Brumm Speaks Out

I have just returned from participation in the fall meeting of the Ontario Association of Swine Veterinarians. A great group of swine professionals who are very worried about the future of the swine industry in Ontario. Challenges in Ontario include access to markets with the largest slaughter plant in the province up for sale.

With the plunging of the Canadian dollar relative to the US dollar in the past month, prospects for international trade are better than they were this summer for the Canadian industry. At the same time, the strengthening US dollar is making it harder for US pork products to compete in international markets.

I think many of us fail to realize how important currency exchange rates have been to our strong export sales. The best way to explain this is to use the current Canadian situation. In early summer, the Canadian Loony was valued as high a $1.08 per US dollar. Last Friday, it was down to $0.78 per US dollar.  Now assume that you are selling a Canadian product into the US market. In June, if you sold $100 worth of Canadian product to a US market, you received just over $0.92 US dollars in payment. On Friday, for the same $100 of Canadian product, you would receive $1.28 US dollars.  Quite a swing in income! On the other hand, if the US buyer had only $100 to spend, he could buy $1.08 worth of Canadian product in June and only $0.78 last week.

The Globe and Mail is the nationally distributed daily newspaper of Canada. On Saturday, the headline was ‘One Way to Boost Prices is to Cut Supply’. In the article, they were talking about copper, oil and other minerals that are a major source of value into the Canadian economy. At the same time, they were discussing the impact of the declining Loony on their overall economy.

Our industry is linked to the world economy. Right or wrong, the production decisions in the US must be made in light of such things as exchange rates, inventories in other countries, etc. The strengthening US dollar is making it more difficult to market our excess production via export markets. At the same time, other countries are valuing the US dollar relative to other currencies as being a safer place to invest monies. This means the US economy, even with our concerns about the cost to the economy from the Wall Street and financial bailout, appears to the rest of the world to be one of the best places to invest.

When the October 1 Hogs and Pigs inventory is released by Stats Canada later this week, we will have a somewhat clearer picture of the progress Canadian and US producers have made in ‘boosting prices by cutting supply’. In light of the export market challenges associated with the increased value of the US dollar, along with the financial market impacts on the US and world economy, I suspect we have a ways to go yet to make the supply and demand equation profitable for either Ontario or US producers..

Here in southern Minnesota, the corn harvest is in full swing. This morning on the local radio station’s farm show, seed corn representatives were citing test plot yields of 220+ bu/acre. Given the many weather challenges of this growing year, these yields are remarkable.

Along with very good yields, the crash in the financial markets appears to have removed many of the speculators from the commodity markets. No longer are pork producers faced with purchasing corn at $6-8/bu or soybean meal at $400/t. This past week I was at a producer’s site where he confirmed that he had purchased all of his estimated soybean meal needs for the next 12 months at $260/t delivered price. Again, just 2 months ago this was thought to be an impossible price objective.

On the other side of the equation, cash expenses for growing feed grains remain high. In late August, it was projected that the cash costs associated with growing an acre of corn in the upper Midwest were going to be in the range of $450 per acre for 2009. Add to this as much as $300 per acre in cash rent payments, and even with a 200 bu/a yield you have costs of $3.75/bu.

In the past few years, under the previous US Government Farm program, cash costs to grow corn were often more than the cash market. Government payments made up the difference via a variety of programs. The net result was livestock producers could purchase feed grains for less than the cost of production.

The current Farm program makes this scenario less likely, as the ‘target’ prices are nowhere near the current costs of production. With the current cash corn price very near the estimated cost of production, it appears that the new ‘norm’ for feed grain prices for swine production will be in the range of $3.50-$4.50 per bu. The only thing that will change this is a bursting of the ‘ethanol’ bubble that may result in deflation in rural communities.

While those of us buying feed grains for livestock production recall fondly the days of $1.80/bu corn, I think we can all agree that a return to that price level won’t happen. What we also don’t want to occur is a return of the farm crisis of the 80’s that devastated so many rural communities. As the US and world economic markets struggle with the current crisis, this becomes a distinct possibility.

With propane at $2/gallon, many producers have begun inserting ‘Tekfoil’ or similar materials between the bird netting and emergency drop curtains in cold weather. The question that needs to be asked – how tight can these emergency drop curtains be sealed and still maintain the emergency ventilation protection?

One way to estimate this number is to examine a curtain sided finishing facility measuring 41 x 200 ft housing approximately 1000 growing pigs. This number of pigs within this building dimension translates into 5 pigs per foot of building length.

A 5 mph wind against the long side of the building is 440 ft/min in velocity. With a 1 ft opening on both sidewall curtains, each 1 ft of length in the building receives 440 cfm of exchange, assuming 100% of the wind velocity is transferred thru the curtain openings. With 5 pigs per ft of facility, this becomes 88 cfm/pig.

This suggests that ‘Tekfoil’ type products, when installed, need to stop a minimum of 6” from the top of the opening in a 40 ft wide facility to ensure emergency relief for any curtain that has an ‘emergency’ drop function (magnetic relay or override thermostat) associated with it’s installation and operation.

In the case of double-wide facilities (80’ wide barns) there are 10 pigs per ft of barn length, so a minimum opening of 12” is needed to maintain an emergency ventilation rate at 5 mph.

For barns with 50 ft wide rooms, the number of pigs per ft of facility length increases to 6.1 for single wide and 12.2 pigs for double-wide facilities. A 1 ft opening on curtains translates into 36 cfm/pig on double wide facilities.

This cfm rate translates into effective heat removal for 50 lb pigs whenever outside air temperatures are less than approximately 65F. At the other end of the weight scale, this amount of emergency ventilation translates into effective heat removal for 200 lb pigs when outside air temperatures are less than approximately 50F.

Because of issues associated with even distribution of the ‘Tekfoil’ materials, etc. in sidewall curtain openings, I suggest that producers who rely on these curtains for emergency ventilation keep at least 12” of curtain open for the emergency function, regardless of building width.

By now, many of the readers of this blog have had time to read and digest the numbers in last Friday’s USDA Hogs and Pigs report. In addition, many of you have seen my interpretation of the report which keyed on the on-going changing structure of the US industry. At the same time, USDA continues to tweak the COOL regulations that became effective on Tuesday.

With all of this as background, the demand for large groups of high quality weaned and feeder pigs to fill production facilities in the upper Midwest continues. I’m sure the sharp decline in feed grain prices this week, which reduced the feed cost to grow a pig from weaning to slaughter by more than $15 per pig or almost $6/cwt gain, will also spur further demand.

Smithfield announced this past week that effective in April, 2009, all pork products from their packing plants will be labeled as US born, grown and processed. This means that producers who currently are filling facilities with Canadian born pigs (124,000 pigs in the week ending September 27, 2008) will no long have a market at a Smithfield plant.

It appears that the US will end the year importing approximately 7.2 million feeder pigs (pigs weighing less than 55 kg). While the pace of Canadian imports may slow due to fewer pigs being born in Canada, there is nothing in the available data to suggest fewer pigs will be imported due to COOL. This suggests a remixing of market destinations for many in the upper Midwest region. It appears that Smithfield will have to become somewhat aggressive in sourcing US born pigs to fill their slaughter needs, while producers who have traditionally sold Canadian born pigs to Smithfield plants will have to forge new marketing arrangements with other US plants.

At the same time as this shift in marketing arrangements is occurring, Iowa and southern Minnesota and Indiana remain in a growth mode relative to other US states for pigs to fill facilities. On September 1, 2008, USDA estimated that Iowa now has 29.9% of the US kept for market inventory, or 18.7 million pigs. Minnesota is number 3 with 11.4% or 7.1 million growing pigs. Indiana, a state where the governor has announced his support to double the number of pigs, now had 5.4% of the growing pig population or 3.4 million head. All of these states continue to grow in their share of the US industry.

Contrast this with what’s happening in Illinois. Illinois ranks number 2 in the US for both corn and soybean production. Yet the state continues to very gradually decline in their share of the growing pig inventory. Illinois now has 3.95 million growing pigs in inventory, or 6.3% of the US total. On the other hand, their share of the breeding herd continues to grow. For rural communities that have corn and soybean production as their basic agronomic crops, this suggests that alternative markets are becoming more important to their usage than pork production once was.

With the large number of imported Canadian feeder pigs, the growing number of Illinois feeder pigs that depart that state, and the on-going importation of feeder pigs born in Oklahoma, Missouri and Nebraska, I often remind audiences that the big sucking sound they hear is the demand in Iowa and southern Minnesota for feeder pigs. The data available suggests that pork production will remain as a key economic driver in this region.