Fasten your seatbelts for 'Magic Pork Mountain'
By STEVE MARBERY
Most analysts and producers believe a maturing U.S. pork industry is in the midst of a gradual build-up, unlike cyclical expansions of the past 50 years.However, statistics and field reports suggest current expansion is anything but gradual. From North Carolina to Minnesota, a widespread 'can't miss' attitude may be pushing the pig crop to stratospheric levels. Historically, such euphoria has been driven by the hog:corn ratio. At last count, the ratio was above 20:1 and rising, a benchmark suggesting expansion is out of control.
Demand for single-source feeder pigs to fill new finishing barns is unprecedented. It is not uncommon to find new finishing barns built for US$160 per pig space and leased for US$38 to $41 per space. This trend is most pronounced in the northern Corn Belt and generally it is not considered speculative. Considering only the near-term picture, this may be right. But projections are based heavily on estimates of demand which tend to be keyed to the past and 90 to 95-million-head pig crops. Structural changes could render this benchmark obsolete.
The advent of contracting has buoyed lenders with new-found confidence that pork production is 'low risk'. Backed by banks and feed companies, 80 to 100-per-cent financing is readily available for producers who comply with housing specifications and environmental guidelines.
Most analysts project live hog values to hit US$70 per cwt in the first half of the year, as corn falls below US$2.50 per bushel. The 'trade' pegs hog prices at US$55 to $60 for the next two quarters, dipping to US$45 to $50 as the year winds down. Despite a doubling of corn prices last year, most producers profited.
Typically, US$4 to $5-per-bushel corn fuels liquidation. While many small producers shifted from hogs to sell corn last spring, they only represent a minor part of today's industry. Intermediate and large producers began to expand this summer, responding to good live hog prices and more than offsetting attrition by small farmers, according to some analysts.
Year-to-year costs for corn belt farrow-to-finish farmers rose 26 per cent in November, but the monthly hog price increased 36 per cent from last year, according to the U.S. Department of Agriculture (USDA). Rarely do price rises exceed cost increases to this extent on a year-to-year basis. Put simply, the current period is an aberration. "Hog producers cannot stand too much prosperity," says Ron Plain, University of Missouri agricultural economist. "We are in the middle of a very fast breeding herd expansion," he says. His view is based on low sow slaughter and rising gilt retention. Typically, only one per cent of commercial sows are marketed each month, but that hasn't happened for several months.
Though the year should be profitable for average producers, the stage is set for US$30 hogs by early 1998, Plain says. The U.S. produced a record 96 million hogs in 1995, a liquidation period. Current expansion could generate more than 100 million. Some analysts predict 110 million pigs in 1998.
Export factor
Another factor that could destroy the 'gradualist' theory involves U.S. interest rates, currency exchange relationships and exports. Since 1987, U.S. interest rates have fallen while pork exports have soared. Is such a trend sustainable? Export gains largely were due to a dramatic increase in Japanese imports. The yen:dollar rate has changed strongly in favour of U.S. exporters since 1992. See Fig. One. Economists tend to agree strong pork exports added $5 per head to hog prices in 1995-96 and the Japanese market has had a big impact. What the chart does not show is that recently the U.S. dollar has risen some 30 per cent against the yen in the past several months and exports to Japan have fallen recently. That trend could persist well into next year, according to some analysts.Rising U.S. interest rates (a possibility) and a stronger dollar could coincide with higher retail pork prices and a glut of cheap beef and poultry. According to Missouri's Ron Plain, small changes in pork supply could push the market over the edge, unlike traditional expansion. Shifts of six to seven per cent in supply could cause chaos in the market, given unexpected events. The hog market traditionally has been able to absorb a 20-per-cent shift in production, but times have changed, he notes.
Besides low sow slaughter, gradualists base their assessment on USDA's September Hogs & Pigs Report which estimated a 6.77-million-head breeding herd. Analysts typically overestimated breeding herd numbers for five quarters. That is typical of liquidation periods, which generally are followed by about five quarters of underestimation. Put simply, the industry is at a turning point. The herd may be at or beyond seven million head, if the industry is following historical patterns. By the end of 1997, inventory could exceed 7.4 million head, roughly the same as in September, 1994, when hog prices fell below US$30 per cwt.
Anecdotal evidence of strong expansion is easy to find, though it is sometimes hard to see in the statistics, says Al Prosch, a University of Nebraska swine specialist who has observed robust internal growth by existing independent units. This kind of expansion hasn't been seen for 15 years, and it is based on much larger family units than in the late 1970s. Mega-herd expansion in the High Plains and Panhandle is also playing a role. "We probably have 50,000 to 100,000 new Nebraska sows being added by July, and most of this comes from existing independent farms that are doubling or tripling," he notes. Similar expansion is obvious in Iowa and Minnesota.
The good news is that prudent, bottom-line producers will make hay while the sun shines and prepare for a serious downswing in 1998. Iowa still contains many 500 to 1,200-sow operations which are expanding by at least 25 per cent. This type of growth is not being detected by most analysts, insists Prosch.
On the other hand, environmental concerns, tighter regulations and siting difficulties by large units may be limiting expansion. Steve Morrissey, analyst with McVean Trading of Memphis, concedes expansion could reach irrational levels, but he thinks it may take longer than a couple of quarters. Morrissey believes small producers who left the business in late 1994 though spring, 1996, are not re-entering the business in significant numbers, as in previous cycles.
Morrissey concedes 1998 could be a disaster, especially if next year's corn crop exceeds 10 billion bushels. Using trendline analysis, he says an 11-billion-bushel crop is very possible, given normal weather. Fasten your seat belts for a ride on North America's 'magic pork mountain'.
Steve Marbery, Pork Producer's U.S. correspondent, resides in Mount Pleasant, Iowa.
back
Ten-minute workout gets pigs on their feet
By NORMAN DUNN
A fitness training centre for piglets with splay leg problems provides toned-up back muscles and helps the animals survive after only one 10 to 15-minute session on the day they're born.Piglets afflicted with this muscular weakness are gently locked into the training centre with their back legs held off the ground. The toning comes from the animal's instinctive scrabbling to get free.
Traditionally, weak piglets are placed in plastic or rubber hobbles to keep them from doing the splits, but often bands slipped off, or were too tight and restricted movement. The piglets were also at great risk of being trampled.
A farmer in Jutland, northern Denmark, created the piglet fitness centre: an inverted-V-shaped piece of sheet metal welded between two steel support plates.
The piglet is placed with its stomach on the ridge of the gable and its forelegs dangling down one side. The gable is situated at the height which keeps the rear feet off the ground. A plastic rod, with positioning adjustable according to the size of the patient, is slipped through holes in the steel support plates and lies across the small of the piglet's back, pinning the piglet to the gable. The piglet then struggles to get free but the smooth surface of the metal gable gives the rear trotters no grip.
On-farm tests of the fitness centre have been held in Germany and Denmark this year. Results have been good but indicate that, in order to take full advantage of the therapy, piglets should weigh at least two pounds and not be undercooled or otherwise seriously weakened. The fitness centre should be used in the actual creep area of the farrowing pen because the grunting of the sow encourages the piglet to free itself. Without this encouragement, the piglet may just stop struggling.
The piglet fitness centre is now selling successfully in Denmark and Germany at C$90 and, according to the distribution company, it has an almost 100-per-cent success rate.
For more information write: Jysk Salgsagentur, Kirsten S. Christensen, Hvidbjergvej 97, DK-7080 Borkop, Denmark.
ID:865