents must be opened early in the day. Controllers that open these sidewall curtains and/or ridge vents need to be set so they are in the maximum open position by the time it reaches 70 or 75°F in most mature livestock or poultry barns. Since outside winds are what drive the air exchange in naturally ventilated buildings, make sure there are no large obstructions such as trees, buildings or machinery that will block wind from reaching your barn’s sidewall openings.

Circulation fans in naturally and mechanically ventilated barns do not produce any barn air exchange. They simply move air over the housed animals, which will enhance animal cooling, especially if used in conjunction with sprinklers.

Besides keeping housed animals cool and comfortable, safety for animals and people is another reason to use proper ventilation in animal facilities during critical times such as manure pit pumping.

[mikey]

Friday, July 16, 2010
US Pork Exports Post Solid Gains in May
US - US pork and beef exports continued their strong 2010 performance in May, collectively growing 25 per cent in value versus 2009 and eight per cent over April of 2010, according to statistics released by USDA and compiled by the US Meat Export Federation (USMEF).

 

At $769.5 million, US red meat exports reached their highest monthly value since October 2008. For producers, the gain in export value per animal processed in May was impressive: $53.10 per animal on the pork side – nearly 30 per cent higher than the $40.90 recorded in May 2009.

May pork export value increased 22 per cent over a year ago and five per cent from April 2010, reaching $419.3 million. Export volume of 162,865 metric tons (359 million pounds) was up 13 per cent over last year and four per cent from the previous month.

The pork industry is seeing a higher return per pound on its exports in 2010. The value of those exports hit $1.9 billion for the first five months of 2010, a five per cent increase over last year. At the same time, the volume of exports this year is 787,869 metric tons (1.7 billion pounds), essentially even with last year's pace.

Pork muscle cut exports are up four per cent in volume and nine per cent in value over last year, while variety meat exports are down 13 per cent and 14 per cent, respectively.

"The recognition of the quality and value of US beef, pork and lamb is growing in the international markets," said USMEF President and CEO, Philip Seng. "The feedback we receive from both buyers and consumers tells us that even with the gains we are seeing, there are opportunities for continued export growth in key segments and niches of even the most well-developed markets, like Japan and South Korea."

USMEF Chairman, Jim Peterson, a rancher from Buffalo, Montana, added that gaining and maintaining access to key markets such as Russia and China are critically important to the bottom line of US producers.

He said: "The value of exports per head we saw in May – more than $53 per head in pork and $160 per head in beef – is a vivid illustration of how important it is for producers to put resources into our key export markets. The bulk of the growth in sales and profitability that our industry can expect in the future will come from the international marketplace, and USMEF is working hard to ensue that growth is achieved."

May pork exports solid worldwide, with boost from resumption of Russia, China trade
Though well below last year's pace, the recent resumption of exports to Russia and China have begun to have a positive impact on the global results for US pork. Exports to Russia are still around 50 per cent below the first five months of 2009 in both volume (24,386 metric tons or 53.8 million pounds) and value ($55 million). But May results showed significant progress as exports returned to 88 per cent of the volume and 97 per cent of the value achieved in May 2009. The picture is similar in China, where the cumulative 2010 total is still quite small but May exports were down only 15 per cent from one year ago and the value ($10.2 million) was actually 31 per cent higher. (It was in late May 2009 when China effectively closed to US pork due to A-H1N1 influenza.)

Mexico continues to be the largest volume destination for US pork, increasing seven per cent in volume (225,672 metric tons or 497.5 million pounds) and 27 per cent in value ($401.5 million) over the record pace established in 2009. May exports slowed slightly compared to the previous month, however, due in part to record-high ham prices.

Exports to Japan – by far the largest foreign market for US pork in terms of value – remain below last year's pace but are showing signs of recovery from the slump encountered in early 2010. May exports exceeded the year-ago level by 18 per cent in both volume and value, raising the cumulative total to 180,326 metric tons (397.5 million pounds) valued at $671.2 million. For the year, pork exports to Japan remain down six per cent in volume and three per cent in value from 2009. Muscle cut exports to Japan are within four per cent in volume and two per cent in value of their 2009 pace, but variety meat exports are down by about one-third.

Pork exports to Hong Kong continued their strong momentum in May, with the cumulative 2010 total reaching 95,686 metric tons (nearly 211 million pounds) valued at $135.2 million – an increase of 40 per cent in volume and 24 per cent in value. Hong Kong is a considerable bright spot for pork variety meat, with exports up 56 per cent in volume and 44 per cent in value. Muscle cut exports to Hong Kong also have increased in both volume (23 per cent) and value (11 per cent) over the first five months of 2009.

Other market highlights include:

Exports to Canada are up 15 per cent in volume (73,810 metric tons or 162.7 million pounds) and 25 per cent in value ($246.5 million) over January to May 2009. Through June, live hog imports from Canada were 16 per cent smaller than last year at 2.79 million head. This is roughly one quarter of Canadian hog slaughter, compared to about 30 per cent over the same period last year.
The Philippines has emerged as a tremendous growth market for US pork, with volume nearly doubling over last year (to 29,227 metric tons or 64.4 million pounds) and value increasing by 119 per cent to more than $55 million. Despite a slowdown in Viet Nam, exports to the ASEAN region have increased 57 per cent in volume and 73 percent in value compared to the start of 2009.
May exports to Central and South America were down slightly from April but the cumulative total increased 42 per cent in volume (25,264 metric tons or 55.7 million pounds) and 46 per cent in value (to $56.4 million) over last year. The top markets of Honduras, Guatemala and Colombia all achieved significant growth.
After a strong showing in April, pork exports to South Korea slowed again in May as the yearly total fell about 25 per cent below last year's pace. Monthly exports were about even in volume with May 2009, and actually exceeded their year-ago value by about 10 per cent. Exports in May 2009, however, were unusually low due to the A-H1N1 influenza scare. When compared to May 2008, exports to Korea were down by about one-third.

One factor behind this decline has been the rising price of US picnics, a mainstay export item to Korea. Picnics are primarily used in processing, so they tend to be price-sensitive. Korea's domestic pork production is up about eight per cent over last year, resulting in a drop in prices of more than 10 per cent. The United States is still the largest foreign supplier of pork to Korea, but Chile has emerged as a top competitor. Chilean pork faces lower tariffs in Korea due to recent implementation of a bilateral free trade agreement.

"Despite some challenges in Korea, we're seeing strong results for US pork in most of our key destinations," Mr Seng said. "Mexico has proven to be very resilient to rising pork prices, as have many of our Asian markets. Rising prices can sometimes create issues in these markets, but so far consumers are clearly willing to pay for the quality delivered by US pork. In the one market where price seems to be a hindrance, we're being undersold in part because of an imbalance in tariff rates."

[mikey]

Tuesday, July 20, 2010
CME: Retail Pork Prices Set Record Highs
US - USDA’s monthly update of Meat Price Spreads, released last week, indicates that the average retail prices of all of the four major meat/poultry species are at or near record highs, write Steve Meyer and Len Steiner.



These data are derived by USDA’s Economic Research Service from raw data gathered by the Bureau of Labor Statistics to support its monthly update of various price indexes, including the Consumer Price Index. Over time, the data have generally covered fewer and fewer meat cuts but USDA still believes they provide a good picture of the weighted average value of a retail pound of product with the weightings being the proportion of the respective carcasses comprised of given cuts.

One historical characteristic of these price series is that they tend to lag behind price changes at the farm and wholesale . That’s logical since higher costs tend to get “passed along” to downstream levels, some retailers and foodservice operations work on long-term price arrangements and retailers/foodservice establishments tend to try to hold the line on pricing as long as possible to avoid conflicts with their customers.

Retail pork prices have set record-highs in each of the last two months, the latest being $3.104 per pound in June. Retail prices for Choice beef and All-Fresh beef (which includes Choice, Select and store-grade product) rose to $4.491 and $4.09/lb., respectively, in June — both within 3.5 cents of their all-time highs — and are almost certainly headed for records as last year’s small calf crop comes to market in 2011. The average turkey price in June was $1.471/lb., less than 1 cent below its record high. Only the composite broiler price has lagged but it has increased by over 6 cents/lb. in the past two months and is now less than 10 cents/lb. from its record high.

These recent price increases are fundamentally different than those of 2008 which were driven by robust exports that removed product from the US market and by higher transportation and packaging costs driven by record-high oil prices. This year’s increases are being driven by lower supplies resulting from the run-up in feed costs over the past 4 years. It took a while, but producers have gotten chicken, turkey and hog supplies rationalized enough to return the sectors to profitability. Beef isn’t there yet but this year’s cow slaughter and the smaller calf crops to come will get the job done. Consumers pay all costs in the long run.

One contributor to lower US hog supplies has been a sharp reduction in the number of animals coming form Canada. The declines were caused by the appreciation of the Canadian dollar which reversed a competitive advantage for Canadian producers and by the US’s mandatory country-oforigin labeling law which went into effect in 2008. The most dramatic impact has been on slaughter hogs while the least has been on cull sows and boars. The number of feeder pigs coming south continues to fall but will likely stabilize in the area of 75k/wk. if the Canadian breeding herd stabilizes over the next 12-18 months. Most Canadian producers are finally back in the black but there is still considerable financial stress, especially in Ontario, Saskatchewan and Alberta.

[mikey]

AgFeed to Buy US Hog Production Firm for $16M
US - AgFeed Industries Inc. yesterday said it plans acquire Ames, Iowa-based hog production company M2P2 LLC for an estimated $16 million as AgFeed bolsters its Chinese operations. The deal is expected to be finalised later this summer.



AgFeed, a US company with primary operations and one of the largest commercial hog producers in China, said it expects M2P2, already a joint venture partner in AgFeed International Protein Technology Corp, to bring science-based management practices and technologies to China as the country tries to industrialize and commercialize its hog production industry. According to Meatingplace, M2P2 also will build new western-style farms and two slaughterhouses in the Nanning/Dahua and Nanchung/Xinyu areas.

“M2P2’s dedication to continuous performance improvements in the hog production industry has resulted in impressive performance metrics in sow productivity and feed conversions,” AgFeed Chairman Songyan Li said in a news release. “For both AgFeed and M2P2 this is a transformational opportunity to position our combined businesses to achieve superior growth and earnings on an international basis as we respond to global market opportunities.

AgFeed credits M2P2 as having excelled in innovation, productivity and efficiency in pork production. With sow operations in Colorado, Oklahoma and North Carolina, and finishing operations in Iowa, M2P2 will produce some 1.3 million pigs per year.

AgFeed expects to pay a total of $16 million, of which 80 per cent will be paid in cash and 20 percent in the company’s common stock. The deal is subject to approvals.

Upon completion of the transaction, John Stadler, chairman of M2P2 would join AgFeed’s board of directors.

[mikey]

US Pork Outlook Report - July 2010
Lower numbers of pigs on 1 June are expected to translate into lower pork supplies for the balance of 2010, according to the USDA's Economic Research Service (ERS) Livestock, Dairy and Poultry Outlook report for July 2010.

 

Summary
The Quarterly Hogs and Pigs report showed lower 1 June inventories, which are expected to translate into lower pork supplies for the balance of 2010. Third-quarter hog prices are expected to average $57-$59 per hundredweight (cwt), 49 per cent above the same period a year ago, and $54-$56 per cwt for 2010.

May pork exports were 18 per cent above May 2009, and for January-May about five per cent above the same period in 2009. Imports for January-May 2010 are running about two per cent behind the same period last year. While total live swine imports were lower in May and for January-May, imports of feeder pigs – animals weighing between 15-50 pounds – were more than 43 per cent higher than during the same period last year, likely reflecting tight hog numbers and higher hog prices in the United States.

Fewer Hogs and Pigs According to June Report
The Quarterly Hogs and Pigs report published by USDA on June 25 showed continued modest reductions in hog inventories. The 1 June inventory of market hogs was almost 3.7 per cent below that of a year ago, while the inventory of breeding animals dropped for the 9th consecutive quarter, to more than three per cent below year-ago levels. The reported inventory changes indicate that pork producers have continued to reduce hog and pig numbers in response to negative returns that began in the fourth quarter of 2007 and abated in the first quarter of 2010. Lower market hog numbers portend lower pork production and continued year-over-year higher hog prices for the balance of 2010. However, continued growth in litter rates may partially offset the effect of fewer farrowings. USDA forecasts 2010 commercial pork production at 22.25 billion pounds, a 3.2 per cent reduction compared with 2009. Hog prices are expected to average $47-$54 per cwt in the third quarter and $49-$53 per cwt in the fourth quarter of this year. These prices represent year-over-year increases of roughly 49 per cent and 24 per cent, respectively.

USDA/NASS recently issued two reports, Acreage and Grain Stocks. The Acreage report indicated that fewer corn acres had been planted than implied by the last Prospective Plantings report. The Grain Stocks report estimated that for the March- May quarter, ending stocks of corn were lower, suggesting larger feed and residual use relative to a year ago. With increased feed and residual use, beginning stocks for 2010/11 were lowered. With lower beginning stocks and reduced production, USDA increased corn price forecasts for 2010/11, as well as the 2010/11 price of 48-per cent soybean meal. For hog producers, higher corn prices mean higher production costs and—everything else equal—lower producer returns. Nevertheless, calculating 2011 producer returns using USDA forecast prices for hogs, corn, and 48-per cent soybean meal suggests continued positive returns for hogs through 2011.

Positive producer returns both this year and next should stabilise the breeding herd beginning next year, and and support a slight increase in 2011 farrowings. Consequently, commercial pork production in 2011 is expected to be 22.7 billion pounds, almost two per cent above the 2010 production forecast. The price of 51-52 per cent lean hogs next year is expected to average $53-$57, or, roughly the same as the 2010 average price.

May Pork Exports Sprint Higher
May pork exports were about 363 million pounds, more than 18 per cent above May 2009. For the first 5 months of 2010, total US pork exports stand at nearly 1.8 billion pounds, or almost five per cent ahead of the same period last year. As in the past, Japan, Mexico and Canada continue to account for more than half of US exports – 65 per cent in May – but so far this year Mexico, in particular, is driving demand for US pork products. In the first five months of 2010, Mexico accounted for 24 per cent of the volume of US exports, compared with 19 per cent last year. Japan, on the other hand has accounted for 31 per cent of exports so far in 2010, compared with 34 per cent a year ago. In May, US pork exports to Mexico were 45 per cent higher than in May 2009, and for the first five months of 2010, exporters shipped 29 per cent more US pork to Mexico than during the same period last year.

May exports to Japan were 13 per cent higher than May 2009, but for January-May were more than three per cent below the same five-month period in 2009.

Factors accounting for Mexico’s step-up in demand for US pork likely include the positive income effects of a return to positive rates of economic growth, compared with last year’s sharp decline, and a stronger Mexican currency against the US dollar. Also, it is likely that there is some degree of substitution going on between relatively high priced US beef and more moderately priced pork products. In the first five months of 2010, Mexico has imported eight per cent less beef than in 2009. It is also worth noting that Mexican imports of US broiler meat have increased 18 per cent so far this year, compared with the January-May period of 2009. Thus, some combination of income recovery and relatively high prices of US beef products is likely driving Mexican demand for US pork and broiler meat this year.

The United States is expected to export more than one billion pounds of pork products in the second quarter and more than 4.3 billion pounds for 2010. Pork exports in 2011 are expected to be about 4.6 billion pounds, more than five per cent above exports forecast for this year.

Imports Lower So Far in 2010
Historically, US second-quarter pork imports average between 4.1 per cent and 4.6 per cent of total US estimated pork disappearance. In the second quarter of 2010, US pork imports are on track to average about 4.4 per cent of estimated disappearance. Imports in May of 65 million pounds were 4.4 per cent ahead of May 2009, but total US pork imports for January-May are running two per cent behind last year. Most of the reduction so far this year is attributable to reduced shipments from Canada. The United States is expected to import 200 million pounds of pork in the second quarter, two per cent above April-June last year. For 2010, US importers will likely bring in 844 million pounds of pork products from abroad, or about one per cent more than 2009.

Imports of Feeder Pigs Strong
US swine finishers and packers imported almost 460,000 head of swine in May, all of which, as usual, were of Canadian origin. May imports were more than 11 per cent below those of May 2009. For the year so far, import numbers are off by almost 16 per cent. Lower imports are no particular surprise, given that the Canadian swine industry has been in a liquidation phase of its hog cycle since mid- 2005. While the largest component of swine imports – animals weighing less than 7kg, known as 'segregated early weans' or sews, were again sharply lower in May (down 23 per cent compared with May 2009) and through May 2010 (down 27 per cent compared with the same period in 2009), one category of imported swine has shown significant gains in each month of 2010. Imports of feeder pigs – animals weighing more than 7kg but less than 23kg – were 34 per cent higher in May, and 43 per cent higher compared with January-May last year.

Lower production costs of heavier weight feeder pigs compared with segregated early-weaned pigs may explain why feeder pigs are attractive to both the Canadian producer (the exporter) and the US hog finisher (the importer). A Canadian pig producer, who sells the animal as feeder pig rather than a segregated early-weaned animal foregoes the relatively high feed costs associated with very young animals (later weaning reduces the need for high-cost replacement diets), and reduces fixed costs by retaining the animal in his/her buildings for the longer growing period.

A US swine finisher who imports a feeder pig rather than a segregated early-weaned animal also foregoes the necessity of specialised labour, facilities and feed. Moreover, with excess finishing capacity currently available in Corn Belt States, barriers to entry to the ‘hog finishing business’ are comparatively low. Prices of feeder pigs shown below reflect, then, lower pig supplies in Canada and the United States, as well as strong finisher demand in the United States.


June Retail Pork Prices Soar
Retail pork prices in June were at a record high of $3.10 per pound, up from $3.04 per pound in May. The June 2010 price represents a 5.1 per cent increase compared with prices in June 2009. For the second quarter of 2010, retail pork prices averaged $3.02 per pound, almost 2.8 per cent higher than second-quarter 2009. The farm-to-retail spread in June, about $2.09 per pound, is much wider than the spread seen earlier in the quarter, suggesting that consumers are beginning to ‘pay the price’ for lower hog numbers and smaller pork supplies.