American Hog News USDA

[mikey]

Smithfield Shows Record Results
US- Smithfield Foods has reported record results for the second quarter of teh 2011 financial year. 2011 second quarter results.


In the quarter, net income rose to $143.7 million, an improvement of $170.1 million compared to the second quarter of the 2010 financial year.

Consolidated operating profit improved by $276.3 million compared to a year ago.

In the pork sector sales for the second quarter of 2011 were $3.0 billion, up 11 per cent compared to the second quarter of fiscal 2010.

The year on year increase is primarily attributable to higher average unit selling prices in the Pork segment and higher live hog market prices.

The company reported net income in the current quarter of $143.7 million compared to a net loss of $26.4 million last year, an improvement of $170.1 million.

The current quarterly results include noteworthy items affecting pre-tax figures, including a $21.1 million favorable mark-to-market adjustment on open derivative positions, a net $19.1 million favourable adjustment for an insurance settlement related to the company's Missouri litigation, charges on the Hog Production cost savings initiative of $15.3 million and a loss of $7.3 million on the early extinguishment of debt.

"We are pleased to deliver another record quarter to our shareholders. Record earnings were driven by disciplined management in packaged meats and fresh pork accompanied by improved fundamentals in hog production," said C. Larry Pope, president and chief executive officer.

"Supply and demand remained well in balance in the quarter. Reduced protein supplies, coupled with strong protein demand, supported record high pork prices in all trade channels. Export demand for pork continued to be enhanced by a weak U.S. dollar, as the U.S. remained one of the lowest cost global protein producers," he continued.

"Again this quarter, we delivered solid packaged meats earnings that were within the normalized range, despite record high raw material costs. These stable earnings are the result of the Pork Group restructuring plan, which has allowed the company to continue to closely align higher production efficiencies, lower costs and a more coordinated sales and marketing focus," Mr. Pope said.

"On the sales and marketing front, we achieved successful growth of our Smithfield marinated fresh pork and Kretschmar Deli lines, which both posted double digit gains in the quarter.

"The dramatic turnaround in the Hog Production segment continued in the second quarter, as lower hog supplies increased live hog market prices, while raising costs remained in line with last year and the prior quarter. In addition, the Hog Production Group cost saving initiative is well underway and should significantly improve our long-term cost structure," Mr. Pope added.

Fresh pork margins were outstanding and reflected record high pork cutout values, as pork supplies remained tight, and more than offset significant year over year increases in live hog prices. Operating margins were 10 per cent, or $16 per head, despite a 54 per cent increase in live hog market prices and a 12% decrease in volume, as the company processed 13 per cent fewer head than in the prior year. The majority of the volume decline was the result of the closure of the Sioux City, Iowa plant in April 2010.

Packaged meats margins were within the normalized range, as the company's new consolidated sales and marketing platform effectively passed on higher raw material costs. Total packaged meats sales grew 12 per cent percent during the quarter to $1.4 billion and operating margins remained historically strong at five per cent, or $.12 per pound, despite the higher raw material costs and a six per cent decrease in volume.

Hog Production operating margins dramatically improved in the second quarter to $18 per head. Fewer hogs marketed increased live hog market prices 54% to $56 per hundredweight compared to $36 per hundredweight last year. Pre-interest raising costs were about equal to the prior year at $53 per hundredweight.

International segment operating profit matched strong earnings in the prior year. The company's Polish operations continued to deliver solid results, second only to last year's record earnings. Results in Romania were profitable, but below last year. Equity income increased over last year as performance in Mexican hog production improved and earnings from Campofrio trended higher.

Earlier this week, the company completed the sale of its 49 per cent interest in Butterball, LLC and related turkey production assets. The company does not anticipate a gain or loss on the transaction. Net proceeds of approximately $167 million are expected to be used to reduce debt.

Other segment results were reflective of losses in the company's turkey grow out operations, which have been sold. The company's investment in Butterball, together with its wholly-owned turkey production assets, comprised substantially all of the operations of the Other segment. Accordingly, the segment is not expected to generate further income or loss for the balance of the fiscal year.

During the quarter, the company retired $204 million of its $600 million, seven per cent coupon bonds due August 2011. In connection with these retirements, a charge of $7.3 million for early extinguishment of debt has been reflected in the second quarter consolidated statements of income.

In November and early December, the company retired an additional $318 million of these bonds, for an aggregate face value retired of $522 million. The company anticipates recording a charge of approximately $14 million in the third quarter for costs associated with the early extinguishments of debt. All of the debt repurchases were funded with available cash-on-hand and were made prior to receipt of the Butterball sale proceeds. Liquidity levels, after the debt repurchases and the receipt of the Butterball proceeds, continue to be in excess of $1.2 billion, including cash balances in excess of $300 million.

"Looking forward, continued strong fundamentals driven by reduced protein supplies, good export demand and management discipline will continue to propel very solid Pork segment earnings. In the Hog Production segment, raising costs will remain in the mid-$50's per hundredweight in fiscal 2011. Furthermore, we expect that there will be very little, if any, expansion in U.S. hog production in 2011," Mr. Pope said.

"The outlook for corn supplies and prices is getting brighter. We are encouraged that support for ethanol produced from corn appears to have diminished in recent months. The ethanol blenders tax credit, which is set to expire this year, has come under increased scrutiny in the media and in Congress, and may be reduced or even eliminated. While there is no way to predict the outcome, it's clear that the debate has shifted and more rational voices are being heard. It seems the question is no longer whether these subsidies should be continued, but rather how soon they should be eliminated," he said.

"Smithfield is performing at record levels and we are focused on continuing to deliver strong earnings in the second half of fiscal 2011. All indications are that fiscal 2011 will be a record year for the company," Mr. Pope concluded.

[mikey]

Meat Production Forecast for 2010 and 2011 Revised
US - Ever since the new crop corn hit the feed bins, hog slaughter weights have been higher, writes Ron Plain.
 
Ron Plain
The average carcass weight of barrows and gilts slaughtered the week ending 27 November was a record 206 pounds, one pound heavier than the previous week and 5 pounds heavier than a year ago. Iowa-Minnesota live weights for barrows and gilts last week averaged 275.6 pounds, up 0.6 pounds from the week before and up 5.7 pounds compared to a year earlier.

USDA has revised upward their forecast of meat production in both 2010 and 2011. They are now estimating 2010 red meat and poultry production at 91.6 billion pounds. That is up 0.8 per cent from 2009 and up 0.6 per cent from their November estimate. Pork production is expected to be down 2.9 per cent this year and turkey production down 0.9 per cent. But, 2010 beef production is expected to be up 0.9 per cent and broiler production up 3.4 per cent compared to last year.

For 2011, USDA is forecasting beef production to decline by 2.5 per cent and turkey production to drop 0.9 per cent again. Pork production is forecast to increase by 1.1 per cent with broiler production up 1.3 per cent. Total red meat and poultry production in 2011 is forecast to equal this year's level.

USDA is forecasting the average live weight price of barrows and gilts to be close to $54.90/cwt this year and around $55/cwt in 2011.

Hog prices ended the week even with the week before. The national weighted average carcass price for negotiated hogs Friday morning was $65.23/cwt, up 4 cents from the previous Friday. The average carcass price this morning in the eastern corn belt was $65.12/cwt. Both the western corn belt and Iowa-Minnesota averaged $66.63/cwt this morning. The top live hog price Friday at Sioux Falls was $49/cwt. The top at Zumbrota was $46 and Peoria's top was $47.50/cwt. The interior Missouri live top Friday was $46/cwt, down $1.50 from last Friday.

USDA's Thursday afternoon calculated pork cutout value was $78.53/cwt, up 64 cents from the previous Thursday. Hams were lower this week while loins and butts were higher, belly prices were unchanged.

Hog slaughter totaled 2.257 million head this week, down 3.1 per cent from the week before but up 1.1 per cent compared to the same week last year. This is the eighth consecutive week with slaughter above the year-ago level. Pork production is down 3.1 per cent for the year, but it has been above year-ago for each of the last eight weeks.

The December lean hog futures contract ended the week at $69.45/cwt, up 18 cents from the previous Friday. The February contract ended the week at $75.15/cwt and April settled at $79.00.

December corn futures ended the week at $5.60'2/bushel, up 1 cent from the previous Friday.

[mikey]

CME: Beef Exports Up, Pork Exports Down in October
US - October export data indicate continued growth for beef and beef product shipments and continued year-on-year monthly declines for pork shipments but higher export values across the board, write Steve Meyer and Len Steiner.


"We believe that latter factor is far more important when it comes to demand contribution by exports and is one of the primary reasons we have seen such strong wholesale level demand for both beef and pork this fall," write the authors.

The charts show historical data for monthly values of beef, pork and various by-product exports from January 2001 through October.






A few important features of these charts are:

The Great Recession was tough on beef exports. High-flying 2008 beef exports came to a screeching halt along with the world economy and did not begin to recover until early this year. And that was not only true of beef muscle cuts. The value of beef hide exports fell sharply in late 2008 as the demand for cars and furniture slowed and decreased the demand for leather. The recession's impact can be seen for variety meats as well but it is not as dramatic there since these tend to be low-priced items.


While the quantity of beef exports has yet to get back to pre- BSE levels, the value of beef exports is now solid near those peaks. Export values have exceeded the peak value of June 2003 in four months thus far in 2010 . The August 2008 record of $343 million still stands but we believe it is very likely to fall, either yet this year or as beef prices grow in 2011.


Non-meat items are not nearly as important to the pork sector. The total value of variety meats, sausage casings and pig skins barely comes to one-sixth the value of monthly pork exports.


The Great Recession is not as evident in pork export values. In fact, pork export values appear to have been driven more by the 'pre-recession bubble' than to have been harmed by the recession itself. That 2008 bubble, of course, was driven primarily by purchases by China-Hong Kong. Remove it and monthly pork export values fall on a more or less steady upward trend.


Obviously, pig skins are not nearly as important as cattle hides, barely registering at the bottom of the scale. We included sausage casings in the chart just to demonstrated the differences that exist between the species.
As for October export performance, beef exports were 19 per cent higher than last year on a product weight basis and the value of those shipments was 37 per cent higher. Year-to-date, beef shipments and value are up 17 per cent and 28 per cent, respectively. October cattle hide exports were up 16 per cent in volume and 54 per cent in value from last year. Year-to-date figures for hides are +4.7 per cent in volume and +70.2 per cent in value.

October pork exports were 9.9 per cent lower than last year but the value of those shipments was 9.3 per cent higher. Pork exports are still 1.6 per cent larger than in 2009, year-to-date through October. Year-to-date export value is up 12.8 per cent. October pork variety meat exports were 33 per cent and 24 per cent larger in volume and value, respectively, than one year ago. Year-to-date, those figures are +2.7 per cent and +0.6 per cent.

[Mustang Sally Farm]

Market Preview: Chicken, Lean Hog Futures
US - In this week of National Hog Farmer's Market Preview, Steve Meyer discusses the importance of keeping an eye on chicken and lean hog futures.


Aside from the always-present, yet unlikely, possibility of a catastrophic occurrence, such as foot-and-mouth disease or some unforeseen food safety issue with pork, my biggest concern for livestock and poultry markets in 2011 has for some time been whether the chicken companies would produce us all right out of a good year.

These outfits had understandably moved back into expansion mode in early 2010, as feed costs fell and the restaurant trade, though still far from good, picked up a bit. Their difficulties with exports to Russia took some luster off of 2010, but it was good enough to start the broiler breeder flock growing again and push chicken output up by 2.5 per cent for the 52 weeks that ended 1 January.

But the road to recovery and expansion became rocky for the broiler companies just like it did for pork producers when grain prices began to climb last summer. Figure 1, which comes courtesy of Karl Skold of Westside Economics in Omaha, shows the steady decline of broiler margins from mid-June onward. They became negative in mid-November.


My concern, of course, was that broiler companies may either see these negative returns as temporary or may see them as just the price to pay for market share. The former is obviously not the case, at least for this grain marketing year. The latter sounds shaky as well, but it is the mindset that dominated broiler companies for many years when broiler demand and consumption were growing steadily. A “damn the torpedoes” approach this year could be bloody indeed for the broiler sector, but would also drive broiler prices lower and very likely put a lid on the level of prices that might be achieved this year by pork and beef products.

Add in the fact that two of the giants of the broiler sector, Tyson Foods and Pilgrim’s Pride, have the necessary financial resources to force the issue on market share and you have the makings for a potential disaster. Tyson’s resources were generated internally by one of its best years ever. Pilgrim’s resources come from its now-parent company, JBS USA and its ties to JBS in Brazil and the cozy relationship it has with Brazil’s national bank.

It appears, though, that more conservative – and I would say logical – thinking is prevailing. Figures 2 and 3 show that egg sets and chick placements slowed sharply late in 2010. Egg sets ended the year 2.5 per cent larger than in 2009, but since 1 November, they were only 1.1 per cent higher than last year and 2 per cent lower than the five-year average, which indicates a normal seasonal surge in sets.

 


Changes in placements, of course, lag those of egg sets by three weeks, so we have not seen as dramatic a change in level there yet. But it is clear that placements have moved closer to year-ago levels after running as much as 9.7 per cent higher than last year during October and November.

I think the only difference between the pork sector and the chicken sector is that pork producers did not get nearly as far down the positive-output-response road. Higher grain prices derailed our expansion before it even got started. Now, the prospect of breakeven cost levels above $80/cwt., carcass, this year will keep that expansion slow. Yes, some producers will replace sows and some empty units are being refilled. But those higher costs may put enough pressure on less efficient producers to offset much, if not most, of that expansion for at least the next quarter or two.

Bottom Line
The slowing of broiler expansion will be positive for markets in 2011. Live cattle futures are already record high, as they should be in my opinion, given the expected reduction in cattle numbers and beef production. Lean Hog (LH) futures are in rarified air with May through August above $90 and the charts showing no signs of topping yet!

Could we see $100 summer hogs? It cannot be ruled out and, given June futures were at $94.50 on Monday morning, it is getting more and more likely. I do not ascribe to these markets having much of a sense of detail, so when we get this close, I usually think we could add another $5 by accident and that would put us above $100.

That has happened once before when June 2009 LH futures briefly traded at $100 in June 2008. That was not a very useful occurrence given the low volumes and open interest in those distant contracts. But this one is a different story and perhaps should be used aggressively if the charts begin signaling a top.

If you feel a little reluctant to do so, just ask yourself: “How many hogs have you locked in at $90-plus in the past?”

 

[Mustang Sally Farm]

Tight Supplies Characterise 2011 Livestock Outlook
US - The livestock outlook for 2011 is characterised by tight supplies of beef, pork and poultry which bodes well for producers, but the optimism is tempered by higher feed costs, according to Ron Plain, Extension economist with the University of Missouri.


Professor Plain sees further tightening of the meat supply this year. He said the key to success for livestock producers is to increase demand, which is best achieved through an improving economy. Plain presented the livestock outlook during the 92nd annual meeting of the American Farm Bureau Federation.

“The big uncertainty is meat demand,” Professor Plain said. “Meat is something a lot of people in the world fully enjoy eating and they will eat more of it if they have money in their pockets.”

If the US and the world can move beyond the recession, the improving economy means people will have more money in their pockets, which will bid up the price of meat, according to Plain.

As for the export outlook, Professor Plain said the dollar is becoming steadily weaker and that is good news for US meat exports.

[Mustang Sally Farm]

Pork Exports Achieved 2010 High in November
US - November exports of US pork and beef reached their highest monthly volumes in more than two years, according to results compiled by the US Meat Export Federation (USMEF).
 

Pork exports totalled 177,203 metric tons valued at $443.4 million – increases of five per cent in volume and 15 per cent in value over November 2009. For the period January to November, exports were up two per cent in volume (1.73 million metric tons) and 10 per cent in value ($4.34 billion). The cumulative value total is just four per cent below the all-time record pace set in the first 11 months of 2008. For the year, exports accounted for 23.6 per cent of production with a per-head value equivalent of $43.61 ($44.80 in November alone). For the same period in 2009, exports equated to 22.5 per cent of production with a per-head value of $38.42. In the record export year of 2008, the per-head value was $42.30.

Beef export value in November was $389.5 million, an increase of nearly 50 per cent over November 2009. By volume (101,323 metric tons), beef exports exceeded the year-ago level by 32 per cent. For the first 11 months of 2010, exports were 18 per cent above 2009 in terms of volume (964,369 metric tons) and 30 per cent higher by value ($3.67 billion). The value total is about one per cent ahead of the 2003 pace when beef exports went on to set a single-year record of $3.86 billion. Exports accounted for 11.6 per cent of production with a per-head value equivalent of $150.36 ($178. 20 in November) – up dramatically from the 2009 totals of 9.8 per cent and $117.80.

"November was clearly one of the best months on record for US meat exports," said USMEF President and CEO Philip Seng. "With economies improving throughout the world, US pork and beef are well-positioned for strong growth. We worked through some very difficult economic circumstances in 2009 but we're now seeing those persistent marketing efforts pay big dividends as exports are adding more and more value to every animal produced."

Mexico, Canada, ASEAN post big gains for pork, while Japan still shines in terms of value

January-November exports to Japan, the leading value destination for US pork, broke the $1.5 billion mark for the third consecutive year, exceeding the previous year's pace by six per cent. In terms of volume (397,528 metric tons), exports to Japan are up two per cent. Mexico is the leading volume destination at 491,314 metric tons – up nine per cent and just short of the single-year record. Export value to Mexico has already set a new record of $890.6 million.

Pork exports to Canada for the year are up seven per cent in volume (164,767 metric tons) and 18 per cent in value ($562.6 million). Despite a down year for Viet Nam, exports to the ASEAN region – led by strong results in the Philippines and Singapore – are up 19 per cent in volume (62,006 metric tons) and 32 per cent in value ($125.1 million).

Other market highlights include:

For the China/Hong Kong region, January-November exports were 11 per cent higher in volume (254,554 metric tons) and seven per cent higher in value ($405.8 million). Exports to China were up significantly over 2009 but US pork was absent for much of that year due to A-H1N1 influenza restrictions. Exports to Hong Kong were lower, offsetting some of the gains in China.


Exports to Russia were down for the year but US pork got off to a slow start in 2010 due to very limited market access. November export volume (11,214 metric tons) was still lower than in 2009 but value ($31.76 million) was actually higher. With nearly 59,000 metric tons of muscle cut exports, the US has filled its 2010 quota (57,500 metric tons).


Exports to Australia set a new single-year record in both volume (48,673 metric tons, up eight per cent) and value $136.9 million (up 27 per cent).


Latin American markets continue to perform very well, with exports to Central and South America up 32 per cent in volume (54,123 metric tons) and 41 per cent in value ($128.5 million). Free trade agreements have helped boost exports to the leading markets of Honduras and Guatemala and strong growth to Colombia could also be accelerated through approval of a pending FTA. Exports to the Caribbean were up seven per cent in volume (39,780 metric tons) and 20 per cent in value ($85.2 million).

[Mustang Sally Farm]

CME: US Pork and Beef Exports Rising
High grain prices are not the only similarity between the fall of 2010 and the summer of 2008: pork exports soared in November and beef exports kept climbing, write Steve Meyer and Len Steiner.


 Both contributed to last fall’s strong wholesale level demands for beef and pork that we have chronicled on several occasions. Some highlights of the Department of Commerce’s and USDA’s export data, released last Friday, are:

Pork exports were 6.7 per cent higher on a carcass weight basis and five per cent higher on a product weight basis. The Commerce Department reports that pork export value in November was $443.4 million, 15 per cent higher than one year ago. The US Meat Export Federation reported that November’s performance means January-November 2010 exports have amounted to $43.61 for every hog slaughtered in the US November exports amounted to $44.80 per head slaughtered


Japan remains our largest market in terms of both pork tonnage and value. November shipments to Japan were 10.2 per cent higher than last year and bring the 2010 total to 1.173 billion pounds carcass weight, virtually even with the level of 2009.


Mexico once again challenged for that top spot in November, importing a record 105.93 million pounds of US pork. That figure is 30.4 per cent higher than one year ago and comes on the heels of three decidedly down months.
 China/Hong Kong reclaimed the number three spot in the list of US pork export markets. November shipments of 43 million pounds carcass weight were 23 per cent higher than last year and bring the year-to-date total to 314.3 million pounds, 1.5 per cent lower than in 2009. November also marks the second highest month for shipments to China/Hong Kong since the 2008 surge ended in August 2008.


US pork exports to Russia reached their highest level since September 2009. November shipments amounted to 27.9 million pounds carcass weight, 36 per cent larger than one year ago. Year-to-date exports to Russia are still 47 per cent smaller than last year due to trade restrictions early in the year.


Canada remains a steady number 4 customer for US pork, with year-to-date shipments up five per cent from 2009 at 389 million pounds.


November beef exports totaled 215.6 million pounds carcass weight. That figure is 25 per cent larger than last year and the second highest since the 2003 BSE-related export interruptions – second only to August 2008.


Mexico remains our largest beef customer and November shipments southward were 12 per cent larger than last year. 2010 will not be a red-letter year for Mexican exports though as shipments are still down 21.6 per cent through November.


Shipments to every other major US beef market except Vietnam (which transships product to China and is down 24 per cent) and Canada (+4.0 per cent) are sharply higher through November. Russia leads the way in percentage terms (+508 per cent) but Korea and ‘Other’ markets are the big gainers in tonnage terms at +128.4 million and +116.4 million pounds, respectively. Those increases amount oto 105.6 per cent and 65.1 per cent of 2009 shipments for those two markets.


November beef exports were valued at $389.5 million, nearly 50 per cent larger than one year earlier. Year-to-date value is up 30 per cent from 2009.

[Mustang Sally Farm]

US Hog Margins
US - US Hog Margins improved since the middle of December, as hog values increased more than feed costs during the period, writes Doug Lenhart, General Manager of Genesus, USA.
 

All three markets, Corn - Soybeans - Hogs, were higher heading to year-end with general strength in commodities to close out 2010, but strength in the hog market was a standout feature.

The quarterly hogs and pigs report from the USDA highlighted a much smaller inventory of lighter-weight hogs than what the market was anticipating. The total hogs and pigs inventory was pegged at 64.325 million head, 0.9 per cent lower than a year ago, but in the individual weight classes, hogs weighing 50-119 pounds were reported down 1.6 per cent from a year ago while the lightest weight category of hogs weighing less than 50 pounds was reported down 0.75 per cent from a year ago. Both figures were well below pre-report expectations, reflecting lower Sep-Nov farrowings. Both Dec-Feb and March-May farrowing intentions were similarly below trade expectations, leading to a sharp rally in deferred hog contracts.

Corn and soybean meal prices continued moving higher due mainly to concerns over ongoing drought conditions in Argentina, with local agronomists now lowering production estimates for both the corn and soybean crops there.

Looking specifically at Hog Margins we see both sides of profitability. Nearby Q1 margins remain negative, while deferred margins in Q2 and Q3 still look attractive with Q4 at breakeven. Securing margin protection with flexible price strategies will continue allowing for improvement over time.

You can see in the first graph below there have been opportunities to complete a full hedge and lock in profit for Q1 hogs. The line represents what profit or loss would have been available to producers in the US on any given date while completing the purchase of feed and selling the lean hogs on the same day. The maximum profit potential was $7.10 if executed in mid-summer 2010 or a loss of ($7.63) if you executed during harvest. The second graph simply shows the losses that would be incurred if you had waited until the end of 2010 to place your hedge. As of 31 December 2010 your full hedge would lock in a ($2.47) loss.


The next two graphs utilize the same analysis as used above but for Q2 of 2011. This quarter has remained profitable but also provides a wide range. Maximum profit opportunity was offered in the mid-summer again at $11.65 per head. The tightest margin opportunity was during the harvest at essentially breakeven or $1.56 per head. The 31 December margin opportunity was $6.64.


Q3 has remained profitable just as Q2 has been. The high has not been as good, showing only a $6.67 opportunity, while the least amount has been $1.30. Profit opportunity on Dec 31 was $5.13.

Q4 remains at or below breakeven with a high of $0.13 a few weeks ago and a loss of ($1.53). The 31 December figure was ($0.20).

The Hog Margin calculation assumes that 73 lbs of soybean meal and 4.87 bushels of corn are required to produce 100 lean hog lbs. Additional assumed costs include $40 per cwt for other feed and non-feed expenses. Thank you to Commodity & Ingredient Hedging, LLC (CIH) for the margin data. Please visit CIH Margin Watch to subscribe to the CIH Margin Watch report.

[Mustang Sally Farm]

Rules to Implement Mandatory Pork Price Reporting
US - The US Department of Agriculture yesterday announced the establishment of the Wholesale Pork Reporting Negotiated Rulemaking Committee to develop proposed language to amend the Livestock Mandatory Reporting regulations to implement mandatory pork price reporting.
 

“This committee will bring greater transparency and confidence to our wholesale pork reporting programme,” said Rayne Pegg, administrator of USDA’s Agricultural Marketing Service. “Once implemented, this market reporting program will benefit pork producers, packers, processors, retailers, and consumers.”

In a negotiated rulemaking, a proposed rule is developed by a committee composed of representatives of government and the interests that will be significantly affected by the rule. The interests significantly affected by this rule will be represented by the American Meat Institute; Chicago Mercantile Exchange; Food Marketing Institute; Grocery Manufacturers Association; Livestock Marketing Information Center; National Farmers Union; National Livestock Producers Association; National Meat Association; National Pork Producers Council; North American Meat Processors Association, American Association of Meat Processors, and Southeastern Meat Association (1 combined representative for all three per organizations’ request); United Food and Commercial Workers International Union, and AMS.

The first meeting will be held on 8 February through 10 February 2011. The meeting will begin daily at 8:30 a.m. and end at 5 p.m. The meeting will take place at the Sheraton Clayton Plaza Hotel, 7730 Bonhomme Avenue, St. Louis, Missouri, 63105. The agenda includes the discussion of protocols, timeframes, scope of the rulemaking process, and identification of key issues for a mandatory program of wholesale pork reporting.

The meeting will be open to the public without advance registration. Public attendance may be limited to the space available. Members of the public may be allowed to make statements during the meeting, to the extent time permits, and to file written statements with the committee for its consideration. Written statements may be submitted in advance to the address listed in the “for more information” section below. Notice of future meetings will be announced in the Federal Register.

[Mustang Sally Farm]

Thursday, January 27, 2011
Weekly Roberts Report
US - Poultry supply is increasing. This meat protein competes for pork sales when supply is ample and retail prices are cheaper.

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

LEAN HOGS on the CME finished mixed on Monday. The FEB’11LH contract closed up $0.325/cwt at $80.650/cwt. The APR’11LH contract closed at $86.250/cwt; down $0.325/cwt. AUG’11LH futures closed at $96.500/cwt; up $0.125/cwt. Poultry supply is increasing. This meat protein competes for pork sales when supply is ample and retail prices are cheaper. USDA on Friday put the pork cutout at $85.64/cwt; down $0.31/cwt. According to HedgersEdge.com, the average packer margin was placed at a positive $15.95/hd based on the average buy of $55.70/cwt vs. the average breakeven of $61.50/cwt. The latest CME lean hog index was placed at 76.14 ¢ /lb; up 0.32 ¢ /lb.

CORN futures on the Chicago Board of Trade (CBOT) finished lower on Monday with deferreds from December 2011 on finishing even with last Friday’s close. The MAR’11 contract closed at $6.552; off 2.0 ¢ /bu. The DEC’11 contract closed at $5.872; even with last Friday’s close. Profit taking, wheat/corn spreading, waning ethanol profits, and lower crude oil markets pressured prices. Exports were neutral with USDA putting corn-inspected-for-export at 25.87 mi bu vs. expectations of 20-26 mi bu. News reports from Japan indicate Chubu Shiryo, a livestock feeder, will cut corn in animal feed due to high costs. Brazil reported satisfactory corn crop weather while Argentina forecasts show much needed rain mid-week. Funds sold near 5,000 lots. Ending stocks are near 15-year lows due to strong demand and lower-than-expected yields. Traders think that farmers will consider planting more corn next spring so they are taking some profits now. Corn is expected to compete for soybean and wheat acres this spring. It might be a good idea to price another 10 per cent of the 2011 crop taking you to 80 per cent covered.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished down on Monday. The MAR’11 contract closed at $14.044/bu; off 7.75 ¢ /bu. NOV’11 soybean futures closed off 11.5 ¢ /bu at $13.366/bu. Profit taking, prospects for better weather in Argentina weighed on prices as strong demand for soybeans from China supported prices. Funds sold just over 6000 lots on a market saturated with bull positions. Brazil soybean growing areas were getting plenty of rain filling out the crop. Exports were supportive with USDA putting soybeans-inspected-for-export at 42.08 mi bu vs. expectations for 35-40 mi bu. It is a great opportunity to speculate with the remaining 40 per cent of the 2011 crop.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAR’11 wheat contract closed at $8.352/bu; up 10.75 ¢ /bu. JULY’11 futures finished up 12.0 ¢ /bu at $8.786/bu. Strong export demand from North African and Arab countries, awful wheat-crop-conditions in Australia, and drought concerns in China are supportive. Funds bought 2,500 lots. USDA placed wheat-inspected-for-export at 23.07 mi bu vs. expectations for 22-28 mi bu. With weather problems in the other countries the US is seen as one of the last remaining placed to find high-quality wheat. Drought put the hurt on Russia’s crop last summer while heavy rains are hurting the quality of Australian and Canadian wheat. If you haven’t priced up to 75 per cent of the 2011 crop yet now is the time.

[Mustang Sally Farm]

Tuesday, February 01, 2011Print This Page
Market Preview: Time a Factor in Pork Puzzle
US - In this week's Market Preview from National Hog Farmer, Steve Meyer writes about how time is a common denominator in the pork supply and demand puzzle.


When will consumers back away from high-priced pork? That’s a question that I have heard frequently the past few weeks. It comes mainly from producers who see today’s $100/cwt., carcass, quote on June futures and wonder just how much retail price pressure their ultimate customers will withstand. I’m sure packers and processors are thinking the same thing as they see their potential hog costs rise steadily.

The answer, as with most economic matters, is “it depends.” It depends on the reason for higher prices, the prices of substitutes, consumers’ income levels, and their propensity to spend money on food, in general, and meat and pork in particular.

Prices can rise for many reasons, but they basically fall into two well-known categories: supply issues and demand issues. Isn’t that a shocker?



Figure 1Supply issues generally focus on productivity and production costs and depend on the prices of inputs, technology, management, health and a host of other factors. When costs rise, supply decreases. That is – the quantity that producers are willing and able to sell at each alternative price gets smaller. The supply curve shifts up and to the right as Figure 1 shows. When this happens, lower output is the reason for higher prices.

Supply-driven prices and lower consumer purchases are the flip sides of the same coin. Falling supply forces consumers to back off from the product, so the question about when they will back off is really not appropriate.

This decline of output in the face of higher prices is a primary reason that “cost-push inflation” cannot last long. The quantity of output simply gets smaller and smaller as the cost rises.



Figure 2The other reason that prices increase is an increase in demand that causes “demand-pull inflation.” In this case, prices rise, but output increases over time (assuming the supply curve is steady) as in Figure 2. Such an increase can be caused by a shift of consumer preferences, higher incomes, higher propensities to spend money on the commodity in question or a shift in relative prices.

But Figures 1 and 2 leave out something important – time. None of this happens instantaneously. It takes time for supply to change in response to a change in input prices or technology or disease. Likewise, it takes time for consumers to react to a change in income or a recession that rattles their confidence in the future and, thus, their willingness to part with cash or even a change in the price level of the good in question.

In my opinion, we saw the direct impact of cost-push inflation in 2009 and the first half of 2010. Pork output fell because producers had reduced the sow herd in 2008 and 2009 as costs exploded. In addition, poor quality corn (sort of a “reverse technology” impact) caused poor performance and lighter slaughter weights, restricting output even further. Retail prices began climbing in January 2010 and hit a new record in May. That record was followed by five more records through October before higher output (primarily due to heavier hogs driven by much better corn quality last fall) caused prices to fall in November and December.

But now we are looking at about the same level of pork output for 2011 – likely higher the first half of the year and lower in the second – but record-high futures prices. Equal output, growing exports and higher population do add up to lower per capita pork supplies, but projections for this year are not large enough to drive hog prices 15-20 per cent higher.

Demand is the Driver
The November demand index was 14 per cent higher than one year earlier, indicating that the green demand line in the figures has moved significantly up and to the right. November demand indexes for beef and chicken, while not as positive as that of pork, were up sharply, as well, suggesting that this is more than just a pork phenomenon. It now looks like the meat protein market, in general, has improved. Perhaps consumers’ attitudes and spending are doing better than other data are indicating.

And it appears this may go on for a while. Beef prices are rising and will almost certainly hit new records this spring and summer. Chicken companies have slowed their expansions and will have to push their prices higher to cover the latest round of cost increases. As beef and chicken prices rise, pork will be relatively cheaper, which means consumers who may have found it too expensive so far may rethink that decision.

I’m not terribly worried about consumer push-back on high pork prices. A recovering economy, a relatively weak US dollar and falling supplies of two major competitor products will all be supportive to demand. And output this year is going to be about the same as last year. Consumers will buy what we have available in the United States and other factors may dictate that they continue to pay record or near-record prices for the pork available in 2011.

Congratulations Steve!
NB: Steve Meyer received the 2010 Master Pork Producer Award from the Iowa Pork Producers Association during their annual banquet. In addition, his Economic Outlook seminar, sponsored by National Hog Farmer, drew a full house and was the top-rated seminar at the Iowa Pork Congress held in Des Moines last week.



As published in National Hog Farmer's Weekly Preview.

[Mustang Sally Farm]

Wednesday, February 02, 2011Print This Page
Weekly Roberts Market Report
US - October futures and beyond were lower an average of $0.65/cwt. Short covering, end-of-month buying, and the winter storm supported higher hog prices.

Michael T. Roberts
Extension Agriculture Economist,
Dairy and Commodity Marketing,
NC State University

LEAN HOGS on the CME finished mixed on Monday with futures from February 2011 through August 2011 up and deferreds lower. The FEB’11LH contract closed up $1.500/cwt at $87.250/cwt; $8.22/cwt higher than last week at this time. The APR’11LH contract closed at $94.000/cwt; up $0.375/cwt and $7.750/cwt over last report. AUG’11LH futures closed at $97.325/cwt; up $0.225/cwt and $0.825/cwt higher than last week at this time. October futures and beyond were lower an average of $0.65/cwt. Short covering, end-of-month buying, and the winter storm supported higher hog prices. In other news South Korea signaled willingness to increase imports and lower tariffs. Cash hogs traded $1-$2/cwt higher on Monday. USDA on Friday put the pork cutout at $88.57/cwt; up $0.88/cwt and $2.93/cwt higher than last Monday. According to HedgersEdge.com, the average packer margin was lowered $4.20/hd to a positive $11.75/hd based on the average buy of $59.57/cwt vs. the average breakeven of $63.67/cwt. The latest CME lean hog index was placed at 78.32 ¢/lb; up 0.62 ¢/lb and 2.18 ¢/lb over last report.

CORN futures on the Chicago Board of Trade (CBOT) closed up on Monday. The MAR’11 contract closed at $6.594; up 15.5 ¢ /bu and 4.25 ¢ /bu higher than last week at this time. The DEC’11 contract closed at $5.912; up 14.75 ¢/bu and 4.0 ¢/bu over last report. Wheat strength, a weaker dollar, higher crude oil, a port strike in Argentina, and end-of-month fund buying were supportive. Wheat prices affect corn prices as they are both used for feed. US corn is more affordable on the world market when the US dollar is weaker compared to other currencies. London’s Brent crude closed over $101/barrel on fears Egypt’s unrest could spread to oil producing areas. Corn prices have been tracking crude prices for some time now as corn is correlated to fuel. Fund buying near month end is a result of account balancing on profits or losses from energy investments, primarily crude oil. Funds bought over 8,000 lots. Exports were weaker than expected as USDA put corn-inspected-for-export at 18.690 mi bu vs. expectations for 25-30 mi bu. Cash corn was steady-to-firm at US Midwest elevators and ports. Crops are battling for acres. Demand for ethanol remains strong as the US approved use of E-15 in vehicles newer than 2005. However, after talking with congressional representatives last week there is a strong desire in Washington to reduce or eliminate the blender’s credit. This could produce a fundamental shift in demand.

SOYBEAN futures on the Chicago Board of Trade (CBOT) finished up on Monday. The MAR’11 contract closed at $14.130/bu; up 15.0 ¢/bu and 8.75 ¢/bu over last report. NOV’11 soybean futures closed up 18.0 ¢/bu at $13.410/bu and 4.5 ¢/bu higher than last Monday at this time. A strike in Argentina, spillover support from wheat, a weak US dollar, firm crude, and end-of-month fund balancing were supportive. The Argentine union indicates the grain port strike may grow. Exports were weak with USDA putting soybeans-inspected-for-export at 29.69 mi bu vs. expectations for 39-43 mi bu. Cash soybeans were steady-to-firm at elevators while river bids were weaker. Funds bought nearly 5,000 lots. Soybean prices look competitive and most likely will compete for corn acres.

WHEAT futures in Chicago (CBOT) closed up on Monday. The MAR’11 wheat contract closed at $8.406/bu; up 15.0 ¢/bu and 5.5 ¢/bu over last report. JULY’11 futures finished up 14.75 ¢/bu at $8.894/bu and 10.75 ¢/bu higher than this time last week. Floor sources said that worries about winterkill in the southern US Plains this week by a major storm could affect yields. The light snowfall totals will leave the crop vulnerable to crop damaging frigid temperatures. Flooding in Australia is hampering wheat shipments from that country. The US, the world’s top wheat exporter, is seen as one of the last places to get high-quality wheat. Egypt is the world’s largest importer of wheat. Protests there are slowing global wheat trade. USDA put wheat-inspected-for-export at 21.313 mi bu vs. trade estimates of 20-25 mi bu.

[Mustang Sally Farm]

Market Preview: Pork Trade Forecast Looks Good
US - This week, in National Hog Farmer's Market Preview, Steve Meyers discusses the trade outlook for pork.


USDA’s quarterly Outlook for US Ag Trade, released last week, contained some very positive information for US pork producers. The quantity of US pork exports is expected to grow by 1.6 per cent in 2011, but USDA predicts the value of those exports to jump by nearly 20 per cent. As I have pointed out before, exporting large volumes is nice, but bringing back even larger amounts of cash pays the bills! Should those two figures come to fruition, 2011 exports will be very close to the 2008 record, and 2011 export values will shatter the existing record, also set in 2008.

The report also contained forecasts (or perhaps a better characterization is “assumptions” for this report) regarding macro-economic variables which are so important when one is dealing with trade issues. The forecasts for US and Canada gross domestic product growth were 1.6 per cent and 1.5 per cent, respectively. Those percentages are a bit conservative relative to some that we have seen. Europe is forecast to grow at roughly the same rate as Japan. Mexico and Korea are both near 3.5 per cent for 2011 growth, while Brazil (+4.0 per cent), India (+5.9 per cent) and China (+8.6 per cent) are, as expected, predicted to be the areas with the most robust growth (Figure 1).


Exchange Rates Bad News for Canada
Figure 1 also includes forecast/assumed changes in exchange rates for 2011, and those are all down for the US dollar. Of particular interest, of course, is the estimate that Canada’s dollar will appreciate by 7.5 per cent vs. the US dollar. That number is larger than any I have seen in other places and would put the Canadian dollar at an average of US$1.05 for the year, meaning that some weeks would almost certainly be above the weekly record of US$1.07 back in November 2007.

That, of course, is not good news for Canadian producers since it means fewer Canadian dollars in revenue. The decline will be large enough to offset most or all of the feed cost advantages currently seen in the prairie provinces.

We hope these forecasts/assumptions are a bit overdone, but the truth is that higher oil prices will put continued pressure on the US dollar relative to Canada’s currency. As the University of Missouri's Dr. Ron Plain points out frequently, there is a lot of oil and gas flowing south from Canada to the United States. As prices rise, more US dollars flow northward and those opposing flows almost guarantee a depreciation of the US dollar and appreciation of the Loonie. Don’t expect this pattern to change materially any time soon with crude oil futures now above $100/barrel. We Yanks still love driving our cars – a lot!

Cold Storage Reflects Larger Inventories
Last week’s Cold Storage report indicated higher inventories of both meat and poultry vs. one year ago (Figure 2). Total meat and poultry in US freezers amounted to 2.054 billion pounds on 31 January. That is 9.6 per cent higher than last year but it is important to note that last year’s inventories were very low on a historical basis. Looking at the top line in Figure 2, which is read off the right-hand vertical axis, one can see that current frozen product inventories are still relatively small from a historical perspective. They are certainly not large enough to be overly concerned about at this time.


Chicken stocks did decline during January, but every product category except thigh meat showed an increase over year-ago levels. Leg quarters, wings and “other” chicken accounted for over 70 per cent of the increase in chicken inventories from last year. The 35-million-pound increase in wing inventories (up 229 per cent from last year!) is truly shocking given the run that this high-quality (written with dripping sarcasm) product has been on. And wing prices reflect the buildup. They were $94/cwt last week vs. $168/cwt one year ago! Maybe they need a new sauce.

Pork inventories were 10 per cent larger than last year and nearly 14 per cent higher than in December. Part of that increase is higher output, but January production was only about 3.4 per cent higher than in 2010 so that is not the complete explanation. Ham stocks accounted for nearly 60 per cent of the year-on-year increase and were up 39 per cent from last year and 49 per cent from December. January’s increase of 65 million pounds for frozen pork stocks was not significantly larger than the normal December-to-January increase of 52.2 million pounds.

In and of itself, the Cold Storage report was not good but not alarming, especially given that beef, pork and chicken production are still larger than one year ago. I expect year-on-year growth to end as we go into this summer and for meat and poultry in cold storage to remain in the lower half of the historical levels.

 



As published in National Hog Farmer's Weekly Preview.

[Mustang Sally Farm]

Wednesday, March 09, 2011Print This Page
Pork Commentary: Hasta La Vista - The Other White Meat
US - In this week's Pork Commentary, Jim Long writes about the US market.


Jim Long is President &
CEO of Genesus Genetics.
As long time readers of this commentary know we have thought for a considerable time that the value as an industry we have gotten for our check off dollars (over 1 billion dollars) was being limited by the continued use of the ‘other white meat’ slogan for pork.

The ‘other white meat’ programme has been used for 25 years, in that time pork has lost market share continually in the US domestic market. An advertising programme that is associated with market share loss is a failure, not one to be celebrated. Every time we read when one of the paid economist minions give some lame economic calculation that the ‘Other white meat’ programme had brought 100’s of millions of value it took our blood pressure higher than normal. Loss of market share does not equate to economic returns on an advertising campaign.

From a marketing perspective we could never comprehend why pork which sells for more money than chicken would want to brand itself compared to chicken. Never seen the following:

Mercedes Benz ‘The other Kia’
Saks 5th Avenue ‘The other Walmart’

The point is beef (red meat) sells for double that of chicken (white meat). Pork is red meat. Red meat is a premium product.

The great news in our perspective is the leadership of the National Pork Board has jettisoned “the Other white meat” slogan and replaced it with ‘Pork: Be inspired’. We like to ‘be inspired’. It is positive and a needed change.

The new marketing campaign will use $11 million to roll out in March and April.

National Pork Board officials said, “After nearly 25 years, it was time to move on from the old message that compared pork to chicken and instead try to increase sales by focusing on the estimated 82 million Americans who already eat pork.” (Research shows 28 per cent of Americans eat 70 per cent of at home pork consumption).

For the first time that we can recollect the National Pork Board is going on the offense rather than defense. Ceci Synder, NPB vice-president of marketing, said, “The overall goal is move sales of our product. We want to increase pork sales by 10 per cent by 2014. To do that, we needed to make a stronger connection, a more emotional connection to our product.”

We whole-heartedly support the change in marketing. You never sell anything without targets and goals. Chris Novak, CEO, the board of directors and the pork board staff should be commended for having the wisdom and courage to go beyond the status quo. They have recognized the need to enhance pork demand and are executing a plan. Most importantly it appears the National Pork Board once again is remembering where the money comes from, the producers of America. The producers deserve and should expect return on investment for their check off dollars. Increased sales and demand are the only measure of an advertising campaign’s success. We are inspired!

Markets
Iowa – Southern Minnesota averaged $81.98 lean per pound last Friday about $24 per head higher than a year ago. Although higher year over year with feed prices where they are there is no money being made for farrow to finish producers.


DTN Ag data had a chart last week estimating current US Gross Packer Margins at $30 per head. The three year average for this time of year is $15. Simple math an extra $15 per head 2 million head a week, $30 million more per week for the Packer industry. Time to buy stock in Packers. The good news – the Packing Industry should be financially strong and have money for continued modernization. The bad news – the $15 per head difference could be in producer’s pockets. As we go forward we expect lower seasonal hog numbers (closer to 2 million a week) will have packers chasing hogs that will lower packer margins.


We are still not seeing sow herd expansion. There is lots of discussion but no action that we can ascertain. In our opinion weekly sow marketing’s of around 58,000 indicates a breeding herd that is holding steady. Hog to Corn Ratios hovering around 13 to 1 will never lead to expansion.
Summary
Pork: Be Inspired we believe is a positive step for our industry. Producers currently trading dollars, packers making good money; we don’t see expansion happening. Finally lean hogs are $1.00 for the summer. We expect global pork demand will strongly pull US pork in the coming months.


Author: Jim Long, President & CEO, Genesus Genetics 

[Mustang Sally Farm]

Wednesday, March 23, 2011
US Swine Economics Report
US - On 25 March, 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 0.3 per cent smaller than a year ago; the market hog inventory is 0.2 per cent larger; and the total herd is 0.2 per cent larger than in March 2010. My estimates of the 1 March market hog inventory by weight groups are: 180 pounds and heavier 99.3 per cent, 120-179 pounds 99.6 per cent, 50-119 pounds 100.7 per cent, and under 50 pounds 100.8 per cent of a year earlier.

Daily slaughter of barrows and gilts was up 0.7 per cent during December-February. Imports of Canadian barrows and gilts for immediate slaughter was little changed from a year earlier, so slaughter of U.S. raised barrows and gilts also was up 0.7 per cent during December-February. USDA's December report implied winter slaughter would be down 0.4 per cent. Look for USDA to revise upward slightly the December market hog inventory and their estimate of both sows farrowed and pig crop during last summer (June-August).

In their last inventory report, USDA predicted that December-February farrowings would be 0.6 per cent smaller than a year ago and March-May farrowings would be 2.3 per cent lower than a year earlier. I agree that winter farrowings were down 0.6 per cent. I am forecasting spring farrowings to be down 2.0 per cent and summer farrowings to be unchanged compared to June-August 2010.

December-February sow slaughter was down 3.8 per cent. Imports of Canadian sows for slaughter during this period were down nearly 25 per cent. Thus, net slaughter of U.S. sows was up 0.9 per cent out of a sow herd that was 1.2 per cent smaller compared to 12 months earlier.

I believe pigs per litter were up 1.4 per cent this winter. My estimate is the December-February pig crop was 100.8 per cent of a year earlier. Feeder pig imports during December-February were 0.9 per cent or so below last fall's level, so the light weight inventory should be up a bit less than the pig crop.

My estimate of hogs in the 50-179 weight groups implies that daily hog slaughter during the second quarter will be roughly 0.2 per cent above year-ago levels, if the inflow of slaughter hogs from Canada continues close to year-earlier levels. I expect daily hog slaughter during the third quarter of 2011 to be 0.8 per cent higher than the number slaughtered in July-September 2010. I expect live hog prices to average close to $67/cwt ($89/cwt carcass) in the second quarter of 2011 and $66/cwt ($88/cwt carcass) in the third quarter. The futures market is much more optimistic.