American Hog News USDA

[Mustang Sally Farm]

Tuesday, June 14, 2011
Pork Commentary: World Pork Expo 2011
US - "This past week we attended the world Pork Expo in Des Moines, Iowa," writes Jim Long.

Jim Long is President &
CEO of Genesus Genetics.
Our report and observations:

The World Pork Expo was well planned and well attended. The organizers of the NPPC did a good job.


World Pork Expo main theme – PRICE OF CORN – The price shock of plus $7.00 bushel corn, was the major discussion point. It’s ugly with pork cost of production continuing to move up.


There appears to be some sow herd liquidation with one major sow buyer reporting ten herds pulling the plug in the last two weeks.


The reality of high corn prices and the fear of the future is the trigger for such liquidation.


The industry is getting weary of living on the knifes edge. Producers are wondering why indeed they are in the business. Mostly it’s like being on Gilligan’s Island, marooned with no options. Exit strategies are profit potential limiting. Mostly you quit... you’re dead.


Part of this less than euphoric attitude is the reality of current cash 90 cent plus lean market hogs hovering around record high prices while current feed prices create only breakevens for producers. It's like "what do we have to do to get a break!"


Last Friday Iowa – Southern Minnesota closed $91.41 lean a lb. while USDA cut-outs were $90.23. The world is upside down with packer margin negative. A few weeks ago Packers were making mucho money with margin well over $20 per head. Everyone has their turn in the barrel.


We would not be surprised if US lean hogs reach $1.00 in the next four to six weeks. Not saying it will happen but with what we believe is tightening hog supplies, it just might.


At the World Pork Expo, our industries dismay over the corn ethanol industry was also discussed continually. Most people hope the US congress will pull all subsidies for corn ethanol in the next budget to put hog producers on a level playing field with the food business. This week’s vote in the US senate on a motion by Senator Coburn to stop Corn Ethanol subsidies and tariffs could be helpful.


At the Expo, building and equipment sales people were mostly focused on renovations and equipment replacements. There are few, if any, new sow units being built, some new finishers.


Seemed like there were several groups from Mexico and South America, appears that their profitability is better. There will be some new sow barns built is this region.
Our last commentary on vaccine castration, received several comments at the Expo. Appears it will be more than a simple dilemma for producers and packers. As one packer said: "two shots will it get done?" "Who’s going to pay for missed vaccine shots and what’s the cost to our industry of boar taint from missed vaccine shots." Stay tuned this could become interesting.
Summary
Corn Prices and lack of profitability dominated the World Pork Expo conversations. It appears there is some sow herd liquidation. No surprise with a 12 to 1 hog to corn ratio. Every time we historically see lower than 15 to 1 there has been liquidation. We expect pork exports will stay strong in the coming months and with any sort of break US cash lean hogs could get to $1.00 lean a lb.

[Mustang Sally Farm]

US Pork Outlook – June 2011
Lower dressed weights are forecast for this year and next, while the estimate for pork exports in 2011 has been increased to 15 per cent above last year's level, according to the latest Livestock, Dairy, and Poultry Outlook from the USDA's Economic Research Service.
 

Summary
Pork exports for 2011 were revised upward to 4.872 billion pounds, up almost 15.3 per cent over 2010, due mostly to a greater-than-expected demand in the first quarter of 2011 from Asian markets like South Korea and China. Tighter-than-anticipated corn supplies are expected to translate to higher feed costs for producers for the rest of 2011 and into 2012, decreasing the expected dressed weights of hogs. Lighter weights are expected to marginally lower commercial production to 22,615 million pounds in 2011 and 22,910 million pounds in 2012.

Higher Feed Prices Expected to Pressure Hog Weights
Tight feed supplies are expected to put upward pressure on feed prices through the 2011/12 crop year. Producers may see their profitability slip because of high corn and soybean meal prices. It is expected that these high costs likely will encourage producers to remain as current as possible in marketing their animals to limit the time on feed. As a result, forecast average hog weights for 2011 and 2012 were reduced from May.

Given the reduction in hog weights, the forecast for pork production was reduced slightly for both 2011 and 2012. Commercial pork production estimates for 2011 were reduced by 10 million pounds from May to 22.615 billion pounds, and the forecast for 2012 was lowered by 40 million pounds to 22.91 billion pounds.

Strong Pork Exports Continue in April
April US pork exports were over 421 million pounds, up about 19.5 per cent from year earlier. Second-quarter pork exports are forecast to be almost 1.27 billion pounds, up about 17 per cent from the same period a year ago. Annual US pork exports for 2011 were revised upward from May forecasts to 4.872 billion pounds, about 15.3 per cent higher than a year ago and are expected to account for 21.5 per cent of US commercial pork production.

Larger-than-expected pork exports are due mostly to the continued low US dollar exchange value vis-à-vis the rest of the world, coupled with Foot and Mouth Disease issues in South Korea and a lack of Asian production capacity to meet demand. Year to date, the five largest destinations of US pork exports continue to be Japan, Mexico, South Korea, Canada and China. The year-over-year pork export growth in April was due mainly to increases in sales to South Korea, China and Russia.

April US imports of pork were more than 68 million pounds, up 5.8 per cent from a year ago. Second-quarter imports are expected to be 220 million pounds. Year-over-year, April imports from Canada, Denmark and Italy were higher, while imports from Poland and Mexico were lower. Canada accounted for 76.5 per cent of US imports versus 78.7 per cent in April 2010.

Live swine imports were 437,000 head in April, down 12.5 per cent from last year. Annual live hog imports to the US were revised down slightly to 5,842,000 head. Live swine exports totalled 1,846 head for April, 112 per cent higher than a year ago.

[Mustang Sally Farm]

Wednesday, June 22, 2011
CME: Estimate of Breeding Herd to Play Major Role
US - One number that will get plenty of attention in this Friday’s Quarterly Hogs and Pigs report from USDA will be the estimate of the number of animals kept for breeding, commonly refered to as “the breeding herd," write Steve Meyer and Len Steiner.


That number is the best estimate of the production capacity or potential of the US pork industry for the coming 6-12 months. It should drive the number of litters farrowed over that time horizon and the number of litters, combined with the average litter size (or "pigs saved per litter" in USDA parlance) tells us the US pig crop for a given quarter. That number, in turn, drives barrow and gilts slaughter two quarters hence — with some adjustment for seasonality, of course. However you compute it, the breeding herd is the engine that drive the train forward.

There are three major components to changes in the sow herd: Sow slaughter, sow death loss and the number of gilts retained. The only one of those for which we have hard and fast data is sow slaughter. Even the University of Missouri’s data on gilt slaughter as a per centage of total barrow and gilt slaughter (which should be negatively related to gilt retention) is pretty noisy and not near 100 per cent accurate in predicting gilt retention. (The Mizzou data is available weekly in a "per cent change from one year ago" here. Most analysts handle the two unknown factors with a "need to balance" number in their sow herd vs. sow slaughter calculations. The “need to balance” figure is based on historic seasonal relationships for the quarter in question.

There is a natural rate of sow replacement simply based on the life cycle of sows as breeding animals. Replacements occur as sows either die or are shipped to slaughter due to poor reproductive performance (small litters, poor milking ability, the inability to breed back in a given period of time, etc.) or physical challenges such as lameness, injury or teat/udder problems. Sow death loss was once a major challenge in the US but more attention to sows’ welfare and selection for longevity traits has reduced the number to, we believe, somewhere near 6-8 per cent per year in recent years. Some death loss is unavoidable.

Deviations from this natural replacement rate are based on economic conditions and expectations. The primary drivers of these changes are, of course, the actual and expected prices of market hogs. Higher prices generate profits which will attract new entrants and be used by current producers to grow their businesses. Producers know full well that good times will not last forever but if they want to expand their businesses they must do so when times are good. On the other hand, lower prices generate lower profits causing some producers to reduce output and some producers to exit the business entirely.

Prior to 2007, feed costs had very small and very fleeting impacts on sow herd expansion or contraction decisions. The reason was that feed costs were low and relatively stable. A 20 per cent swing in the price of corn amounted to about 50 cents/bushel and changed average output costs by $5 to $6 per head or roughly 5-6 per cent. Today, the same 20 per cent swing in corn prices (half of which we witnessed just last week!), changes the corn price by $1.20-$1.40 per bushel and changes hog production costs by $10 to $12/head. And that does not count the impact that corn prices have on prices of other ingredients such as DDGS and soybean meal.

But even the chart below does not tell the entire story. US sow slaughter includes more than just US cull sows. It also includes 8-10 thousand sows imported from Canada each week — a number that has continued to trend downward as Canada’s breeding herd has shrunk. The top chart on (see below) shows US slaughter of only US-origin sows. Note that these numbers are significantly higher relative to one year ago since mid-April when compared to the total sow slaughter numbers.

 


Finally, there is the issue of the smaller sow herds in both the US and Canada. Canada’s herd on 1 April was 20 per cent smaller than at its January 2005 peak. The US herd on 1 March was 7.1 per cent smaller than at it most recent cyclical peak in January 2008. Other factors held constant, sow slaughter must decline as the available supply of sows declines. So what happens to the percentage of the herd slaughtered each week?

The lower chart (below) shows slaughter of US sows (ie. imported Canadian animals are removed) as a percentage of the US breeding herd at the beginning of each quarter. This number has been relatively stable in the range of 0.8 to 0.9 per cent each week with some seasonal increase in the summer months likely due to seasonal infertility. Note, though that this measure of sow slaughter surged last fall when feed prices began to rise and has increased again since early April relative to one year ago. It will be interesting to see if the surge shows up in Friday’s report as a slightly smaller US breeding herd.

 

[Mustang Sally Farm]

Friday, June 24, 2011
CME: Highlights of Latest Cold Storage Report
US - USDA’s monthly Cold Storage report, released Wednesday, 22 June, shows significantly larger stocks of frozen meat and poultry in US cold storage facilities relative to one year ago and modest increases in inventories versus one month ago, write Steve Meyer and Len Steiner.


There were 2.228 billion pounds of meat/poultry in freezers as of 31 May, 11.6 per cent more than last year and 4.9 per cent more than at the end of April.

The data for all meat/poultry species appear in the table on page 2 (please see link below). The chart below depicts monthly inventories of the four major meat/poultry species since 2000.


Some highlights of the report are:

Beef, pork and chicken inventories increased relative to one year ago with beef leading the increases at +25.5 per cent. 90 per cent of that increase was accounted for by higher boneless beef stocks. That latter relationship almost always has to be true since boneless beef almost always accounts for 85-90 per cent of beef in cold storage.


Frozen pork inventories were 22.2 per cent higher versus one year ago. One factor driving that increase is the emergence of Korea as a major export market in the wake of their foot and mouth disease outbreak. Stocks of frozen pork butts, a key Korean export item, were 99.5 per cent higher this year versus one year ago.


Chicken inventories increased 9.8 per cent versus one year ago. The increase was led in percentage terms by wings (+72.2 per cent) and in tonnage terms by breast/breast meat at +41.13 million pounds. It is little surprise that those two cuts have been major drags on chicken values this year. On the other hand, stocks of leg quarters, thigh/thigh quarters and thigh meat were all below one year ago, facts that again support the relative strength of leg quarter prices so far in 2011.


Turkey inventories were, quite understandably, larger than one month ago (+21.8 per cent) as the sector builds stocks for its seasonal trade this fall but were 3.9 per cent lower than one year ago. The discipline of the turkey sector has been very remarkable over the past three years as they manage supply-demand relationships well and keep prices high enough to cover costs and still make money.


Month-month inventory changes were positive for each species except pork but the increases in both chicken and beef stocks were relatively small at 2.5 and 2.4 per cent, respectively. Pork inventories fell by 0.8 per cent during May and the decline would have been much more dramatic had it not been for a 31.8 per cent increase in ham inventories. Those ham stocks of 101.5 million pounds were 9.2 per cent larger than last year as well. We attribute this month-month increase primarily to the unusual decline of ham inventories in April which, in most years, is the month in which ham stocks begin to increase toward their September peak. A major driver of that April draw-down was this year’s very late date for Easter. Bottom line: The increase of ham inventories in March doesn’t worry us.
We expect frozen meat and poultry stocks to begin declining this month and for that decline to be larger in July and August. The seasonal decline in hog slaughter as well as what is developing as a major drop in average hog weights will reduce pork supplies and increase the drawdown of pork stocks. We are hearing widespread anecdotal evidence that South Korea is back in the market for US pork —not to the degree they were in April but much more aggressively than in May. In addition, recent reductions in broiler egg sets and chick placements will show up as lower broiler slaughter and, we think, production in July and beyond, perhaps reducing production enough that some of the large stocks of breasts/breast meat and wings can be depleted. Those declines will obviously be offset to some degree by the normal increase of turkey stocks. But that increase is quite normal and fully expected.

The past two days have seen record-high cash hog prices. The Iowa-Minnesota weighted average negotiated base price broke $100/cwt carcass for the first time ever on Tuesday and then went even higher yesterday reaching $101.65. The top of the range paid for pigs in Iowa-Minnesota was a whopping $106.00 yesterday. The Western Cornbelt (of which Iowa-Minnesota is a subset) weighted average negotiated base price also eclipsed $100, reaching $101.49 yesterday. The national weighted average price, which also includes prices in the Eastern Cornbelt, fell just short of the $100 mark at $99.93.

[Mustang Sally Farm]

Monday, June 27, 2011
Cash Hog Prices Surge to Record Highs
US - Today’s USDA Hogs and Pigs report said the nation’s 1 June swine breeding herd inventory was 100.3 per cent of a year ago, writes Ron Plain.
 
Ron Plain
The market hog inventory was 100.6 per cent on 1 June 2010. The average of pre-release trade forecasts was that both the sow herd and the market hog inventory were up 0.1 per cent compared to last June. The USDA survey number is not significantly higher than the trade forecasts, so do not expect much market reaction.

Cash hog prices surged to record highs this week. Carcass prices hit a dollar per pound for the first time ever. The national average negotiated carcass price for direct delivered hogs on the morning report today was $100.77/cwt, up $8.54 from last Friday. The Friday morning price report for the eastern corn belt was $100.42/cwt. Nether Iowa-Minnesota nor the western corn belt had enough early hog sales for a market report. Friday’s top live hog price at Peoria was $66. Zumbrota’s top was $68/cwt. The top for interior Missouri hogs was $69.75/cwt, $5.25 higher than the previous Friday.

The pork cutout value rose for the third week in a row. USDA’s Thursday afternoon calculated pork cutout value was $99.27/cwt, up $6.46 from the previous Thursday. Loins, hams, bellies and butts were all higher. Packer margins continue to be tight. This morning’s national average hog carcass price equaled 101.5 per cent of the pork cutout value.

Hog slaughter totaled 1.936 million head this week, down 1.9 per cent from last week and down 0.6 per cent compared to the same week last year. Barrow and gilt carcass weights for the week ending 11 June averaged 202 pounds, down 1 pound from a week earlier, but 1 pound heavier than a year ago. Iowa-Minnesota live weights for barrows and gilts last week averaged 268.3 pounds, down 0.3 pounds from the week before and down 2.3 pounds compared to the same week last year.

The July lean hog futures contract ended the week at $96.00/cwt, up 35 cents from the previous Friday. The August contract settled Friday at $95.20/cwt, also up 35 cents for the week. October hogs settled at $88.67.

The July corn futures contract lost 30 cents this week to settle at $6.70 per bushel on Friday. December corn closed at $6.32.

[Mustang Sally Farm]

Wednesday, June 29, 2011
Weekly Roberts Market Report
US - Wholesale beef and pork prices have weakened amid slowing demand. Processors look to have most of their needs already filled for the upcoming holiday.

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

LEAN HOGS on the CME closed down on Monday. The JULY’11LH contract closed at $94.150/cwt; down $1.850/cwt and $3.40/cwt lower than a week ago. AUG’11LH futures closed at $92.350/cwt; down $2.850/cwt and $4.325/cwt lower than last report. Profit taking and a weaker global economy pressured prices. Wholesale beef and pork prices have weakened amid slowing demand. Processors look to have most of their needs already filled for the upcoming holiday. USDA on Friday raised hogs on US farms as of June 1 0.6 per cent vs. expectations for a 0.2 per cent increase. USDA put the pork cutout at $99.06/cwt; down $0.21/cwt but $3.29/cwt higher than last report. According to HedgersEdge.com, the average packer margin was lowered $3.50/head to a negative $8.25/head based on the average buy of $74.50/cwt vs. the average breakeven of $71.43/cwt. The latest CME lean hog index was placed at $100.98; up $1.82 and $7.30 higher than this time last week.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The JULY’11 contract closed at $6.606/bu; off 9.25 ¢/bu and 39.75 ¢/bu lower than a week ago. The DEC’11 contract closed at $6.266/bu; down 5.25 ¢/bu and 33.75 ¢/bu lower than this time last week. Long liquidation on global economic worries such as the second Greek debt crisis, Chinese inflation, and slow US growth weighed on futures. Funds took money out of grain and livestock commodities cutting net bull positions in CBOT corn by 22 per cent from last week. Fundamental demand from the livestock and ethanol sectors remains strong while expensive US corn limits exports. US livestock producers are buying less expensive wheat to feed. USDA put corn-inspected-for-export at 28.9 mi bu vs. expectations for 30-35 mi bu. Analysts expect US corn stocks as of June 1 to be 3.302 bu, the smallest on record since 2004. Looks like prices most likely have topped amid continued downward pressure. Expect corn markets to remain extremely sensitive to acreage reports and weather reports.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday. The JULY’11 contract closed at $13.296/bu; up 9.5 ¢/bu but 6.0 ¢ /bu lower than last report. NOV’11 soybean futures closed 5.75 ¢/bu higher at $13.150/bu but 20.5 ¢/bu lower than last report. Soybean futures went up despite negative outside market influences on old-crop export sales to China. Short covering, buying on chart signals, and strong exports were supportive. USDA put soybeans-inspected-for-export at 8.732 mi bu vs. expectations for 6-8 mi bu. China was a major buyer of US soybeans. Soy prices in Rosario, Argentina ended up on stronger local demand. Soybean prices will most likely be tested by the next USDA report.

WHEAT futures in Chicago (CBOT) closed down on Monday. JULY’11 futures finished 13.0 /bu lower at $6.226/bu and 36.75 ¢/bu lower than last report. The DEC’12 contract closed at $6.956/bu; off 9.75 ¢/bu and 49.75 ¢/bu lower than this time a week ago. Global economic weakness is limiting demand and encouraging long liquidation by large funds. Additionally, European wheat prices were sharply lower on concerns about economic woes. They are withdrawing liquidity from the market. US wheat stocks are expected to be down as much as 15 per cent in the next USDA report. USDA put wheat-inspected-for-export at 20.61 mi bu vs. estimates for 20-23 mi bu. Funds increased net bear position in CBOT wheat. As expected, wheat prices have continued to weaken.

[Mustang Sally Farm]

Monday, July 04, 2011
Low Farrowing Forecast for Next Six Months
US - USDA's June Hogs and Pigs report forecast farrowings during the next six months to be down 1.9 per cent, writes Ron Plain.
 
Ron Plain
If pigs per litter continue the recent trend of increasing 2 per cent per year, then the pig crop should be close to a year-earlier and thus, hog slaughter during the coming winter and spring should also be close to the level of this past December-May. USDA's market hog inventory in the hogs and pigs report indicated June barrow and gilt slaughter would be down 0.5 per cent and July slaughter up 3 per cent or so. June slaughter was down roughly 1.5 per cent compared to a year earlier. Will July slaughter also come in under USDA's estimate?

The big farm news this week was Thursday's crop reports. USDA said 92.282 million acres are planted to corn, up 4.09 million from last year and 1.515 million acres above the average of pre-release trade estimates. They forecast harvested corn acres would be 3.44 million higher than last fall. USDA also said corn stocks on 1 June totaled 3.67 billion bushels, 370 million bushels above trade estimates. That combination forced corn futures down the limit on Thursday. For the week, the July corn contract lost 29 cents to close Friday at $6.41 per bushel. December corn ended the week at $5.9775 per bushel, down 34 cents from the previous Friday. Soybean meal futures were a bit higher this week.

Hog prices went downhill this week. Carcass prices exceeded a dollar per pound early in the week. The national average negotiated carcass price for direct delivered hogs on the morning report today was $94.81/cwt, down $5.96 from last Friday. Most packers started today with their slaughter needs lined up ahead of the 3-day weekend as neither Iowa-Minnesota, nor the western corn belt, nor the eastern corn belt had enough early hog sales this morning for a market report. Friday's top live hog price at Peoria was $66/cwt. Zumbrota's top was $68/cwt. The top for interior Missouri hogs this morning was $70.50/cwt, 75 cents higher than the previous Friday.

The pork cutout value dropped following three up weeks. USDA's Thursday afternoon calculated pork cutout value was $96.12/cwt, down $3.15 from the previous Thursday. Loins, hams, and butts were all lower. Bellies were higher. Packer margins continue to be tight. This morning's national average hog carcass price equaled 98.6 per cent of the pork cutout value.

Hog slaughter totaled 1.945 million head this week, up 0.5 per cent from last week, but 1.0 per cent compared to the same week last year. Barrow and gilt carcass weights for the week ending 18 June averaged 201 pounds, down 1 pound from a week earlier, but 1 pound heavier than a year ago. Iowa-Minnesota live weights for barrows and gilts last week averaged 268.2 pounds, down 0.1 pound from the week before and down 1.5 pounds compared to the same week last year.

The July lean hog futures contract ended the week at $95.50/cwt, down 50 cents from the previous Friday. The August contract settled Friday at $93.15/cwt, down $2.05 for the week.

[Mustang Sally Farm]

Thursday, July 07, 2011
CME: US Pork Imports
US - Len Steiner and Steve Meyer discuss US pork imports in today's CME report.


“Why do you never mention pork imports?” That is a question we have heard from readers from time to time — especially when we write about beef imports.

It is true that pork imports contribute to total pork supplies just as beef imports contribute to total beef supplies but there are several reasons we (and, in general, most pork analysts) don’t pay a lot of attention to pork imports.

Pork imports are much smaller than beef imports and account for a relatively low percentage of total US pork supply. As can be seen in the figure, US pork imports peaked in 1985 (when the US was the world’s largest pork importer!) at just under 1.2 billion pounds, carcass weight.

Pork imports have remained in the range of 600 million to 1.2 billion pounds since then with the past 12 years seeing imports between 800 million and 1.2 billion pounds. For comparison, consider that US beef imports peaked in 2004 at 3.7 billion pounds and were 2.345 billion pounds last year.

Imports as a percentage of total pork supply also peaked back in 1985 and have generally trended downward since that time.

2008 imports as a percent of total supply (3.37 per cent) were the lowest since 1981. This measure of imports also peaked in 1985 but notice that the gap between imports as a percentage of total supply and imports in tonnage terms has been growing as US domestic production has continued to increase.

For comparison: US beef imports as a percentage of total US beef supply have ranged from 6.5 per cent to 12.8 per cent over this time period with the peak coming in 2004.

It should be noted that the US pork industry has grown dramatically since the mid-1980s. US pork production in 1985 amounted to 14.8 billion pounds, carcass weight.

Total US pork disappearance (usually called “consumption” even though we are not exactly sure where the product goes) in 1985 was 15.8 billion pounds. Those numbers for 2010 were 22.5 billion and 19.1 billion pounds, increases of 22 per cent and 21 per cent, respectively.

Imports of hogs from Canada have garnered far more attention over time than have pork imports. These imports peaked in 2007 at just under 10 million head. But note that the vast majority of the pigs imported from Canada, both then and now, weigh less than 110 lbs. (50 kg) and come to the US for feeding on US farms.

Roughly 60 per cent of these are, in fact, newly weaned pigs that come into the US weighing less than 15.4 lbs. (seven kg). Another 20 per cent weight between 15 and 50 pounds. The remainder fall in the range of 50 to 110 lbs. but are primarily at the bottom end of that range.

Imports of Canadian hogs for slaughter in the US (which includes both market hogs and cull breeding animals) also peaked in 2007 but that 3.28 million head represented only three per cent of total US slaughter.

These slaughter animals accounted for less than one per cent of US slaughter in 2010.

Why have imports declined? First and foremost, the US industry has become much more competitive with world suppliers (even in our own market!) since the mid-1980s. Development and adoption of enhanced genetics, better nutrition and efficient production systems utilising all in, all out pig flows and capturing all available economies of size and scale have driven on-farm costs lower.

Ultraefficient packers have added to that advantage. Second, world pork trade has been liberalised over time. Lower tariffs and the removal of export and production subsidies have allowed to most competitive suppliers, the US, Canada and Brazil, to thrive. Third, exchange rates have changed, improving the competitive position of the US and hurting the position of Canadian and European producers

[Mustang Sally Farm]

Monday, July 11, 2011
Sows Slaughter Up Compared to 12 Months Ago
US - The US unemployment rate rose for the third consecutive month reaching 9.2 per cent in June. Non-farm payroll increased by only 18,000 during the month. This is obviously not good news for the economy, or for meat demand, writes Ron Plain.
 
Ron Plain
Based on preliminary data it looks like the number of sows slaughtered in the US was up nearly 8 per cent during June compared to 12 months earlier. The number of Canadian sows imported for slaughter during June was down 8 per cent, so slaughter of US sows was up roughly 11 per cent. Our gilt slaughter data indicates a higher percent of gilts in the slaughter mix during June, thus it appears the breeding herd ended the month smaller than at the start. Will this continue or will the drop in corn prices in recent days make producers more optimistic? I wish I knew.

Hog prices lost ground this week. The national average negotiated carcass price for direct delivered hogs on the morning report today was $91.98/cwt, down $2.83 from last Friday. The average for both Iowa-Minnesota and the western corn belt was $92.56/cwt. The eastern corn belt averaged $91.62/cwt on the morning report.

Friday's top live hog price at Peoria was $64/cwt. Zumbrota's top was $65/cwt. The top for interior Missouri hogs this morning was $70.50/cwt, the same as the previous Friday.

Pork cutout value rose slightly this week. USDA's Thursday afternoon calculated pork cutout value was $96.59/cwt, up 47 cents from the previous Thursday. Loins, hams, bellies, and butts were all higher. Packer margins continue to be tight. This morning's national average hog carcass price equaled 95 per cent of the pork cutout value.

This week began with a holiday so hog slaughter totaled only 1.730 million head this week, down 11.1 per cent from last week and up 0.5 per cent compared to the same week last year.

As usual, summer temperatures are bringing down slaughter weights. Barrow and gilt carcass weights for the week ending June 25 averaged 199 pounds, down 2 pounds from a week earlier, but the same as a year ago. Iowa-Minnesota live weights for barrows and gilts last week averaged 267.6 pounds, down 0.6 pound from the week before and down 0.8 pounds compared to the same week last year.

The July lean hog futures contract ended the week at $95.87/cwt, up 37 cents from the previous Friday. The August contract settled Friday at $96.17/cwt, up $3.02 for the week. December hogs ended the week at $87.90/cwt.

It looks increasingly likely that the 45 cent per gallon ethanol blenders' tax credit will end before the current scheduled date of December 31; perhaps as early as July 31. The impact on corn prices should be modest if gasoline prices remain high. For the week, the July corn contract gained 32 cents to close Friday at $6.72 per bushel. December corn ended the week at $6.37 per bushel, up 40 cents from the previous Friday. Soybean meal futures were also higher this week.

[Mustang Sally Farm]

CME: Exports Grow as US Fills Demand
US - Beef, pork and broiler exports continued to climb in May as international buyers increasingly turn to the US to fill ever growing demand, write Steve Meyer and Len Steiner.


Below are the highlights (please note the data is in pounds, carcass weight basis):

Beef exports in May were pegged at 234.8 million pounds, 15.4 per cent higher than a year ago.

In the first five months of the year, US beef exports reached 1.1 billion pounds, 232.5 million pounds or 27 per cent higher than the comparable period a year ago.

The latest WASDE report raised the estimate for US beef exports in 2011 to 2.613 billion pounds (+314 mil lbs. more than in 2010) and we suspect that forecast will be raised again in the coming months on strong beef demand from Asian and North American markets.

While beef exports to Korea declined 10 per cent in May, US beef shipments to Japan remain very strong and at 43.9 million pounds they were 50.4 per cent higher than a year ago and the largest monthly volume to this market since December 2003.

Japanese demand has been very firm following the tsunami and nuclear disaster due to domestic supply disruptions, a reduction in seafood consumption as well as a weak US dollar vs. the Japanese yen. Currently the Japanese Yen is up 16 per cent in value compared to May 2010.

The growth in Japanese beef exports accounted for almost half of the overall increase in US beef exports in May.

Beef exports to Canada were up 23 per cent from a year ago while shipments to smaller markets rose 21 per cent.

Exports to Mexico remain steady while exports to S. Korea have been declining after a torrid pace earlier in the year as suppliers rushed to build inventories after the Foot and Mouth Disease (FMD) outbreak.

Pork exports in May were 408.8 million pounds, 12.7 per cent higher than a year ago.

This was the third consecutive month that pork exports have crossed the 400 million threshold, the last time that happened was during the summer of 2008.

At that time, the surge in pork exports was largely driven by big Chinese purchases while this time around growth appears to be more broad based.

Japan continues to buy more US pork, with exports to this market in May reaching 135.5 million pounds, or 16.4 per cent more than a year ago.

Exports to Mexico rose 26.9 per cent to 91.5 million pounds while exports to Canada increased 15.1 per cent to 43.2 million pounds.

As with beef, shipments to S. Korea have slowed down from around 87 million pounds a month in March to about 30 million pounds in May. Still, even at that volume, pork exports to S. Korea were up 33 per cent compared to May 2010.

[Mustang Sally Farm]

Monday, July 18, 2011
May Pork Imports Down 1.2 Per Cent
US - US pork exports during May were up 12.7 per cent compared to a year earlier, writes Ron Plain.
 
Ron Plain
Pork imports were down 1.2 per cent in May. During May the US exported 23.2 per cent of our pork production while imports equaled 3.7 per cent of production. For the first 5 months of 2011, pork exports are up 17.9 per cent and imports are up 1.5 per cent. The big growth market thus far in 2011 has been South Korea which has purchased 157 million pounds (147 per cent) more US pork than in January-May 2010. Exports to Japan are up by 81 million pound; shipments to Russia are up 39.5 million pounds; exports to China and Hong Kong are up 50 million pounds. Feeder pig imports during May were up 4.4 per cent from a year earlier. Imports of slaughter hogs were up 10.2 per cent.

Cash hog prices were slightly lower this week. The national average negotiated carcass price for direct delivered hogs on the morning report today was $90.88/cwt, down $1.10 from last Friday. The Friday morning price report for the western corn belt was $94.30/cwt. Iowa-Minnesota averaged $94.57/cwt. The eastern corn belt averaged $88.72/cwt. Friday’s top live hog price at Peoria was $63/cwt. Zumbrota’s top was $64/cwt. The top for interior Missouri hogs was $67.50/cwt, $3 lower than the previous Friday.

The pork cutout value rose this week. USDA’s Thursday afternoon calculated pork cutout value was $98.66/cwt, up $2.07 from the previous Thursday. Loins, hams, and butts were higher, bellies steady. This morning’s national average hog carcass price equaled 92 per cent of the pork cutout value which is more or less a breakeven for packers.

Hog slaughter totaled 2.018 million head this week, up 16.6 per cent from last week’s holiday-shortened total and up 0.9 per cent compared to the same week last year. Barrow and gilt carcass weights for the week ending 2 July averaged 199 pounds, unchanged from a week earlier, but 1 pound heavier than a year ago. Iowa-Minnesota live weights for barrows and gilts last week averaged 266.6 pounds, down 1 pound from the week before and down 1.6 pounds compared to the same week last year. This is the seventh consecutive week Iowa-Minnesota weights have been below the year-earlier level.

The July lean hog futures contract went off the board today at $95.15/cwt, down 72 cents from the previous Friday. The August hog contract settled Friday at $98.95/cwt, up $2.78 for the week. October hogs settled at $91.65 and December closed at $87.87/cwt.

USDA’s June production and price forecast is for more corn acres and a lower price than their June forecast. USDA added 1.6 million acres to their planting estimate, 270 million bushels to their corn production forecast, and lowered their price estimate on this fall’s corn crop by 50 cents to $5.50 to $6.50 per bushel. They also predicted a 100 million bushel increase in ethanol use. USDA is are forecasting 2012 pork production to be 1.6 per cent above this year and 2.7 per cent higher than in 2010.

The September corn futures contract gained 59 cents this week to settle at $7.0125/bu. December corn futures close at $6.85. The May 2012 contract ended the week at $7.005/bu.

[Mustang Sally Farm]

Monday, July 25, 2011
Record Commercial Red Meat Production for June
US - Commercial red meat production for the United States totalled 4.22 billion pounds in June, up one per cent from the 4.18 billion pounds produced in June 2010, according to the USDA's National Agricultural Statistics Service (NASS).
 

Beef production, at 2.37 billion pounds, was two per cent above the previous year. Cattle slaughter totalled 3.10 million head, up two per cent from June 2010. The average live weight was up one pound from the previous year, at 1,262 pounds.

Veal production totalled 11.2 million pounds, four per cent above June a year ago. Calf slaughter totaled 72,500 head, up six per cent from June 2010. The average live weight was down three pounds from last year, at 266 pounds.

Pork production totalled 1.82 billion pounds, down one per cent from the previous year. Hog slaughter totalled 8.94 million head, down one per cent from June 2010. The average live weight was up two pounds from the previous year, at 273 pounds.

January to June 2011 commercial red meat production was 24.2 billion pounds, up one per cent from 2010. Accumulated beef production was up one per cent from last year, veal was down two per cent and pork was up two per cent from last year.

June 2010 and June 2011 both contained 22 weekdays (including zero holidays) and four Saturdays.

[Mustang Sally Farm]

CME: Pork Prices Hit Record High
US - Pork wholesale prices have climbed sharply in recent days, with prices in the last five trading days hitting new all time record highs, write Steve Meyer and Len Steiner.


This has allowed packers to continue to bid up the price of hogs coming to market with hog carcass values now also record high levels.

On Tuesday, the hog cut-out closed at $106.23/cwt, $3.68/cwt or 3.6 per cent higher than the previous week and $15.3/cwt or 16.9 per cent higher than a year ago.

The IA/MN hog price on Tuesday was quoted at $103.98, $5.36 or 5.5 per cent higher than a year ago and $19.53 or 23.4 per cent higher than the comparable period a year ago.

Cash performance has buoyed futures, with the nearby lean hog contract gaining 70 points yesterday to close at life of contract highs.

So what is driving the current pork markets and what does this imply for pork expansion later this year and in 2012?

Pork sales to China clearly have dominated the discussion and they are seen as driving the recent surge in prices. We have no way of knowing the pace of sales and the weekly pork export report could not come soon enough.

Anecdotal evidence from industry contacts indicates that pork shipments to China remain very strong and could be sustained at least through the end of August.

After that, it is unclear what the flow of Chinese orders will look like. Much will depend on pork prices in China and the ability of Chinese producers to ramp up production.

One thing to keep in mind is that while China is the largest pork producer in the world and has a hog herd of almost half a billion animals (compared to the US at around 65 million), much of it is small-scale production. As a result, expansion there can take place much faster than in highly advanced and more concentrated pork industries, such as the US.

In other words, it is a lot easier for Chinese small producers to add a few pigs than it is for US operations that need to ponder the feasibility of making large scale investments.

Indeed, the hog cycle in the US 30 years ago, when there were a lot more small producers, used to by much more volatile than it is today.

Another factor driving pork prices, in our opinion, is what has happened with hog carcass weights.

Back in July we noted that one should keep an eye on hog weights given the spike in temperatures across the Midwest. In the past, the primary data source for assessing hog weights was the USDA weekly production report, which provided estimates of hog weights and production for the week.

We continue to quote this report in our weekly summary as it is still considered the official pork supply datasheet.

According to that report, hog weights for the week ending 29 July were 202 pounds per carcass, compared to 200 pounds a year ago.

However, these numbers do not jive with the daily actual hog weights reported by packers as part of the Mandatory Price Reporting system.

The chart below shows the daily weighted average hog carcass weights. These weights do not capture all hogs slaughtered but they do account for a large portion of them.

The daily report on 1 August showed that the weighted average carcass weight of the 346,810 hogs slaughtered was 198.04 pounds, compared to 200.54 pounds a year ago.

Another sign of the sharp decline in hog weights is the tight supply of fat pork trimmings in the marketplace. USDA quoted 42CL pork trim at an all time record high of 87 cents per pound, just one penny shy of the price end users paid for lean 72 CL pork trim. Fat pork trim is currently trading at a 10-cent premium to 50CL beef.

Still think hog weights are up vs. 2010?

[Mustang Sally Farm]

Wednesday, August 10, 2011
Weekly Roberts Market Report
US - Monday was a "sell-everything" kind of day as US equity markets declined and crude oil took a 6.4 per cent dive to $81.31/barrel after Standard & Poor's cut the US' top-tier credit rating from AAA to AA+. Commodities were pressured by ideas that a global economic slowdown will limit demand, writes Michael Roberts.

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

In other news, the 2011-12 corn and soybean marketing year begins on 9/1/11. Corn and soybean consumption are slowing as the 2010-11 year wind down.

Many think USDA’s next World Agriculture Supply Demand Estimate (WASDE) report due out 8/11/11 will show larger-than-expected ending stocks.

Estimates from 12 analysts for ending stocks for 2010-11 for corn averaged 0.923 bi bu for corn vs. USDA’s 0.88 bi bu and 0.223 bi bu for soybeans vs.

USDA’s 0.200 bi bu. Ending stock average estimates from 20 sources for 2011/12 were: Corn – 0.741 bi bu vs. USDA 0.870; Soybeans 0.172 bi bu vs. USDA 0.175 bi bu; and Wheat – 0.671 bi bu. vs. USDA 0.67 bi bu.

Conclusions:
For 2010-11 the market is bearish corn and soybeans
For 2011-12 the market is bullish corn and neutral for soybeans and wheat.
LEAN HOGS on the CME finished down on Monday. AUG’11LH futures closed at $104.925/cwt; even with last Friday’s close but $1.825/cwt over last report.

The DEC’11LH contract closed at $87.100/cwt; down $1.650/cwt and $2.150/cwt lower than this time last week. MAY’12LH futures closed at $96.400/cwt; off $0.300/cwt but $0.30/cwt over last report.

The August contract found support from a record high USDA pork carcass composite value, a measure of wholesale prices. USDA on Monday put the pork cutout at $110.19/cwt, up $1.32/cwt from Friday; $5.55/cwt higher than last week and $11.25/cwt higher than two weeks ago!

It should be noted this is this was the eighth straight day for a record pork cutout. However, floor sources say sentiment in the pits is that recent strength in fresh pork prices may be near an end as supplies of live animals grow this fall when cooler temperatures make for better hog-raising weather and producers gear up for bigger production schedules from meat packers.

According to HedgersEdge.com, the average packer margin was raised $2.70/hd from last week to a three positive $2.55/head based on the average buy of $77.71/cwt vs. the average breakeven of $78.69/cwt. The latest CME lean hog index was placed at $106.55; up $1.04 and $5.04 over last report.

CORN futures on the Chicago Board of Trade (CBOT) closed down on Monday. SEPT’11 futures closed at $6.752/bu; down 17.75 ¢ /bu and 6.0 ¢ /bu lower than last Monday.

The DEC’11 contract closed at $6.860/bu; off 17.0 ¢ /bu but 0.5 ¢ /bu higher than last report.

Grain futures fell for the fourth day on Monday as investors ran to less-risky positions in gold. Traders set aside all fundamental thinking for safer havens.

Corn exports were neutral with USDA putting corn-inspected-for-export at 31.748 mi bu vs. estimates for 30-35 mi bu. USDA late Monday placed the US corn crop in good-to-excellent condition at 60 per cent; two per cent lower than last week and nine per cent lower than this time last year.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed down on Monday. The AUG’11 contract closed at $13.092/bu; off 22.25 ¢ /bu and 49.5 ¢ /bu lower than a week ago.

NOV’11 soybean futures closed 24.5 ¢ /bu lower at $13.114/bu and 50.75 ¢ /bu lower than a week ago.

Hot weather was supportive as it is seen as hurting yield potential. Exports were neutral-to-bearish with USDA confirming a large shipment of soybeans contracted for delivery to China this year was put off until late next year.

USDA put soybeans-inspected-for-export at 5.642 mi bu vs. estimates for five to 10 mi bu. USDA late Monday raised the US soybean crop rating in good-to-excellent condition one per cent from last week to 61 per cent.

Ample global stocks are expected to keep soybean supplies sufficient for 2011-12 as long as the US crop doesn’t get hammered with major weather damage.

WHEAT futures in Chicago (CBOT) closed down on Monday. SEPT’11 futures finished 22.5 ¢ /bu lower at $6.564/bu and 20.0 ¢ /bu lower than a week ago.

The DEC’11 contract closed at $6.946/bu; off 28.25 ¢ /bu and 26.0 ¢ /bu lower than this time last week.

JULY’12 wheat futures finished at $7.586/bu; down 26.0 ¢ /bu and 25.75 ¢ /bu lower than last report.

European wheat futures also fell sharply on concern about a weakening global economy, pushing investors to sell risky commodities. Exports were supportive with USDA putting wheat-inspected-for-export at 25.238 mi bu vs. expectations for 17-22 mi bu. Funds increased net bear positions by 4,379 contracts.

[Mustang Sally Farm]

Friday, August 12, 2011
Iowa Leads Project to Reduce Pig Lameness
US - Understanding and solving lameness in pigs, especially in sows, could save producers $23 million a year.


Anna Johnson, an Iowa State University animal scientist, will be leading a research project to understand lameness in pigs and provide solutions to producers. The four-year project is being funded with a $700,000 grant from US Department of Agriculture-Agriculture Food Research Initiative (USDA-AFRI).

Currently, there are no science-based solutions to help producers solve lameness problems in pigs. Dr Johnson said the goal of the project is to find tools to measure pain mitigation, lameness and make recommendations to manage the problem.

She explained: "Lameness is the second highest reason that sows leave the breeding herd early. Problems during reproduction are rated as the number one problem, but we think that lameness may be contributing to the reproduction problems."

Currently, there are no approved drug treatments for pigs with lameness pain. Producing science-based answers will help managers with housing, management and treatment lameness pain in breeding herds.

Dr Johnson continued: "We want to be proactive. As a research group, we see this as an upcoming issue and we want to provide science that can be used to address lameness pain."

The project collaborators include Ken Stalder, Iowa State animal science professor, Suzanne Millman and Locke Karriker, who are both associate professors of veterinary diagnostic and production animal medicine at Iowa State; and Hans Coetzee, an associate professor of clinical pharmacology at Kansas State University.

Researchers will use technically advanced tools within the Swine Intensive Studies Laboratory. The tools measure the pressure and weight animals place on each hoof and how the animal's gait affects weight distribution.

The state-of-the-art research facility is a joint collaboration between the College of Veterinary Medicine and the animal science department in the College of Agriculture and Life Sciences at Iowa State University. A web site providing additional details on the laboratory can be found by clicking here.