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Marketing Credit Commodities ..... PRODUCERS LIVESTOCK NEWS is published bi-monthly by Producers Livestock Marketing Association, 4809 S. 114th St., ...
At the close Plentiful feedgrains

PRODUCERS Livestock News

Vol. 55, Number 5

Marketing

Credit

Commodities

September 2017

Beef raisers gear up for the reopened Chinese market BY BETHANY BARATTA

tant,” Rehder said. Part of the education is informing consumers in China about the attributes of U.S. beef, Lively said. It will be up to USMEF to educate buyers not only about the structure of the U.S. beef industry, but also about production practices and the sizes and different cuts of beef produced here. On the other hand, U.S. packers should learn more about the structure and the market in China, Lively said. “China is different from most places in the world. It’s big and complicated,” he said.

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hen Iowa cattle farmers Steve Rehder and Mike Cline traveled to China earlier this year with a delegation from Iowa, they saw first hand U.S. beef being sampled in department stores. It was a clear example of the high regard the Chinese consumers hold for the quality and taste of U.S. beef. Now, thanks to the opening of China’s market to U.S. beef, Rehder and Cline hope that serving U.S. beef there will be a whole lot more common. “One-fifth of the (world’s) population is in China. They have a tremendous amount of people. If they get a taste of U.S. beef, they’ll keep eating it,” says Rehder, chairman of the Iowa Beef Industry Council. Rehder is the fourth generation on his family’s cattle, hog and grain farm near Hawarden, Iowa. The announcement of the opening of the Chinese market to U.S. beef earlier this summer was good news for cattle raisers in Iowa and all over the United States. China closed its market to U.S. beef in 2003 after BSE was discovered in a single cow. An agreement earlier this year reopened the market. Under the deal, China has agreed to accept beef from cattle under the age of 30 months, with traceability to the farm of birth and without the use of growth promotants, feed additives or chemical compounds. “The combination of those conditions means that initially the pool of cattle in the U.S. that are eligible to supply beef

Each city is different

Steve Rehder at his farm near Hawarden, Iowa. Rehder believes that China, in time, can become a dependable market for U.S. beef. PHOTO/ GARY FANDEL

to China is fairly limited,” says Thad Lively, senior vice president of trade access for the U.S. Meat Export Federation (USMEF).

More potential ahead

There is potential, however, that more beef could be exported to China as the USMEF works to build the market there, Lively said. And depending on the premiums that could be paid to farmers for raising a product for the China market, more farmers could change their programs to be able to provide more beef for exports to China, said Cline, the fifth generation on his farm near Elgin, Iowa. Cline is president of the Iowa Cattlemen’s Association. “We can certainly do all that and we’re willing to do that,

but they’re going to have to pay a bit extra and a premium for all of that,” Cline said. Re-establishing the trade relationship with China means there’s a lot to learn about China’s consumers and there’s a lot for China’s buyers and consumers to learn about U.S. beef, Lively said.

Meeting Chinese buyers

Shortly after exports were open to U.S. beef, Rehder and Cline were part of a delegation of Iowans to visit China. The trip gave them an opportunity to meet with some buyers in China and celebrate the agreement. “They want to see who is producing the product; they want to meet people. That’s why these trade mission trips are so important. The personal connection is really impor-

Each city there is almost a market in and of itself, Lively explained. Each has its own food culture and unique distribution systems, mostly relying heavily on e-commerce rather than traditional supermarket shopping. Lively said the USMEF is working to connect U.S. suppliers with Chinese buyers in upcoming trips. “Part of this process is getting to know each other and starting to develop relationships; it’s matchmaking,” Lively said. Though the Chinese market provides a tremendous opportunity for Iowa cattle farmers, Cline says farmers can’t forget about the other markets that the United States has worked hard to obtain. “This opportunity in China really gets our attention,” Cline says. “But anytime we can raise awareness of the uniqueness and quality of our product worldwide is a plus. Not only China, but we need to keep all markets open to our product.”

Vigilance needed to protect herds against FMD Though there hasn’t been an outbreak of foot and mouth disease (FMD) in 88 years, the threat of the disease and the economic loss associated with an outbreak is enough for experts to research ways to stop the disease before it spreads throughout the United States. Associated mostly with cattle and hogs, FMD is a highly contagious animal disease, but does not pose a threat to humans or food safety. Between 1870 and 1929, there have been nine outbreaks of FMD in the United States,

according to James Roth, director of the Center of Food Security and Public Health at Iowa State University. There hasn’t been an outbreak of FMD in the United States since 1929, Roth said. “We’ve now gone 88 years without an outbreak because a lot of laws changed about importing animals and because we’ve been really, really lucky for 88 years not to get it in here (the United States),” Roth said.

A changed industry

The nine outbreaks in the

United States were controlled by stopping the movement of animals and depopulating all clinically affected and in-contact susceptible animals. However, Roth says those actions would be difficult today because of the number of animals in Iowa and in the United States, and by the number of animals being transported every day. Efforts would be coordinated with local, state and national agencies for surveillance and testing, he said. The presence of FMD would shut off exports, which would take

several years to re-establish. Other tools in controlling the spread of the disease include stopping the movement of animals around affected premises, biosecurity and traceability to determine where infected animals came from and where they’re going, rapid diagnostics, and an effective vaccination. Roth added that an effective vaccination is essential. “If we don’t have a vaccine, it’s going to be really hard to stop it from spreading nationally and become a catastrophic U.S. outbreak,” he said.

The U.S. Department of Agriculture (USDA) raised production estimates for corn and soybeans in its September crop production report last week, surprising farmers and grain traders for the second month in a row. Based on conditions as of Sept. 1, U.S. corn yields are expected to average 169.9 bushels per acre, up 0.4 bushel from the August forecast. Soybean yields are expected to average 49.9 bushels per acre, up 0.5 bushel from last month.

Meat production dips The USDA re­­duced its forecast for total U.S. meat production this year as decreases in commercial beef and broiler production more than offset increases in pork and turkey production. The reduction in secondhalf beef production forecasts reflect a slower expected marketing pace for fed cattle, although cow slaughter is higher, the USDA said. The third and fourth quarter broiler production forecasts are reduced on hatchery data and the current pace of slaughter.

Kansas chicken plant

Tyson Food plans to build a $320 million poultry complex in eastern Kansas to meet increasing consumer demand for chicken. The company said the new unit, which will produce prepackaged trays of chicken for grocery stores, would begin production in mid-2019. The unit, which can process 1.25 million birds per week, would consist of a processing plant, hatchery and feed mill and employ about 1,600 people, Tyson said.

Stock trucking rule

The American Farm Bur­ eau Federation and seven livestock organizations are asking the U.S. Department  of  Transportation for a waiver and limited exemption from the Electronic Logging Device (ELD) mandate for drivers who haul livestock. Unless Congress or the ad­­ministration acts, carriers and drivers who are subject to the Federal Motor Carrier Safety Ad­­ministration’s ELD rule must install and use the devices by Dec. 18. In their petition, the groups cited concerns about livestock haulers’ readiness to comply with the problematic ELD mandate, as well as unintended impacts the mandate will have on the transported animals’ well-being. Most farmers and ranchers should be exempt from the rule because they can claim covered farm vehicle status, but drivers who haul livestock, live fish and insects are likely to fall under the requirements. The ELD mandate may also force small business owners out of the marketplace.

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Producers Livestock News September 2017

Producers Services Directory

By Rick Keith President, CEO Producers Livestock Marketing Association

General Office Delivery address: 4809 S 114th St, Omaha, NE 68137-2308 Mailing address: PO Box 45978, Omaha, NE 68145-0978 Office: (402) 597-9189 or (800) 257-4046 Fax (402) 597-9505 Email: [email protected] www.ProducersLivestock.net Rick Keith, President Mike Sila, Vice President Dave Nickelson, Treasurer Deb Engler, Secretary

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Cattle raisers respond to natural disasters

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PLCC Financial Services Financing for Livestock - Operating www.ProducersCredit.com Office: 1-800-950-7522 Fax: 402-597-9505 Tim Meyer, senior vice president mobile Darrell Ziola mobile Ryan Power mobile Keith Meiergerd mobile West Point office fax

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attle producers in Texas and Florida have been scrambling to get cattle to higher ground. Flooding is so hard on livestock and private property alike. I can’t imagine the 52 inches of rain that occurred during Hurricane Harvey. The number is so high that you can’t bring anything to mind like it. News outlets say the storm turned into the heaviest tropical downpour ever recorded in the continental United States. The biggest problem with Hurricane Irma is the tidal surge; anywhere from 4 to 6 feet. Many stories are being reported from rescues to feeding responders; it makes you proud to be an American when all these people are working together.

Pork seminars in China

Taking Chinese chefs and butchers through the steps to properly thaw, cut and cook U.S. pork, U.S. Meat Export Federation (USMEF) hosted about 75 key foodservice workers in three separate training seminars in Shanghai. Funded by the Pork Checkoff, the seminars highlighted the advantages of U.S. pork over competitors’ products and offered several new ideas for preparing and serving U.S. pork. The U.S. Berkshire Shanghai seminar included training for many of the company’s foodservice clients from the area. Among the topics were cutting and cooking U.S. pork for both Japanese and western-style cuisine, defrosting techniques,

plating skills and quality and cost performance. The second seminar, titled “U.S. pork cutting application training in food service/ retail packages,” was held for Beijing Hopewise Trading Co. meat cutters, traders and sales staff. USMEF offered a cutting demonstration and ideas for re-educating the Chinese retail sector about U.S. pork products, highlighting spare ribs, St. Louis spare ribs, bone-in loin and boneless butt. The cooking portion of the seminar featured U.S. pork pan-fried boneless loin with pumpkin puree, grilled St. Louis spare ribs and roasted bacon roll boneless loin with mustard sauce. The third seminar, “U.S. pork cutting and culinary applications in foodservice,” was held for various foodservice accounts of Longli Foods of Shanghai. Focused on chefs and distributors, the training included U.S. pork applications in catering and retail, an ingredient cost analysis for chain restaurants and new ideas about cooking U.S. pork. “Ultimately, the goal of these seminars was to help these companies take advantage of the taste and quality of U.S. pork and help the entire foodservice sector attract more consumers to U.S. pork,” said Liang. “If the end consumer has a good dining experience, then we’ve accomplished what we set out to do.” This is a big deal for our checkoff and I like to see proper use of checkoff dollars. Have a wonderful fall and please stay safe.

Take steps to restore pastures damaged by hot, dry summer

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rought conditions that damaged corn and soybean fields across parts of the Midwest this summer also hurt pasture ground. But farmers can take steps this fall and winter to help revive pastures for spring. Joe Sellers, beef specialist with Iowa State University Extension, said producers must keep their livestock off drought-impacted ground this

fall. “Lock them up in parts of the pasture. If you need to feed them, identify a sacrifice area to feed them in, and let the other parts of the pasture recover.” Steven Barnhart, Iowa State University Extension forage agronomist, is a proponent of overseeding, interseeding, frost seeding and oversowing, all of which are designed to introduce more productive, higher quality forages into an existing pasture.

Producers Livestock News September 2017

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By John Nelson Vice president, commodities division Producers Livestock Marketing Association

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Seasonal analysis of livestock price trends can offer marketing guides for producers

here are numerous ways to analyze commodity markets, from fundamental analysis (supply and demand), technical analysis (price charts/ history) and seasonal analysis (calendar trends). Seasonal analysis follows somewhat predictable price patterns throughout the year. I’m sure most of you have heard these statements: “Slaughter cattle make highs in the spring and lows around county fair time.” Or “hogs make highs in the summer and lows in the fall.” Seasonals aren’t perfectly accurate every year, but most commodities exhibit some sort of seasonality, from cattle to hogs to corn to soybeans to gasoline prices. When it comes to hedging/risk management, locking in profits is the most important component, regardless of the time of the year. But many producers also want to better time their hedging strategies during a price rally, which is where seasonal trends can be helpful. Look at these historical charts (provided by Ben Parks with INTL FC Stone). CME Live Cattle typi-

cally make highs during the first quarter/early second quarter; Lean Hogs make highs in the second quarter/early third

quarter; Feeder Cattle make highs during the second quarter/early third quarter. Other commodities follow

Searching for break-even prices in today's turbulent calf market BY MIKE SILA

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orn silage chopping is nearing completion, the high moisture grinders are beginning to roar, and the calf fall run is closing in. All summer long, cattle feeders have debated whether to contract calves for fall delivery or wait until they get to the salebarn. Due to the strong support in the feeder cattle market through the summer, and the struggling live cattle board, there have been very few opportunities, if any, to hedge contracted calves at the time of purchase. Most generally these contracted calves appeared to be $50 to $100 losers at the time of purchase. As of close for the CME on Sept. 8, with the June

Cost of Gain/CWT

Live Cattle at $111.00, many of these early contracted calves would now break even or perhaps have as much as a $50/ head profit. As the fall nears, the first of the calves are making their way to the auctions. Now is the time for many cattle feeders to figure out what that opportunistic feeder price is going to be. The included break even chart is based on: the price of a 650-pound delivered steer calf, gaining 3.25 pounds per day for 215 days and being sold at a pay weight of 1,350 pounds. The horizontal line across the top of the chart is the delivered price of a 650-pound steer per hundredweight. The cost of gain per hundredweight is along the vertical side of the chart.

650# Steer Price/CWT Delivered

As you follow across the line of the price, through the cost of gain, this will give you the break even price. These break even prices are cash market prices. For those who are hedgers, you will need to include the basis for the marketing month. Hopefully, this chart will allow you to think about what some of your results may be with the current market prices and assist you in future break evens. Thank goodness cattle feeders are eternal optimists, because as we continue to crunch the break even numbers things continue to be tight. In closing, I wish you all a safe and timely harvest. Sila is vice president of Producers Livestock Marketing Association

similar patterns. Gasoline prices peak in the spring then drop off into the end of the year.

Corn and soybean prices typically peak in June/July then drop off into harvest. Knowing this seasonal trend in corn could help livestock producers predict the optimal time lock in or “buy” feed needs. Grain producers that are forced to sell corn off the combine might want to “reown” the crop by buying corn futures, thinking prices will rally from the harvest lows. We receive updated seasonal charts every week from our clearing firm INTL FC Stone, but we also subscribe to Moore Research, which provides in-depth shortterm and long-term seasonal studies and trading strategies for all commodities. Feel free to call if you have any questions. Follow Nelson on Twitter: @johnleroynelson

PRODUCERS A trusted partner for generations. For more than 80 years, Producers has provided marketing and related services to the ag industry. Today, we're changing to meet the needs of agricultural operators with new products and services, including:

-County marketing/contract services -Commodity hedging for grains/livestock -Financial services and loans -Education and personal planning

Producers Livestock Marketing Association 4809 So. 114th Street

Omaha, NE 68157-2308 $160 $162 $164 $166 $168 $170 $172 $174 $176 $178 $180 Marketing division: Credit division: 1-800-257-4046 1-800-950-7522 $65 $110.74 $111.70 $112.67 $113.63 $114.59 $115.56 $116.52 $117.48 $118.44 $119.41 $120.37 $66 $111.26 $112.22 $113.19 $114.15 $115.11 $116.07 $117.04 $118.00 $118.96 $119.93 $120.89 4280 Sergeant Road, Suite 240 $67 $111.78 $112.74 $113.70 $114.67 $115.63 $116.59 $117.56 $118.52 $119.48 $120.44 $121.41 Sioux City, Iowa 51106-4710 $68 $112.30 $113.26 $114.22 $115.19 $116.15 $117.11 $118.07 $119.04 $120.00 $120.96 $121.93 $69 $112.81 $113.78 $114.74 $115.70 $116.67 $117.63 $118.59 $119.56 $120.52 $121.48 $122.44 Commodity division: Pork division: $70 $113.33 $114.30 $115.26 $116.22 $117.19 $118.15 $119.11 $120.07 $121.04 $122.00 $122.96 A branch of Producers Commodities LLC. 1-800-318-5619 $71 $113.85 $114.81 $115.78 $116.74 $117.70 $118.67 $119.63 $120.59 $121.56 $122.52 $123.48 1-800-831-5936 $72 $114.37 $115.33 $116.30 $117.26 $118.22 $119.19 $120.15 $121.11 $122.07 $123.04 $124.00 $73 $114.89 $115.85 $116.81 $117.78 $118.74 $119.70 $120.67 $121.63 $122.59 $123.56 $124.52 $74 $115.41 $116.37 $117.33 $118.30 $119.26 $120.22 $121.19 $122.15 $123.11 $124.07 $125.04 $75 $115.93 $116.89 $117.85 $118.81 $119.78 $120.74 $121.70 $122.67 $123.63 $124.59 $125.56

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Producers Livestock News September 2017

By Richard Ellinghuysen Vice president, pork division Producers Livestock Marketing Association

Slaughter plants help, but how strong is demand?

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eptember 5, 2017, was a day unprecedented in the history of the U.S. pork industry. Two brand new packing houses started up that day, increasing harvest capacity by more in a single day than any single year, ever. T h e   Tr i u m p h - S e a b o a rd plant in Sioux City, Iowa, and the Clemens Food Group plant in Coldwater, Michigan, added 22,000 head of daily processing capacity. Not all of that is operational on day one but through autumn and early winter, the kill lines will scale up. Wow. Now, what does that mean? According to economist Steve Meyer, we may already have enough hogs on the way to fill the new plants. He calculates that adding the new capacity using 5.4 full workdays per week, the U.S. packing sector can harvest 2.632 million head each week “comfortably.” Meyer says EMI Analytics projects U.S. hog slaughter will reach that level this fall. And since the new plants will not likely be at full capacity by November, there could be some price pressure. And given the gradual ramp up of these plants to begin with, it’s also not likely to create much near-term price competition. If this runs true, then we could see a fairly “typical” autumn relative to hog kill versus prices — just more pork scaling up into the system with little decline going forward toward spring. The key question then is how strong is the demand for this “new pork” going to be?

Pork exports ease off

According to the U.S. Meat Export Federation (USMEF) reporting, U.S. pork exports totaled 173,675 metric tons in July, down 4 percent year-overyear. Exports accounted for 26 percent of total pork production (down from 27.5 percent a year ago). A recent article in National Hog Farmer magazine quoted Brett Stuart, Global AgriTrends CEO asking “Why is the U.S. losing market share globally when we are the most competitive producers on earth with the highest safety record?” Stuart said cheap European pork coupled with trade deals has helped them take market share in growing global mar-

TPP. Will U.S. pork export markets continue to expand? That’s the multimillion dollar question. And we don’t have a clear answer. More consumers mean more pork eaters. But at what price? The U.S. produces high quality pork at competitive prices, but tariffs and currency exchange rates impact the price of our pork in foreign markets. A weak U.S. dollar is benefiting us today, as are the trade deals that remain in place. Both are helping keep this year ’s late-summer/earlyfall prices ahead of last year’s despite the seasonal decline. Any hitch in trade could find us “in the soup” in a hurry. Then what?

Hog demand questions

kets — China in particular. He also said Chinese hog herds are expanding, which will result in price pressure on pork in 2018. The USMEF reported that U.S. pork exports to Mexico are on pace for a sixth consecutive annual volume record, with July volume up 7 percent from a year ago. Through July pork exports to Mexico have increased 20 percent. Mexican per capita pork consumption has climbed by about one-third over the past 10 years. While that’s been very good news for us, AgriTrends’ Stuart says the U.S. can’t afford to become too dependent on just one market. The USMEF reports that U.S. pork exports to South Korea climbed 30 percent, while Japan slipped 7 percent. But, the U.S. has announced its intent to renegotiate KORUS (though recently put on “hold”), has begun to renegotiate NAFTA and has pulled out of TPP. Historically U.S. pork has gained global market share as a result of trade negotiations.

Board elections approaching second notice In February, Producers Livestock will be electing two board seat positions for the eastern and western halves of Nebraska. The dividing line is U.S. Highway 281. If you live in one of these districts, do business with Producers Livestock marketing, commodities, or credit, and you would like to run for a board position please call Rick Keith, President, at 800257-4046, ext. 1102, or Deb Engler, Corporate Secretary, at 800257-4046, ext. 1100. We have four board meetings per year.

Trade deals at risk

These deals are now at risk. And the “remaining” nations interested in TPP are pursuing deals based on it. Stuart says that unless the U.S. can quickly put bilateral free trade agreements in place, our Asian markets are at increased risk. The U.S. currently holds 55 percent of the Japanese chilled pork import market. In an article last month, POLITICO quoted Ron Prestage, president of Presage Farms, currently constructing a new hog packing plant near Eagle Grove, Iowa, as saying that he was “scared to death” after learning that the United States had pulled out of TPP. His new packing plant was expecting to get big gains from

We’ve all seen articles quoting excited pork producers eager to talk about the big new hog kill plants that came on line, and the one currently under construction. The excitement is from the new shackle space and anticipated hog demand. But what’s not often talked about is that all three big new plants are owned and operated by integrators — packers who will own almost all of the pigs they kill from “womb to tomb.” The operators of these plants intend to produce most of the pork — raising the pigs themselves and also contracting production. Beyond that will be some hog purchase contracts, and some residual supply. So some of the hogs will be independently produced, but the majority of this new industry growth isn’t traditional, it’s vertical (some call it “industrial”). That doesn’t mean there won’t be some new market competition but it does mean that it’s likely we’ll see the 2.4 percent number of open market hogs traded for kill each day shrink even further. Some characterize this as the “chickenization” of the hog industry. Almost all U.S. broiler chickens are owned by the pro-

cessors and/or contract raised today. What happens to the hog industry during the next market downturn? In a recent article on Agriculture.com, Mark Greenwood at Compeer Financial is quoted as saying that U.S. pork producers are very strong financially. He said a lot of systems have paid off all operating debt and a majority of their clients have paid down real estate revolving debt. Greenwood said many systems could lose $20 per pig for two years and not touch their operating lines other than for tax purposes. He said producers shouldn’t get overconfident though. He said if you think you are financially strong, there is somebody stronger. He also said expansion is ongoing with many of his clients in the process of adding 5,000 new sows each.

Questions for producers

So where does the independent hog producer stand? Where you have been for years producing a high quality product efficiently in a competitive environment. And you do so today in an uncertain industry that is scaling up to capture new global market share. Some things that are different is that your competition for that market is increasingly the packers you sell to and the impact on the price you receive will reflect the global market more than ever before. These increase the risk of market volatility and uncertainty. It also increases the value of your Producers Livestock pork agent. Being in the market every day, they offer negotiated cash market agreements, shackle space and price risk management; tools that are of critical importance to you going forward. Within new risk is new opportunity. It may be a brave new world, but it doesn’t have to be a dangerous one. Work closely with your Producers Pork agent and have a safe, successful fall. And thank you for your business!

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