Brumm Speaks Out

On Sunday, May 17 I flew from Minneapolis to Kansas City wearing a PQA+ and Pork Checkoff polo shirt. At both airports I had an individual come up to me and comment that they ate pork and considered it to be a good buy. I’ve traveled all over the US and foreign lands, sometimes wearing pork producer association shirts, wearing Nebraska Pork Expo shirts, etc. However, this is the first time I’ve ever had any one, much less 2 separate people in different airports, approach me with favorable comments on our product.

This experience suggests that the Pork Board’s and NPPC’s massive education efforts in the face of the ‘swine flu’ challenge has had a positive impact. I know there are many who feel that these organizations should have reacted even faster than they did. I’m not going to comment on the timing of the response or this concern expressed by some.

I do think that when these producer directed groups mobilized as a single voice, their message was very effective. We know the politicians in Washington and the health policy gurus at CDC in Atlanta got the message, because we heard many of them repeating the message of pork safety and it’s lack of connection to the H1N1 virus.

Whether you believe in the checkoff or not (apparently most of you do since the recent referendum had so few votes asking for a yes/no vote on the status of the checkoff) or in the SIP voluntary checkoff, the experience from their efforts in response to the swine flu mis-information deserves a big thank you. Without active, producer directed leadership, we as independent producers or as producers in large production systems would never have been able to mount such a massive and targeted campaign in such a short time frame.

Yes, there was a very significant financial impact from the mis-information. Just imagine how great the disaster would have been if we hadn’t pulled together under the umbrella of these organizations!

I started the week thinking this weeks writing would be about management of finishing facilities for summer heat. One item often overlooked in management for summer heat is modification of grow-finish diets to reduce the heat increment of the diet. Most often this can be done by adding higher levels of crystalline amino acids to reduce the amount of soybean meal in the diet.

However, this thought process got side tracked on Tuesday with the release of the USDA supply and demand report and a conversation I had with a local feed mill manager. The USDA report highlighted the tightening world supplies of soybeans and suggested a lower than expected carry-out at the end of the 2008-2009 market year. Soybean meal on the Board of Trade reacted by going to the highest prices since last September in trading this week.

At the same time, local basis for soybean meal suggests tight supplies. Basis for May, June and July meal prices are ranging from $7-19 over the Board of Trade price. Once you get to the September pricing when beans should become available, the basis drops back to a more historic $5-7 under the Board of Trade.

Soybean basis in the local area on Tuesday were only -$0.10 to -$0.13 while most other regional bids were $-0.20 to-$0.35/bu.

Combine the strong positive basis on soybean meal with the beginning of summer heat at our door and it appears to me that we should all be having conversations with our nutritionists to be sure we our diets formulated appropriately.

The combined March 1 and April 1 breeding herd inventory for US and Canadian producers stood at 7.394 million pigs, 96.3% of the 2008 number for the same period.

Because so much of our profitability is now tied to successful exporting of our products, it is interesting to look at pig numbers from our major export competitor, countries that comprise the EU27 community. All countries in the EU27 take a year end inventory of all pigs and breeding sows (sows and gilts in pig, other sows for breeding and intended gilts). While the data is not yet available for all countries in the EU27, the major pork producing countries have summarized their data.

Germany is the largest pork producer in the EU27, with 26.719 million pigs in inventory (compared to 19.3 million in Iowa on March 1, 2009), of which 2.296 million were breeding sows. Total inventory was 98.5% of the 2007 number while sows were 95% of the 2007 number. The smaller decline in total inventory is the result of increased imports of weaned pigs from Denmark for growth to slaughter.

Spain is the second largest pork producer in the EU27, with 26.290 million pigs in inventory, of which 2.542 million were breeding sows, the largest sow herd in the EU27. This breeding herd compared to 1.040 million animals in the breeding herd in Iowa. Total pig inventory is 100.9% of the 2007 number, while the sow number is 95.5% of the 2007 inventory.

France is number 3 in EU27 inventory, with 14.796 million pigs (100.9% of 2007), of which 1.201 million are breeding sows (99.3% of 2007). Poland ranks 4^th, with 14.242 million pigs (80.8% of 2007), of which 1.279 million are breeding sows (80.6% of 2007). The sharp decline in Polish numbers reflects comments that I have heard from several people who have been in that country in the past year which suggests a very tough economic climate.

Denmark is number 5 in pig numbers at 12.195 million (92.6% of 2007) of which 1.201 million are breeding sows (95.3% of 2007). While many of us think of Denmark as the leader in EU27 production due to their presence in the Japanese and other export markets, their herd size is approximately 50% of that in Germany and Spain.

The countries that surprised me with pig inventory numbers were Italy and the United Kingdom. Italy has 9.252 million pigs in inventory (99.8% of 2007), of which 756 thousand were breeding sows (100.3% of 2007). Contrast this with 4.550 million pigs in the UK (97.4% of 2007), of which 488 thousand were breeding females (98.0% of 2007).

I never picture Italy as a leading pork producing country, even though I am aware of their production of very heavy finishing pigs for trademark ham production. Their pig inventory is almost identical to the March 1, 2009 numbers from North Carolina, with a breeding herd that is similar in size to Illinois.

On the other hand, we always think of the United Kingdom (Britain, Ireland and Scotland) as country that has a history of production. Their pig numbers are very similar to the numbers in Illinois.

In sum, while there appears to be a general trend towards fewer pigs in the EU27 (most notably in Poland and Denmark), Spain and Italy appear to showing only minimal signs of reducing production. With 159.724 million pigs and 14.946 breeding sows in inventory at the end of 2007, we can’t ignore their trends in production as we compete in the global market.

Hysteria is the best word I can think of for what happened to hog prices this week when consumers around the world mistakenly associated pork production with the Type A-H1N1 virus. This morning there was a report from Los Angles of a hospital having to set up a triage system because of so many people coming to the emergency room fearing they had contracted flu.

As of this morning, there were less than 200 confirmed US cases (only 1 in Minnesota and 2 in Iowa) and the only US death was a small child who had other health issues. Thanks to Aaron Putze, Executive Director for the Coalition to Support Iowa’s Farmers (www.supportfarmers.com) for the following information which was in his recent newsletter:

The following numbers, courtesy of the Centers for Disease Control, provide context to the current H1N1 flu strain. According to the CDC, annual deaths in the United States from various causes include:

1) Heart disease: 696,947

2) Cancer: 557,271

3) Stroke: 162,672

4) Respiratory disease: 124,816

5) Accidents: 106,742

6) Diabetes: 73,249

7) Flu/Pneumonia: 65,681

Alzheimer’s: 58,866

9) Suicide: 32,000

10) Homicide: 15,495

Number 7 on this listing is flu. Note that it isn’t specific to Type A-H1N1, but instead is all flu. People die every year from the flu virus and its associated complications. That is why there is such a massive effort each fall in the US by health professionals to have populations at risk vaccinated. With only 1 confirmed US death, less than 200 confirmed cases so far, and apparent stability happening in the Mexican population, the hysteria and panic surrounding the current flu needs to be put into perspective.

The financial damage to the US swine industry in the past 5 days has been massive. It’s really tough to find any producer optimistic about the chances for any type of summer rally in prices. I suspect this weeks damage to the Chicago futures will first show up in spot market prices for weaned and feeder pigs. Instead of a gradual decline in prices, typical for this time of year, I expect to see a sharp drop in value for these pigs in the next few weeks. If I had to guess, the drop may be as much as $10-15 per head. This will translate in prices that are below variable costs of production for farrowing sites.

As I’ve stated before, this pressure means that the most vulnerable production model in these economic times is systems which have 2 profit centers – sale of weaned pigs and sale of market pigs. I would expect those selling weaned pigs to be faced with some very tough decisions in the next few weeks regarding their ability to remain in pork production.