American Hog News USDA

[mikey]

CME: Output Numbers Will Not Drive Feed Prices
US - Dow Jones’ monthly pre-report survey regarding Friday’s monthly Crop Production and World Agricultural Supply and Demand Estimates indicates that the old adage “A big crop gets bigger” is still alive and well among crop market analysts, write Steve Meyer and Len Steiner in their Daily Livestock Report for 6 October.



The ranges and average of the estimates for yield, production and 2010 carryout stocks for both corn and soybeans appear in the table below.


In all cases, analysts expect Friday’s numbers to be larger than USDA’s September estimates. The obvious reason for that is that we have largely dodged damaging frost problems with these late-maturing crops, keeping yield estimates high and thus driving production and carryout stocks higher as well.

These estimates, should they be accurate, would establish a number of new records. The estimated corn yield would be a new record, breaking the previous one of 160.4 bu/acre in 2004. The average estimated corn crop would be the second largest on record but 10 of the 23 surveyed analysts have this year’s crop pegged at larger than the record 13.038 billion bushels set in 2007. The average of analysts’ predicted soybean yields would also be a new record, eclipsing the old record of 42.7 bu/acre set in 2006. Every surveyed analyst is predicting a record-large soybean crop — which isn’t a big surprise considering predicted high yields and this year’s record number of soybean acres.

The average predicted 2010 corn carryout stocks, though, are hardly any larger than this year’s year-end stocks in spite of a 7.4 per cent predicted increase in the corn crop. The reason, of course, is higher usage. Ethanol production is forecast to use 525 million more bushels and 250 million more bushels are predicted to be exported this year. That number may be conservative given the continued decline in the US dollar — a major factor in today’s rally in CME Group Corn futures prices.

BUT EVEN THESE BIG OUTPUT NUMBERS WILL NOT DRIVE FEED COSTS SUBSTANTIALLY LOWER AND SHORT-CIRCUIT THE CURRENT DOWNSIZING OF THE US AND CANADIAN ANIMAL PROTEIN SECTORS. They help, but they will not get costs near pre-biofuels levels, thus necessitating lower animal protein supplies in order to drive prices higher. It could be worse, no doubt, and the entire sector is thankful for the good turn of the weather this summer. But many producers are still losing money and will have to exit or scale back output soon if they have not done so already.

Michigan’s egg and pork producers became the latest producer groups to enter into an agreement with the Humane Society of the United States (HSUS) to provide more room for hens and sows and avoid a ballot initiative in 2010. The move comes after efforts to codify various industry quality assurance programs as “standard practices”, make the Michigan Department of Agriculture the sole authority for animal health and well-being programs and authorize a state animal care advisory board became bogged down in the legislature. In addition, polling indicated that Michigan voters would pass a ballot initiative that banned layer cages and gestation stalls. We are sure the Michigan groups had observed the failures of campaigns in Arizona and California to ward off similar measures and, considering the economic straits of the livestock and poultry sectors at the moment, likely saw little need to throw scarce dollars at the issue. The agreement gives pork producers 10 years to phase out gestation stalls and allows stalls to be used for 7 days prior to farrowing (ie. giving birth), while the sow is nursing her litter and during breeding until sows are confirmed pregnant — usually 35 days or so past weaning. This last feature is critical in that it prevents fighting at a time when sows’ are at their weakest, having just nursed a large litter of pigs. In addition, it reduces stress until embryos are safely implanted into the uterine wall and thus increases litter size. In short — the prescribed use of stalls allows producers to capture much of the productivity benefits of full-time stalls even if they use group housing systems for the remainder of gestation. The ballot initiatives in Florida, Arizona and California, legislation in Oregon and the negotiated settlement in Colorado all allowed this practice — an important one if productivity is to remain high and costs are to remain low.

[mikey]

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



LEAN HOGS on the CME finished lower on Monday. OCT’09LH futures finished down $0.200/cwt at $49.050/cwt and $0.825/cwt lower than last report. The October contract will expire on October 14. The DEC’09LH contract closed down $0.950/cwt at $47.600/cwt and $2.125/cwt lower than a week ago. Prices were pressured by fund selling even though the market is technically oversold; spreading out of back months info forward months; and the continued weak condition in the live and retail hog market. Cash hogs were reported steady-to-weaker with live sales off $1.00/cwt. Pork production continues to contribute large pressure on prices with USDA reporting last week that 469.3 mi lbs were produced vs. 465.9 mi lbs this time last week. USDA on Friday estimated last week’s average hog weight at 270 lbs, compared to 268 a year ago. Record pork production was also recorded in August. USDA did estimate Monday’s processing at 433,000 head vs. 435,000 head last Monday. USDA put the average pork cutout at $53.80/cwt; off $0.53/cwt and $0.95/cwt lower than last report. The latest CME lean hog index was placed at $50.97/lb; off $0.27/lb and $1.46/lb lower than this time last week. The weaker tone to cash hogs was noted on ample supply. According to HedgersEdge.com the average pork plant margin was lowered $0.40/head from last week to positive $5.90/head. This was based on the average buy of $35.74/cwt vs. the average breakeven price of $37.94/cwt. Heavier hogs continue to be discounted by the packers.

CORN futures on the Chicago Board of Trade (CBOT) closed higher Monday. DEC’09 corn futures finished at $3.414/bu; up 8.0¢/bu but 44.75¢/bu under last report. The MAY’10 contract closed at $3.632; up 7.75¢/bu and 3.0¢/bu higher than last Monday. Weather worries over frost potential, a weaker US dollar, higher-than-expected exports, and chart signals for profits after last Friday’s sell off were supportive. A frost is forecast next weekend for the US Corn Belt and is expected to hurt immature corn there. USDA put the US corn crop at 57 per cent mature, harvest progress at 10 per cent, and corn in good-to-excellent condition at 70 per cent; up 2 points from last week. Traders expected USDA to report the US corn crop at 50 per cent mature and 10-12 per cent harvested. USDA put corn-inspected-for-export at 38.504 mi bu vs. expectations for 32-35 mi bu. US cash corn bids were mixed; weaker where harvest pressure was on and steady to firm where harvest is yet to begin. Cash corn in the US Mid-Atlantic states was steady to firm ranging from 3.0-7.0¢/bu higher. Funds bought 9,000 contracts while large speculators turned net bullish covering nearly 23,000 net short positions. Speculate with 30 per cent of the unsold ’09 crop.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed mixed on Monday. NOV’09 soybean futures closed at $8.85/bu; even with last Friday’s close but 8.75¢/bu lower than a week ago. The MAR’10 soybean contract closed at $8.906/bu; off 4.5¢/bu. Expectations for colder weather and the rally in corn were supportive. USDA estimated the US crop 15 per cent harvested vs. the 5-year average of 36 per cent. USDA placed the US soybean crop at 67 per cent good-to-excellent condition. Exports were neutral with USDA reporting soybeans-inspected-for-export at 12.482 mi bu vs. expectations for 11-16 mi bu. Cash soybeans in the US Midwest ranged from weak to firm on mixed harvest reports. Cash bids for soybeans in the US Mid-Atlantic States were steady amid slow farmers selling. Large speculators changed from net bear to net bull covering 2,446 short positions. If the frost comes early enough it could pay to speculate with the remaining 30 per cent of the ’09 crop.

WHEAT futures in Chicago (CBOT) were steady on Monday. DEC’09 futures closed at $4.622/bu; up 1.5¢/bu and 10.75¢/bu higher than last report. The JULY’10 wheat contract closed at $4.864/bu; up 1.0¢/bu but 18.75+¢/bu cents lower than last Monday. Mild gains were made on this technical bounce after recent sharp declines. Exports were slightly bearish with USDA reporting 18.033 mi bu of wheat-inspected-for-export vs. expectations for 19-21 mi bu. Rains in the US Northern Plains were slowing harvest with USDA placing harvest at 97 per cent complete vs. 100 per cent for this time of year. Funds bought 1,000 contracts while large speculators covered 4,185 short positions. It is still a good idea to get up to 60 per cent of the ’10 crop priced at this time.

[mikey]

Lawmakers Ask USDA to Help Pork Producers
US - Members of the US Senate and House have urged the US Department of Agriculture to lend assistance to US pork producers to help them out of a 2-year-old economic crisis. The National Pork Producers Council applauded the congressional request.



In separate letters sent to Agriculture Secretary Tom Vilsack, 24 senators and 63 representatives asked that USDA take the following actions to provide “much-needed emergency relief” to the US pork industry:

Purchase $100 million of pork with funds from the Section 32 program, which uses customs receipts to buy non-price-supported commodities for federal food-assistance programs.
Collaborate with other federal agencies to help address swine disease surveillance on farms, related diagnostic and vaccine development and swine industry support.
Work with the US Trade Representative to open export markets to US pork, particularly China, which continues to impose non-science-based restrictions on US pork since the outbreak of H1N1.
The congressional efforts, led by Al Franken, D-Minnesota, and Richard Burr, R-North Carolina, in the Senate and by Tim Walz, D-Minnesota, and Steve King, R-Iowa, in the House, were made to help pork producers deal with losses averaging $22.50 per hog since September 2007. Over the past two years, the US pork industry has lost more than $5 billion, and producers have lost more than 65 per cent of the equity in their operations.

“US pork producers are grateful to the members of Congress for seeking assistance for our industry,” said NPPC President Don Butler. “We particularly applaud the efforts of Senators Franken and Burr and Representatives Walz and King. They recognize that the US pork industry is a vital part of the US economy, providing hundreds of thousands of mostly rural jobs and providing consumers around the world with a safe, nutritious product.”

In mid-August, NPPC urged USDA to make three $50 million purchases of pork, using fiscal 2009, fiscal 2010 and Section 32 funds. USDA agreed in early September to buy $30 million of pork, using fiscal 2009 funds.

[mikey]

CME: M-COOL a Legitimate Policy?
US - This week’s Daily Livestock Reports feel like “All Canada all the time” but there was more market-impacting news from north of the border yesterday, write Steve Meyer and Len Steiner in their Daily Livestock Report for 7 October.



The Government of Canada launched a formal World Trade Organization (WTO) trade dispute action over the US mandatory country-of-origin labeling (M-COOL) by requesting a formal WTO trade panel. The request is the second step in the WTO dispute settlement policy after two rounds of “consultations” failed to resolve the dispute.

At issue is the US requirement that many retail food products be labeled as to their origin. The original law was part of the 2002 Farm Bill but the program was delayed several times — primarily due to the efforts of US livestock and meat groups— before finally being enacted after several changes were made via the 2008 Farm Bill.

Canada’s objection deals specifically with the regulations regarding labels on meat products which they claim in a press release to be “...so onerous that they affect the ability of our cattle and hog exporters to compete fairly in the U.S market.”

Secretary of Agriculture Tom Vilsack and US Trade Representative Ron Kirk responded that they “... believe that our implementation of COOL provides information to consumer in a manner consistent with our [WTO] commitments.”

An interesting point in the US press release is this: “Countries have agreed since long before the existence of the WTO that country of origin labeling is a legitimate policy. It is common for other countries to require that good be labeled as to their origin.” That statement is true. But the real issue is in the debate over the US M-COOL law is the definition of “origin.” The past labeling to which Secretary Vilsack and Trade Rep Kirk refer generally applied to the country of final manufacture or the country of “substantial transformation.” A television manufactured in Japan using parts from China, Taiwan and Korea was labeled “Product of Japan” not “Product of Japan, China, Taiwan and Korea.” The M-COOL law has no such requirement. With the exception of cattle that are sometimes transshipped through Canada on their way to the continental US from Hawaii, if an animal has ever spent time outside of the US, product from that animal must carry the other country’s name on its label, even if most of it’s body weight was added in the US or the final processing is done in the US And that is the issue that the WTO panel must decide: Is this new, broader concept of origin legitimate under world trade rules?

The charts above show that monthly imports of feeder pigs and cattle and slaughter hogs and cattle began trending downward in early 2008 as US feeders and processors began to secure new sources of supply in anticipation of the law’s restrictions and costs commencing on September 30, 2008. The impact has clearly been greatest for Canadian market hogs, the imports of which are over 70 per cent lower so far in 2009. Feeder cattle imports have also reached their lowest levels since BSE-related import restrictions ended in 2005 and feeder pig imports continue to decline, partly due to M-COOL and partly due to the continuing downsizing of Canada’s swine breeding herd.

[mikey]

Saturday, October 10, 2009
Weekly Review: Upward Spiral of Feeder Pig Prices
US - Weekly review of the US hog industry, written by Glenn Grimes and Ron Plain.

 
Ron Plain
Feeder pig prices continued their spiral upward again last week with pigs steady to $3 per head higher than a week earlier. Ten pound pigs are $10-11 per head higher than they were a month earlier.

The prices for 50-54 per cent lean 10 pound pigs last week averaged $28.36 per head, 50-54 per cent lean 40 pound pigs average $31.13 per head. Formula priced 10 pound pigs were $33.68 per head. Formula priced 40 pound pigs were $44.92 per head. Cash or negotiated price for 10 pound pigs was $25.05 per head and 40 pound cash priced hogs were $30.12 per head.

Pigs at United Tel-o-Auction this week were $1-5 per cwt above two weeks earlier. Pigs weighing 50-60 pounds sold from $42-52 per cwt, 60-70 pound sold from $41-42 per cwt and one group of 80 pound pigs sold for $36 per cwt.

If the reported retail pork prices are correct, the demand for pork at the consumer level was up 3.9 per cent for January-August. For this period consumer demand for beef was down two per cent, broiler down 3.4 per cent and turkey was up 5.6 per cent compared to the same period in 2008.

Demand for live hogs for the last eight months in 2009 was down 4.7 per cent and live fed cattle was down 8.5 per cent compared to a year earlier.

Live barrow and gilt weights last week in Iowa-Minnesota at 268.4 pounds per head were down 0.1 pound from a week earlier but up 2.5 pounds from a year earlier. Because at least a portion of the heavier weights this summer was due to cooler than normal weather, we are likely to continue to get weight closer to a year earlier as we go through the fall. Weights are likely to remain some above last year but that is not a given for sure.

For the week ending September 26, barrow and gilt carcass weights under Federal Inspection at 199 pounds per head were up three pounds from a year earlier.

Pork product cutout was pushed lower again this week with the cutout on Thursday afternoon at 52.87 per cwt of carcass down $1.46 per cwt from seven days earlier.

Loin prices at $67.24 per cwt down $1.27 per cwt, Boston butts at $56.04 per cwt up $5.36 per cwt, hams at $41.20 per cwt down $7.26 per cwt and bellies at $66.86 per cwt up $0.50 per cwt from a week earlier.

Live hog prices this Friday morning were steady compared to last week. Weighted average negotiated carcass prices this week were $0.25 lower to $1.29 per cwt higher compared to seven days earlier.

The live prices Friday morning were: Peoria $30 per cwt, Zumbrota, Minnesota, $32 per cwt, and interior Missouri $35 per cwt. The weighted average negotiated carcass prices by areas were: western Cornbelt, $48.14 per cwt, eastern Cornbelt, $46.73 per cwt, Iowa-Minnesota, $48.22 per cwt and nation, $47.09 per cwt.

Slaughter was big again this week under Federal Inspection at 2299 thousand head down 3.2 per cent from the same week in 2008.

[mikey]

Monday, October 12, 2009Print This Page
Pork Production Keeps Rising, Prices Stabilizing
US - Increased pork production drove higher estimates for total meat production for 2009, as calculated by the USDA in its monthly World Agricultural Supply and Demand Estimates (WASDE) report. Growing levels of pork production more than offset cuts in beef and turkey production.



The higher pork production figures are due mainly to higher third-quarter slaughter and higher weights, due to favorable summer weather. Export figures, which were lowered from last month's report, were left unchanged in the October figures.

Meanwhile, price projections remained stable at $39.69 per hundredweight for barrows and gilts (national base, live equivalent, 51 percent to 52 percent lean). Last month, USDA's projection was between $39 and $40 per hundredweight for barrows and gilts, reports Meatingplace.com.

Looking ahead to 2010, however, USDA expects pork production to finally drop, as the Quarterly Hogs and Pigs report, released in September, indicated that producers plan to farrow fewer sows in 2009 and 2010. Also, fewer hogs are expected to be imported from Canada. Beef production in 2010 is expected to be higher, due to larger feedlot placement in 2009, but not enough to offset cuts in pork and turkey production for the year.

Still, 2010 price projections for barrows and gilts remained stable, with an expected range of between $43 and $46 per hundredweight, compared with $43-to-$47 per hundredweight estimated in last month's report.

[mikey]

Southeast Asian Meat Buyers Meet with US Suppliers
US - Southeast Asia’s ASEAN region has emerged as a major destination for US pork and beef exports and captured the interest of a growing number of US suppliers.

 



Buyers, importers and distributors from the ASEAN region meet with US meat industry representativesRecently, the US Meat Export Federation (USMEF) brought US and ASEAN business contacts together for a Meet the Buyers conference in Denver.

US processors, traders and exporters saw the conference as a valuable opportunity to make business connections in a heavily populated region that holds great growth potential for US exports. Buyers, importers and distributors from the Philippines, Singapore, Thailand and Vietnam had the opportunity to meet face-to-face with these suppliers to discuss their product needs and share information about their markets. Prior to the Denver event, participants from the ASEAN region toured Cargill’s beef processing plant in Dodge City, Kansas, the National Beef processing plant in Liberal, Kansas, the Seaboard Foods pork plant in Guymon, Oklahoma, and the JBS beef plant in Greeley, Colorado.

In the attached audio segment, Imelda Ventus, purchasing manager for DOP Philippines, Inc., shares her thoughts on the conference and the other activities she experienced during her visit to the United States.

Craig Rempp, vice president of sales and marketing for LPB, Inc. in Earlham, Iowa, also found the event to be an exceptionally valuable opportunity. Founded in 2001, LPB is a family-owned custom pork processor that is looking to further expand its international presence and to deal more directly with its clientele in the ASEAN region.

You can listen to comments on USMEF's Meet the Buyers conference by clicking here.

[mikey]

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



LEAN HOGS on the CME finished up on Monday with the exception of the October contract. OCT’09LH futures finished down $0.725/cwt at $50.125/cwt but $1.075/cwt higher than last report. The October contract will expire on October 14. The DEC’09LH contract closed up $1.050/cwt at $53.825/cwt but $6.225/cwt higher than a week ago. Fears that the large US hog supply has not disappeared still weighed on the market. However, fund buying on buy stops, spreading into December out of October and February, outside markets, up-trending commodities, and the weaker US dollar were all price supportive. USDA placed the average pork cutout last Thursday at $52.95/cwt; up $0.08/cwt and $0.85/cwt over last report. Pork was also caught up in the WTO complaint filed by Mexico and Canada over the COOL statute. Cash hogs were steady-to-weaker ranging from even to $0.50/cwt lower. The latest CME lean hog index was placed at $50.75/lb, up $0.05/lb but $0.22/lb lower than last Monday. According to HedgersEdge.com the average pork plant margin was lowered $2.20/head from last week to a positive $3.70/head. This was based on the average buy of $35.92/cwt vs. the average breakeven price of $37.31/cwt. Sell hogs when ready and it might not be a bad idea to contract for a few weeks’ feed needs in case the bad weather continues.

CORN futures on the Chicago Board of Trade (CBOT) surged higher on Monday. DEC’09 corn futures finished at $3.812/bu; up 19.0¢/bu and 39.75+¢/bu over last report. The MAY’10 contract closed at $4.010; up 18.0¢/bu and 37.75+¢/bu higher than last Monday. Futures soared after breaking resistance in the December ’09 contract at $3.76/bu. Trading was supported by the freeze last weekend that traders think harmed the US corn crop and prospects for more cold weather in the next few days. Bad weather is expected to slow harvest. Outside markets, crude oil, rising equities, a weaker US dollar, and funds acting upon technical buy-signals were also supportive. According to two floor sources the technical support should fade toward the middle of the week as the market corrects. Very few think we’re in for $4.00 corn as longs will most likely take cover. News that China would be stockpiling local corn is viewed as neutral. No exports were reported by USDA due to the national holiday. Funds bought about 10,000 lots on Monday as large speculators added to net bull positions. US cash corn bids in the Midwest were steady to weaker. Harvest delays are seen as supporting cash offers by merchandisers. Cash corn bids in the US Mid-Atlantic States were weaker; 2.0-5.0¢/bu lower in many places. As noted last week, speculate with 30 per cent of the unsold ’09 crop but now (hint) would be a good time to take advantage of some of these higher prices.

SOYBEAN futures on the Chicago Board of Trade (CBOT) closed higher on Monday. NOV’09 soybean futures closed at $9.990/bu; up 35.0¢/bu and $1.14/bu higher than a week ago. The MAR’10 soybean contract closed at $10.004/bu; up 32.5¢/bu and $1.098/bu over last report. Weather and the same outside market influence over corn supported beans. Disease concerns regarding the quality of the US soybean crop in the wet and humid south buoyed the market. Yield losses between 10-15 per cent are being reported due to quality problems. China also announced it would withhold soybean exports while stockpiling Chinese soybeans. Reenergized speculative fund buying renewed the flow of money into commodities and is seen as a hedge by funds against inflation amid a declining US dollar. Funds bought over 5,000 contracts while large speculators turned net bulls from net bears for the week ended last Tuesday. It could be wise to continue to speculate with the remaining 30 per cent of the ’09 crop.

WHEAT futures in Chicago (CBOT) were up on Monday. DEC’09 futures closed at $4.942/bu; up 26.25¢/bu and 32.0¢/bu higher than last report. The JULY’10 wheat contract closed at $5.400/bu; up 23.75¢/bu and 53.75¢/bu cents higher than last Monday. Weather, short covering, and outside markets (crude oil and the weaker US dollar) were supportive. Cold, wet weather in the northern US Plains is seen as a positive for US production. Argentina reported good wheat production weather as well. France lowered its 2009 wheat crop by 1 million tonnes (36.74 mi bu). Saudi Arabia bought 550,000 tonnes (20.2 mi bu) of Canadian hard wheat while Morocco’s state grain agency tendered for 200,000 tonnes (7.34 mi bu) of soft wheat from European origin. Fundamentals for wheat are still weak throughout the world supply. Funds bought about 3,000 contracts while large speculators increased net bear positions in CBOT wheat for the week ended last Tuesday. It is a good idea to get another 10 per cent of the ’10 crop priced taking you to 70 per cent priced at this time.

[mikey]

CME: Carcass Weights Affecting Pork, Beef Supply
US - Beef and pork packers may be trying to limit the number of animals processed each week but some of the slaughter reduction has so far been offset by heavier animals coming to market, write Len Steiner and Steve Meyer in their Daily Livestock Report for 14 October.



In the case of hogs, carcass weights this year declined only briefly and for the most part were just a few pounds off the annual highs. This past summer temperatures across much of Iowa and other Midwest states with large hog operations were especially cool, which limited heat stress and allowed animals to put on more pounds than they usually do. Also, cooler weather during the summer tends to improve feed use both in hogs and cattle. Currently hog weights have held steady, which should be seen as positive for the hog market. We will have to a wait a couple more weeks as recent numbers are only preliminary estimates but the fact that weights have held steady likely indicates that producers are relatively current in their marketings. We should eventually see hog weights drift higher but the expectation is that in Q4 they will be very close to year ago levels.


In the case of fed cattle, carcass weights remain above year ago levels and we suspect that weights could move past the 870 pound mark at some point this month, which would be a new all time record. Feedlot marketings slowed down a bit in September and this may have contributed to the surge in steer weights that we saw last month. In the four September weeks, steer carcass weights were on average 866 lb./carcass, about 8 pounds heavier than a year ago. Overall cattle carcass weights in September (based on weekly numbers) were around 798 pounds compared to 790 pounds a year ago.


The increase in carcass weights does not impact only the supply of beef and pork coming to market, although that is the more immediate impact. Higher carcass weights tend to generate more trimmings. Beef and pork trim prices have been pressured lower this fall, in part due to the increase in the amount of fat on animals currently going to market.

And that is not just surface fat but also higher intramuscular far, significantly improving cattle grading this fall. The latest data available shows that about 63 per cent of cattle were grading choice (data is for August), compared to 59.3 per cent grading choice last year and a five year average of 57.7 per cent. Indeed, we have seen a significant increase in choice grading animals since last fall and in the process a narrowing of the spread between choice and select beef.

[mikey]

US Pork Producers Slow to Liquidate
US - When 1998 and 1999 are mentioned to pork producers, they show visible signs of grief, explains Purdue University’s Chris Hurt, but losses for 2007 to present have been twice as much, yet there has not been near the liquidation.



The agricultural economist compares the equity lost during the two devastating periods to the pork industry, says Livestock Roundup.

“Using estimates of losses in the 1998 and 1999 disaster, a 10,000 head per year producer would have lost $213,000 during seven quarters, beginning in the first quarter of 1998,” Professor Hurt said. “In contrast, the first seven quarters of losses in the modern period, from the fourth quarter of 2007 through the second quarter of 2009, are estimated to accumulate to $315,000 for the 10,000 head per year producer.

“Unfortunately, forecasts predict losses to continue for three additional quarters, through the first quarter of 2010. This means total losses could rise to $396,000, making the downturn both longer and more severe than in 1998 and 1999.”

However, the amount of equity lost depends on the financial position of each producer, Professor Hurt said.

When comparing the two time periods, Professor Hurt noted that producers have been much slower to reduce the breeding herd this time.

“In the past two years, the US breeding herd has dropped by just 3 per cent,” he said. “But from mid-1998 to mid-2000, the breeding herd dropped 10 per cent.”

In trying to explain the slower rate of liquidation, Professor Hurt offers four possible reasons: feed costs, exports to China, industry structure and a long profitable period.

“This time the industry’s losses have primarily been related to much higher feed prices,” Professor Hurt explained. “Perhaps producers were not convinced that feed prices would remain high after their dramatic increase in late 2007.”

He also said there may have been a miss-reading of the pork export surge in the spring and early summer of 2008, which was primarily driven by China and a cheap dollar.

“That surge was the primary stimulus for live hog prices moving from $39 in March 2008, to $58 in May and to highs of more than $60 in August,” Professor Hurt said. “Prices that high meant $5 per bushel corn was not as big of a threat as earlier perceived and unfortunately this delayed breeding herd liquidation.”

Looking back, Professor Hurt said the export surge was a onetime unique event. Exports have returned to much lower, but more normal levels.

Another factor leading to slow downward herd adjustment could be industry structure, Professor Hurt said.

“The industry has never had to make such a large downward adjustment with such a concentrated set of producers,” he pointed out.

The final reason for the slow reduction, given the current string of losses, could be that the profits and net worth accumulated from 2000 until the final quarter of 2007 were large.

“Taking the hypothetical 10,000 head per year producer’s accumulated returns from the start of 1998, losses accumulated to $213,000 by the end of the third quarter of 1999,” Professor Hurt said. “But then the industry returned to overall profitability for a long run and by the third quarter of 2007, the farm had overcome the losses of 1998 and 1999 and accumulated $1.45 million of profits. So a farm that has been in continuous production since 1998, with losses near $400,000 on this downturn, could be operating from a high equity base.”

This means that it’s likely not all hog farms are in financial trouble, Professor Hurt said.

He pointed out the most vulnerable to the current financial losses are those operations that have started production in the last three years, have had large expansions in the past few years, or diverted earnings from 2000 to 2007 into assets such as stocks or residential housing that plunged in value.

In looking to the future, Professor Hurt said he expects modest losses this fall, with live hog prices averaging about $40 to $42 and all costs near $45. For winter, he expects hog prices to be in the low to mid $40 range with costs near $46.

“Profits may return in the spring of 2010, with prices rising to the higher $40s and costs remaining in the $46 to $47 range,” Professor Hurt said. “For all of 2010, I expect a modest profit of $2 to $5 per head.”

[mikey]

Farmers Alter Practices for Food Safety Programmes
US - With food safety regulatory change on the horizon for US producers, Rabobank recently found that approximately 40 per cent of farmers have begun to alter their farming practices and methods.

 

According to a new Rabobank Farm & Ranch Survey, of those making changes, 64 per cent are keeping better records, which is the first step toward better food safety.

“US producers are aware that food safety issues are on the Obama administration’s agenda,” said Rabobank Food & Agribusiness Research and Advisory (FAR) Vice President Marieke de Rijke, who studies food safety issues. “They understand good record keeping will help keep them a step ahead of possible changes.”

In March, President Obama created the Food Safety Working Group to upgrade food safety laws, which govern the supply chain from gate to plate. With this in mind, US producers are beginning to take steps before new laws are in place.

After keeping better records, other changes included researching information about better food safety practices by subscribing to topical publications (32 per cent) or networking and meeting with other farmers (26 per cent). Additionally, farmers are beginning to make changes to facilities (23 per cent) and to processes (21 per cent).

“Food safety outbreaks are a real threat to the well-being of the public. In addition they negatively impact the involved sector – in terms of image and sales,” said de Rijke. “Our survey shows that farmers and ranchers understand that information is a critical step to keeping consumers safe, while ensuring future business for US producers.”

Methodology
The study was conducted to gauge farmers’ confidence among target farming regions in the United States. An independent survey company conducted 455 computer-assisted telephone interviews in the first half of August 2009. Farmers who owned or operated a farm grossing $250,000 or more in one of three US census regions – the Midwest, Southern and Western United States – were targeted.

[mikey]

Groups Urge Congress to Aid Ailing Pork Industry
US - “There are many challenges facing the economic viability of the pork sector including higher input costs for feed and energy, an over-abundance of supply in the domestic market, weakening demand and international trade barriers,” said AMI Chairman and President and CEO of Seaboard Foods, Rod Brenneman, in testimony yesterday to the House Committee on Agriculture Subcommittee on Livestock, Dairy, and Poultry.



Mr Brenneman told the committee that prices paid for feed had doubled from 2006 to 2008, largely due to higher corn and soybean meal prices. “While there are various reasons for the increase in feed prices, certainly one of them has been the determined government policies to promote the use of corn for ethanol. This effort, while seeking a desirable goal which is to lower the US reliance on fossil fuels, has had an unfortunate, unintended consequence to the US meat industry and ultimately to consumers,” he said.

Mr Brenneman explained that from a supply side, the productivity of US hog producers has continued to increase and the long-term trend is approximately 1.5 per cent per year. Mr Brenneman said that the US pork industry was producing too much pork to match up with the demand that has been weakened, and that eventually, “we will need to ‘right size’ the industry by either a further reduction in supply, an increase in demand, or more likely, some of both.”

On the demand side, Mr Brenneman noted that there were several reasons for the current state of depressed prices. “Economic factors facing both domestic and foreign consumers in a recessionary period can be pointed to as one reason for low hog and pork prices and lower export demand,” he explained. “You can imagine the impact on prices when you combine an over-supply of pork with decreased demand and closed market access around the world,” he added.

Mr Brenneman told the committee that another reason for the drop in hog and pork prices was the outbreak of the novel H1N1 influenza. “Fueled by confusion between a public health and an animal health issue, swine prices dropped and consumers questioned the safety of the pork products they were eating; however, novel H1N1 is not a flu that was caused or spread by pig production nor is this virus transmitted to humans by consuming pork.” Those fears led to US pork being banned by 17 countries, including Russia and the fastest growing market for pork exports, China.

Mr Brenneman concluded by pointing out two areas he felt the committee should pursue immediately. First, the Secretary of Agriculture should immediately make available Section 32 funds for additional purchases of pork for various federal food programs with a maximum emphasis on purchasing meat from sows with the objective to reduce breeding stock to reduce hog numbers. Second, the US Trade Representative (USTR) should work to open export markets to US pork, particularly China, which continues to impose non-science-based restrictions on US pork since the outbreak of novel H1N1.

NPPC's Plea to Congress
The US pork industry has lost more than $5.3 billion since September 2007, with producers losing nearly $23 on each hog marketed since then, NPPC President Don Butler told the House Committee on Agriculture Subcommittee on Livestock, Dairy, and Poultry in testimony today.

Many factors have contributed to the economic crisis, including the unwarranted bans on US pork by some countries, citing fears of the H1N1 flu, Mr Butler pointed out. But the biggest reason, he said, has been high feed grain prices. Feed prices, which account for 60 per cent of the cost of raising a hog, have increased over the past two years mostly because of US biofuels policy.

Mr Butler asked Congress to:

Urge the US Department of Agriculture to make more purchases of pork for various federal food assistance programs. USDA recently bought $30 million of pork.
Reexamine a spending cap on USDA’s Section 32 program so the agency can meet the goals of the program. Congress implemented the cap as part of the 2008 Farm Bill.
Pressure US trading partners, particularly China and Russia, to eliminate their barriers to US pork imports.
Approve as soon as possible the pending free trade agreements with Colombia, Panama and South Korea, which would add greatly to pork producers’ bottom line.
Conduct a study of the economic impact on the livestock industry of an expansion of corn-ethanol production and usage. EPA is considering an increase in the amount of ethanol that must be blended into gasoline to 15 per cent from its current 10 per cent.
Support allowing the ethanol import tariff and federal blenders’ tax credit to expire.
Support regulations and legislation that promote pork producers’ ability to run their operations.
Oppose measures that would place on pork producers undue burdens and higher costs such as restrictions on access to capital and contract arrangements or prohibitions on production practices, including banning the use of certain animal health products.
“To stop producer foreclosures and bankruptcies and for us to continue providing consumers around the globe with the safest, most nutritious meat protein, we need to find a way out of this 2-year-old crisis,” Mr Butler said. “We are asking Congress and our government for some help.”

[mikey]

CME: Overall Decline in Red Meat and Poultry Supplies
US - Steve Meyer and Len Steiner, in their Daily Livestock Report for 22 October, write that USDA yesterday released the results of its monthly cold storage survey.



The report was generally positive for the livestock and poultry complex as it showed continued declines in overall red meat and poultry supplies. Total beef, pork, chicken and turkey stocks were estimated at 2.218 billion pounds, - 6.1 per cent lower than a year ago but still + 1.7 per cent over the five year average. Below are some of the highlights from this report:


Pork: Total pork stocks as of 30 September were estimated at 531.9 million pounds, + 1.1 per cent higher than a year ago and still some + 14.9 per cent higher than the five year average. While overall supplies in cold storage are still high by historical standards, it was positive that stocks continued to move lower in September despite relatively large pork production levels. USDA monthly pork production data will become available on Friday but based on the weekly data, September pork output was up about 2 per cent compared to the record levels of a year ago. Despite the year over year increase in supplies, pork cold storage inventories did not increase from August levels. Seasonally pork inventories increase going into September, the five year average increase is about 28 million pounds. This year September pork inventories were up just 1.7 million pounds or 0.3 per cent from August. This implies good movement to domestic and export markets for the month and some pent up demand going into Q4. For details on individual items, please see page 2 of the link below.


Beef: Total beef stocks at the end of September were reported to be 434.1 million pounds, - 4.5 per cent lower than a year ago and - 6.8 per cent lower than the five year average. End users are going into the holiday season with less inventory than usual, clearly a response to the much lower than expected cattle prices for Q4. We suspect that some inventory building programs that have been popular in the past have been curtailed or eliminated. Also, imported beef entries have slowed down. This has likely limited the amount of imported beef, which is mostly frozen, in storage. Stocks of beef cuts were 65.1 million pounds, 16.1 per cent lower than a year ago.

Total broiler inventories were estimated to be 636.7 million pounds, down 16 per cent compared to 2008 and - 13.4 per cent vs. the 2004-08 average. The reduction in chicken stocks should be positive not just for broiler prices but the entire meat complex.

[mikey]

Monday, October 26, 2009
Outlook ‘Cautiously Optimistic’ for US Agriculture
US - Speakers at Farm Bureau’s second annual commodity outlook conference, 15-16 October, in Albuquerque, New Mexico, painted a “cautiously optimistic” outlook for US agriculture, with crop and dairy producers likely faring better than livestock producers who will still face challenges in the year ahead.



Joe Glauber, the Agriculture Department’s chief economist, told the conference that grain and oilseed demand remains strong, and relatively low ending stocks means that markets still have the potential for some price volatility. For livestock, Dr Glauber does see price recovery, with higher prices forecasted for 2010.

“Farm income should improve in 2010 if input costs do not spike as they did in 2008,” Dr Glauber said. For 2009, net cash farm income is forecast to fall to an aggregate $68 billion in 2009 however, down a staggering $30 billion from a record $98 billion in 2008.

“Both crops and livestock were hit pretty hard this year,” Dr Glauber said.

All things considered, agriculture is weathering the current economic downturn “pretty darn well” thanks in a large part to exports, said Mike Dwyer, director of the trade and biofuels division of USDA’s Foreign Agricultural Service.

“For the last two years, exports accounted for 33 per cent of cash receipts for agriculture. Trade is a major driver of prosperity for farmers and ranchers,” Mr Dwyer said. “Agriculture and aviation are the only two industries in the United States that are net exporters.”

With most private economists forecasting a falling dollar in the year ahead, Mr Dwyer sees a rise in US farm exports, which makes the US more competitive overseas. For the long-term future, Dwyer said US agriculture needs to focus on exports to developing countries with an expanding middle-class population.

“The middle class in developing countries is where the action is going to be. Agriculture should be very optimistic about the long-term future. It all starts with demand, and demand is expected to improve in these developing countries,” Mr Dwyer said.

Scott Brown, a livestock and dairy economist with the Food and Agricultural Policy Research Institute at the University of Missouri, said times are tough for all livestock producers due to “dreadful demand at home, restaurants and abroad.” Poultry and hog producers are particularly hard hit.

For hogs, there is simply too much supply on the market. Sow numbers are down, but they need to come down even more, Dr Brown said. For chickens, the supply situation is in good shape; the problem is demand, particularly foodservice demand, because of the recession.

For dairy, the current situation is “very gloomy” with 2009 being the toughest year dairy farmers have ever faced, Dr Brown said. “The world market will have to improve for dairy prices to return to their peak. The domestic market won’t cover it, but the market is recovering. Dairy supplies must continue to decline in 2010. I see more improvement for dairy in 2010 than cattle or hogs.”

For corn and soybeans, Robert Wisner, an Extension economist with Iowa State University, said clearing weather will likely mean lower prices into early November, but moderate price strength into the winter for both crops due to strong exports and ethanol demand.

For wheat, strong domestic and international production has rebuilt inventories. “Buyers don’t feel a sense of urgency, so they are only buying enough to fill their immediate needs,” said Frayne Olson, a crops economist at North Dakota State University.

As for cotton, Carl Anderson, professor emeritus and Extension specialist with Texas A&M University, sees another challenging year for the industry. “Cotton is an export-driven market, and there will be greater market uncertainty,” Anderson said. “Producers, merchants and mill buyers face new strategies to better manage price risk.”

Summarizing the various speaker’s comments, Bob Young, chief economist for the American Farm Bureau Federation, said, “What I’ve heard leaves me cautiously optimistic. We have real, serious challenges in the hog and dairy sectors, challenges that will fundamentally alter the structure of the pork industry. The picture for crop producers comes in as ‘not bad,’ certainly not ‘great,’ more of a treading water situation if we can keep input costs under control this year. If we can get the general economy to turn around enough to bring the consumer back into the market, I think we’ll see some noticeable improvement in 2010 farm income.”


 

[mikey]

Monday, October 26, 2009
Pork Production Sets Record High for September
US - Commercial red meat production for the United States totaled 4.26 billion pounds in September, down slightly from the 4.27 billion pounds produced in September 2008.

 

Pork production totaled 2.00 billion pounds, up 1 per cent from the previous year.

Hog kill totaled 9.94 million head, down slightly from September 2008.

The average live weight was up 4 pounds from the previous year, at 270 pounds.

Accumulated pork production was down 1 per cent from last year.

September 2008 contained 22 weekdays (including one holiday) and 4 Saturdays.
September 2009 contained 22 weekdays (including one holiday) and 4 Saturdays.

US Monthly