Brumm Speaks Out

As we approach the July 4 weekend and holiday, many are glad to have a forecast of seasonably warm with limited moisture. For southern Minnesota, seasonably warm means temperatures in the low 80’s during the day and upper 60’s at night. In the Mankato area, we are still looking for moisture (unlike our producer friends in the eastern cornbelt) as we remain below average for precipitation since April 1.

With the return of cooler weather following last weeks hot and humid blast, pig performance has shot up once again. We sold several loads from a research site yesterday and the weights surprised us, just as many of you are being surprised this week by your weights.

For the week ending June 27, barrow and gilt weights in the Iowa and Southern Minnesota market reporting area averaged 265.1 pounds. This was a 3.6 pound drop from the previous week, the biggest decline in weights for a one week period since prior to 2004 when I began tracking this number. However, at 265 pounds, the sale weight is still the highest ever for the last full week of June.

I’m going to guess that weights will go up at least 2 pounds this week due to the return of more seasonable weather. For southern Minnesota, we had several days with high temperatures below 80 F, meaning growing conditions in our facilities was again close to ideal in terms of temperature.

When you add in the $0.30-$0.40/bu drop in corn price in reaction to the USDA crop report on Tuesday, I think producers will return to feeding pigs to heavy weights, even though they are often loosing $20-30 per pig at current market prices.

At many meetings, producers have talked about the need for the industry to sell at lighter weights in order to reduce the available pork supply. While this sounds like a good idea, keep in mind that many producers sell into a packer payment grid that severely discounts underweight pigs, and packers have been moving the desired weights up on their grids in the past few years as they try and get more pounds of product out the door from the same labor force.

Given that we deliver pigs to slaughter houses in trucks that hold 160-190 pigs (depending on the size of trailer, size of pigs, etc) and delivery costs for many equate to 2-5 pigs per load ($250-600 per load in transport charges), everyone strives for full loads of pigs. To avoid issues with discounts on light pigs (which may be more severe than discounts on heavy pigs), many producers feel they have few options to reduce the delivered weight of their pigs, even though losses continue for every pig delivered.

This past week I gave 2 presentations that included a discussion of management for summer heat relief to different groups in Iowa and Illinois. At both locations, comments following the presentation reaffirmed what I’ve known for some time – producers and their advisors don’t fully understand how to keep pigs cool in hot weather.

The following bullet points are the basics of summer cooling of pigs:

• Pigs get hot and reduce performance at much lower temperatures than most producers and advisors expect. Recent data suggests that on partial slats, 132 pound pigs begin reducing feed intake when air temperature is 77 F. Consider this in light of the fact than many producers don’t believe in wetting pigs (they might get sick!) or don’t begin wetting until the upper 80’s.
• If stirring fans are used to assist in cooling pigs, they should be aimed so air moves over the pigs – not aimed so the air on the ceiling is moving. If aimed over pigs, they should be connected to a thermostat so they turn off in evening hours. I generally recommend these begin operating at +15 F over the controller set point.
• For curtain sided barns with no stir fans or incorrectly installed stir fans, set the wetting system so it begins operating at +18F above set point.
• For tunnel barns and curtain barns with fans on thermostats, you can begin wetting at 20-22F above the set point. The reason for the delay versus curtain barns is you know a draft is going over the pigs so evaporation will be more effective immediately.
• The ON time for wetting the pigs should not be over 2 minutes. The goal is to wet the pigs and then let them dry. Many producers make the mistake of thinking a longer ON time will be more effective in cooling. The most effective cooling is when pigs are drying during the OFF cycle.
• If you can’t get pigs in the far pens wet without excessive water in the first pens, consider replumbing your dripper/mister lines. Try taking the main feed to the middle of the barn and pressuring the dripper/mister lines in 2 directions. This will allow you to cut your ON time by as much as 50%.
• Begin with a 15 minute OFF time. Rewet the pigs when the cement slats under the pigs begin drying.
• Use large drop emitters or nozzles. Misters are not recommended. They are difficult to keep functioning in areas with poor water quality, and the fine mist is not as effective in wetting the pigs as large droplets. Your goal is wet pigs that dry off, not wet, cool air above the pigs!
• Target nozzle sizes and locations that wet no more than 60% of the pen area.
• In curtain barns consider hollow cone nozzles.
• In tunnel barns, consider flat fan nozzles that are positioned parallel to air flow.
• If the controller has the capability, consider programming it so no wetting of pigs occurs for a 6-8 hour period at night. This allows floors and equipment to dry.

State governments around the US are in the process of finalizing their budgets for the coming year(s). In all but 1 or 2 states, all recipients of state government funding are being told to do make do with less. This list of those doing with less include our land grant universities, a cornerstone of American Agriculture.

In the case of Minnesota, the Governor’s un-allotment process means $50 million less to the University of Minnesota. While I don’t have specifics on how much of this will have to come from the College of Agriculture, you can bet they will be asked for their fair share. In Nebraska, the cut to the Institute of Agriculture and Natural Resources is $1 million. Almost 50% of this cut will in the form of reduced state dollars to support technicians for agricultural scientists.

Two weeks ago I was part of a group pulled together by the National Pork Board and the National Pork Producers Council to address this issue of declining funding for agricultural research, teaching and research. One of the first presenters was Dr Bob Easter, current Dean of Agriculture at the University of Illinois.

Bob is well known to many of us as a leading swine nutrition researcher. He has now become a leading spokesperson for Colleges of Agriculture as they struggle with declining state and federal dollars to fund their missions of teaching, research and extension. Bob’s presentation was very effective in helping the group understand why agriculture (and pork production in our case) is changing so rapidly at land grant institutions.

Bob began his talk by reminding the group that as Dean of Agriculture, he is the CEO for a $150 million dollar per year business. As CEO, he is responsible for having his books balance at the end of the year. As state and federal funding for production research has declined, while costs of doing research have climbed, scientists are increasingly being asked to seek out grant funds to pay the bills. In fact, a key criteria in new hires is the ability to successfully write and obtain grants.

In the case of agriculture, there are few dollars available for such items as production research (pigs per pen, what type of drinkers, impacts of management on profits, etc). The main funding source for much of the scientific discovery process at public institutions in the US has become the science initiatives of the federal government (NSIF and NIH). In the round of economic stimulus funding of the Obama administration this spring these funding sources had added monies available while agricultural funding was largely ignored.

Given the financial squeeze being placed on Colleges of Agriculture by declining general support dollars, administrators by necessity have been hiring faculty that can compete for these new federal funds. In almost every instance, this means they are likely to have little or no farm experience or contacts with the agricultural production community. This does not mean they are not good scientists – it just means they won’t be able to respond to producers or allied industry phone calls. It also means the training of graduate students for many of the production system and allied industry openings is becoming more basic, and less hands-on as it relates to production agriculture.

Even the teaching of production agriculture is changing in response to this financial pressure. Bob related that in the early 1970’s, the college of agriculture received over $7 of state monies for every $1 of tuition income from students. Today they receive less than $1 for every dollar of tuition income. If Bob has a faculty member teaching a 3 credit course, he receives approximately $420 in tuition income for every student enrolled. If he offers a class that has only 10 students enrolled, this is only $4200 in income to cover salaries, and doing such things as turning on the lights, paying for custodial services, etc. Clearly not enough.

This leads to the question – what does the future of ag research, teaching and extension look like? Here the crystal ball gets somewhat fuzzier, but for sure production research will continue, but with almost all of it being done in the private sector by production companies. Witness my involvement as science director in a private research site, and the continued growth in the number of private sites for mid-large production systems. The missing link is this is information availability for the small-mid sized system that does not invest in research.

While the National Pork Board is investing checkoff dollars in research, the pool of monies they have available is limited, and in many instances faculty are discouraged from seeking these dollars because of the relatively small size of the grant versus NSIF or NIH grants.

Just as producers are asked to become more involved in their explanations to neighbors and local communities of their production practices, etc., they will have to become more involved in their state political processes if they want to impact this decline in ag research. With agriculture representing only 2% of the US population (maybe closer to 8-10% if we add in allied industry and processing), unless we repeatedly make our case to elected leadership, we stand no chance.

I had an interesting inquiry this morning asking how producers are reacting to the lack of profit and higher feed ingredient costs. Specifically, are they lowering diet quality to conserve cash?

This is interesting because many of you have learned thru experience that healthy pigs respond to better diets than you’ve ever fed in the past. With the widespread adoption of circovirus vaccines, we are now getting more pigs and healthier pigs. The many performance improvements in daily gain that we are all hearing about or experiencing are due in no small part to the improvements we’ve made in our diets, especially in terms of amino acid amounts and balance.

Now that many of you are struggling to be ‘the last man standing’, decisions on cash expenses are front and center. One obvious way to conserve cash is to lower the money spent on feed ingredients. If you grow your own corn and have corn already in inventory, I’m sure you are considering what to do about soybean meal purchases for the remainder of this crop year, especially if you don’t have your meal already booked for pricing. Cash meal is now as high as $444 per ton so it is very tempting to lower the amount in your diets.

I haven’t worked the economics of lower quality diets that result in poorer feed conversions, lower daily gains and possibly fatter pigs at slaughter, but before you make the decision to do so I urge you to run these numbers. You may be robbing Peter to pay Paul. While your per ton cost of feed will be lower, will your margin over feed cost get worse?

At the World Pork Expo in Des Moines, I talked with many of you about availability of DDGS. With the financial struggles of the ethanol industry, output of this feed ingredient has shrunk and both suppliers and buyers told me of very tight supplies. This is the time of year to pay close attention to your DDGS for quality.

In Iowa beginning last fall there were reports of corn quality issues associated with last years crop in terms of keeping it in condition thru the storage season. In the next months, much of the corn entering the ethanol market will be the last corn from bins as farmers empty bins in preparation for the 2009 crop. The risk of moldy corn entering the market channels increases, and the ethanol process will condense any mold byproducts such as fumonosin, vomotixon, etc. by a factor of 3 in the DDGS. What is your DDGS supplier (or ethanol plant) doing to monitor this and/or doing to screen grain at arrival at the plant?

While they cost money, binding agents added to diets can reduce the impact of the byproducts on pig performance. If I was involved with a farrowing site, I would be asking my nutrition advisor about use of these binders if there is any DDGS usage in gestation or lactation diets.

The most common question asked by every vendor and producer at the World Pork Expo was - ‘when will the pain end?’. It’s not fun being in the pork business right now, and the prospects don’t look promising for some time. While we don’t often think in terms of time-lines, the matings that are being completed now are the pigs that will go to market next April. Thus, we are already locked in on the supply side of the price equation through the fall lows and late winter markets.

The second most asked question was – ‘who is selling sows?’. In my discussions with several lenders at the Expo, the common theme was ‘what do I as a lender do with the production facilities if I stop financing a pig unit?’ Lenders are in a real bind. If they stop financing a unit, they are left with an asset that currently has almost no value.

The only value in a sow unit is to try and sell it as a producing entity. I am aware of several groups that have been looking at sow units that are for sale, and the only way they will even look at a unit is if it is operating. Evaluating a production unit while it is functioning makes it much easier to determine the status of the all of the equipment, the quality of the employees, etc. Buying a unit in production means the buyer has immediate income from sale of pigs, rather than having to finance a startup. Thus, lenders continue to finance losses in the hopes that they will eventually be able to get some return for the money they keep tossing into the pyre. However, many are getting close to admitting this type of lending can’t continue and admit they will have to close their financially weakest producers.

As to who is selling sows – the answer remains – not many! There was word of 2 production systems in Canada filing for bankruptcy at the end of May, and of a few systems in North Carolina seeking Chapter 11 or Chapter 12 protection in the US.

One of the hot points of discussion was the newly created Producer Retirement Program (http://www.producerretirementprogram.org/). This effort is modeled in the dairy buyout, where producers are self-financing a herd reduction program. I encourage readers to go to the web site to learn the details of this program. The group has scheduled a series of 4 webinars on Tuesday, June 9 for a full explanation of the program and to respond to the many producer questions that are being asked.

Will a producer financed retirement program be successful enough to change the supply side of the supply/demand equation? I don’t know, but as many others have stated, we need to try something to remove the stone wall that appears to have stopped liquidation efforts that should have begun last year.

One concern that many have – do we have the capacity to kill a larger number of sows? I don’t know the answer, but I suspect sow slaughter capacity will be an issue in coming months if we see an increase in sows coming to town. At Expo, several producers told me they already had to schedule sows 3 weeks in advance for slaughter.

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.

Yesterday, April 28, USDA and Statistics Canada released the April 1 Canadian inventories of hogs and pigs, and the combined March 1 US and April 1 Canadian herd numbers.

On April 1, there were 1,359,200 head in the Canadian breeding herd. This is down 15% from the high of 1,633,600 head on January 1, 2005. The kept for market inventory was 10,502,000 pigs, the lowest number since sometime in the late 1990’s.

The combined North American breeding herd stands at 7,394,000 head. This is off 4.8% from the peak of 7,763,800 head on March/April 1, 2002. The combined kept for market inventory is 69,880,000 head, down 5.95% from the peak of 74,241,800 at the end of the 2007 year.

On April 2 at the VitaPlus Swine Summit held at Morton, MN, Mark Greenwood from AgStar suggested that the US needs to reduce its total swine inventory by 2.5 million pigs to be successful long term (http://vitaplus.com/swine-summit.php). I don’t know if his estimate is correct or not, but it does suggest that liquidation will be ongoing.

The impact of ‘swine flu’ rumors and misinformation on futures prices and even local market hog prices in the past 2 days can’t be denied. I suspect that many producers who were thinking about trying to ride out the latest period of low to negative returns are now seriously considering an exit strategy. It takes a lot of optimism these days to remain in pork production.