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Saving the livestock industry.

STATE OF THE CATTLE BUSINESS

by Andy Groseta, President, National Cattlemen's Beef Association (NCBA), Cottonwood, AZ

There is no question these are challenging times for the nation's cattle producers, who face record-high operating costs at every turn.

Higher costs and slim margins are nothing new to the cattle industry. But it's upsetting when you have so many factors working against you at once, and government policy just piles on more challenges. Cattlemen can deal with the highs and lows of the grain market, and the nation's renewable fuels policy certainly isn't the only cause of higher feedgrain prices. But it is a major contributor, and the one our government has the most control over.

So NCBA is working to achieve a more reasonable and balanced approach to renewable fuels that will not put livestock production at such a severe disadvantage. Cattlemen support development of alternative fuels as a means of achieving energy independence. However, we shouldn't be building up one sector of agriculture at the expense of another.

But we know these record-high operating costs aren't going away anytime soon, so cattlemen need to get every dollar possible for each animal. That's why NCBA is also fighting for free, fair, and reliable trade policies that will expand our global markets for U.S. beef. Growing exports is one of the best ways to improve the return we receive for livestock, and our farmers and ranchers can compete with anyone if we are given a fair opportunity. But too often we allow imports into our country duty-free, while allowing our trading partners to maintain outrageously high tariffs.

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Another key to improving the profitability of cattle producers is to operate as efficiently as possible. That is why NCBA is an industry leader in producer education programs. We cover everything from chute-side techniques to pasture management to estate planning--all in an effort to improve the bottom line of our members. These programs are especially valuable for our younger members, for whom I have the utmost admiration and respect.

STATE OF THE HOG BUSINESS

by Steve Murphy, CEO, National Pork Board, Clive, IA

Whenever you hear someone talking about this being a "Golden Era" for U.S. agriculture, there's usually a pork producer nearby who's saying, "Whoa! Not so fast."

These are tough times for pork producers. Simply put, their input costs have doubled in the past year. With feed representing 65% of the cost of raising a pig, the breakeven cost for that pig now exceeds $60 per hundredweight. That means that during the first quarter of 2008, producers were losing as much as $30 to $50 per animal.

As winter finally surrendered to spring, strong exports and improved domestic demand for pork sparked a bit of a rally in the hog market, although not enough of a rally to turn red ink into black.

Without the industry's continuing success in export markets, it could be worse. During February, the equivalent of one of every five hogs went to export markets. Total U.S. pork exports during the first quarter were up 41% in volume and 37% in value from the same quarter a year earlier, which was the beginning of a record year in which U.S. pork exports exceeded $3.1 billion.

There are signs, however, that producers are beginning to reduce their breeding herds to slow growth. Prior to 2008, the U.S. sow herd grew between 1% and 2%, year-to-year, for 11 consecutive quarters. But compared to a year ago, the number of sows culled from herds was up 5.1% in the first quarter and up 15.3% during the first five weeks of the second quarter.

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Producers also appear to be reducing costs by sending slightly lighter animals to market. During the first week in May, the average weight for market hogs in Iowa/Minnesota, the largest hog-production region, was 264 pounds, four pounds below a year ago. Translated nationally, that's a reduction of 6.3 million pounds.

At the National Pork Board, Pork Checkoff resources are helping to develop value-added strategies so consumers will continue to put pork on their tables and in their refrigerators even as prices increase.

With help from research underwritten by the Pork Checkoff, U.S. producers already are the world's most efficient producers. That research on everything from feed efficiencies to better genetics continues.

Pork producers represent the best of American agriculture. They have navigated through difficult passages before and they will find their way through these tough straits.

STATE OF THE ANIMAL HEALTH BUSINESS

by Alexander S. Mathews, President and CEO, Animal Health Institute (AHI), Washington, D.C.

Animal health challenges faced by livestock producers include food safety, the need for tools of efficiency and ensuring international treaties and standards that promote export of U.S. meat and livestock products.

A key role for the animal health industry in helping livestock producers meet these challenges is to provide safe and effective tools to help keep animals healthy. A steady supply of innovative animal health products requires an efficient and predictable animal drug review process at the Food and Drug Administration.

To help achieve this, the animal health industry five years ago reached an agreement with FDA to provide industry user fees to help the agency hire additional reviewers and meet performance goals. This agreement was codified in the Animal Drug User Fee Act of 2003, and resulted in FDA eliminating the backlog of applications and approving new products for livestock, poultry and companion animals.

That five year bill expires on September 30, 2008, and the industry has reached an agreement to extend the program. That agreement is currently being considered by Congress, and AHI and several livestock and poultry groups are working to ask Congress to pass a bill reauthorizing the program for another five years.

There is mounting scientific evidence of the role animal health products play in helping producers deliver a safe product to consumers. Studies in both poultry and pigs have shown that food animals that are kept healthy result in meat products with fewer pathogens.

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There are several animal health tools that enable meat and milk producers to be more efficient--to produce more with less input. In today's world of record grain and feed prices, those tools are more important than ever. While many of these tools have been made the subject of controversy, AHI has worked with producer and veterinary organizations to educate legislators and regulators on the safety, efficacy and public benefits of these products.

Fair and equitable international standards are essential to the free flow of U.S. meat exports. AHI works with international standard setting organizations such as the Codex Alimentarius to ensure safety standards and codes of practice that eliminate potential trade barriers to U.S. exports of meat, milk and eggs. In partnership with the U.S. Meat Export Federation, AHI provides information to producers on the appropriate use of animal drugs to prevent problems involving residues of drugs in meat and meat products intended for export.

STATE OF THE FEED INDUSTRY

by Joel Newman, President and CEO, American Feed Industry Association, Arlington, VA

The price squeeze is on for those organizations within the feed industry and for their customers. Higher priced grains and oils plus skyrocketing energy costs are placing a significant burden on it.

While the DDGS that result from the ethanol manufacturing process provides a source of relief from the demand for corn in feed diets, this ingredient cannot be fed to monogastrics at near the rate as it is for ruminants and there is a large issue of inconsistency between load and individual plants.

The feed industry is very resilient, but it does need some new answers to its challenges.

In addition to the competitive market conditions, the spotlight is shining brighter than ever on the feed industry as result of melamine, salmonella, dioxin and other food and feed safety issues. This has resulted in increased attention from legislators, regulators and consumers.

I am proud that AFIA has been a very effective leader in addressing these issues. As our core role, AFIA has effectively represented its members' interest in addressing new legislation and regulatory food safety proposals, in addition to the Farm Bill negotiations, Spill Prevention Control and Countermeasures regulations, CODEX international regulations, animal disposal options related to the proposed Feed Rule, free trade agreements and several animal rights initiatives. Where appropriate, AFIA has also led the Animal Agriculture Coalition on issues involving the broader industry.

AFIA is also providing practical solutions to key industry issues. Two prominent examples are the DDGS lab testing methods guidelines to promote consistency in trading, and the Feed Trace & Track Connectivity project that Newman allows the entire industry to very cost effectively meet the regulatory requirements.

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The recent melamine incident certainly highlighted the importance of ensuring the safety of incoming ingredients for the industry. AFIA brought the industry together, which resulted in a national dialog and development of "Recommendations for Selecting Suppliers for Safe Ingredients for Animal Feed." This proposed industry guidance document was presented to FDA for consideration and the industry urges FDA to promptly issue such a guideline.

Feed and food security will certainly continue to be a primary focus for the industry and AFIA this year. In addition to representing the industry in Washington, we are continuing to build participation in the "Safe Feed/Safe Food Certification" program. This program effectively shows regulators and consumers that the industry is willing to "raise their own bar" on assuring the continued safety of our food system.

LIVESTOCK ECONOMIC OUTLOOK

by Doug Harper, Brock & Associates, Milwaukee, WI; e-mail: djharper@brockreport.com

The profitability of pork, beef and milk production is currently under assault from a factor livestock operations have rarely dealt with in the past and never for an extended period of time--record-high feed costs.

BEEF CATTLE

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Even though feeder cattle prices have been at or near all-time highs for more than four years, there has been a modest year-to-year decline in beef cow numbers in the U.S. since 1996.

The primary reason for gradual shrinkage of the beef cow herd is a reduction in pasture land. An estimated 20 million acres of grassland has been lost to crop production and urban sprawl since 1970. It is very unlikely this trend will change, so a strong recovery in beef cow numbers is unlikely.

Even though fewer calves are being raised, total beef production has remained at historically high levels because feedlots are feeding cattle to heavier weights.

Cattle feedlots are in a somewhat more favorable position to deal with record high corn prices than hog producers because they have more flexibility. Cattle can be back grounded and feedlots can rely more heavily on Distiller's Dried Grains with Solubles (DDGS) as an alternative feedstuff than hog finishers. Also, in anticipation of a slightly smaller calf crop and fewer cattle going on feed, the deferred live cattle contracts are trading well above $100/cwt.

If cattle feeders keep a close eye on costs, including the cost of replacement stock, 2009 can be a reasonably good year.

HOGS

To get an accurate picture of what's happening in the pork industry you must look at the North American swine breeding herd. That's because nearly 10% of the hogs processed in the U.S. today are imported from Canada.

Record high feed costs and the weak U.S. dollar have hit the Canadian swine industry hard and in April, Canada's breeding herd was pegged at 4.6% smaller than a year ago. When combined with USDA's March count of the U.S. sow herd, the North American breeding herd is slightly smaller than a year ago. A federal program to reduce the Canadian sow herd by another 150,000 head or roughly 9% is currently underway.

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Sow and gilt slaughter data indicates some liquidation is underway in the U.S. However, an amazingly strong spring price rally despite record shattering production appears to have rekindled some optimism among hog producers. Sow and gilt slaughter totals have declined the past few weeks.

Given the amount of sow herd liquidation that has already taken place in Canada and appears to be on the way in the U.S., it is very possible hogs will average more than $80/cwt on a carcass basis for all of 2009.

You can count the number of times hog prices have been that high even for a short period of time in the past on your fingers.

Unfortunately, if you assume $6 corn, many farrow-to-finish operations lose $25 and more per head at that price Harper level. Without highly efficient production and prudent price risk management of both the income and expense side, hog operations will experience an equity drain.

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DAIRY

After bottoming in 2004, the milk cow herd has seen modest growth the past few years. The January all-cattle report showed a 1% increase in milk cow numbers from a year earlier and a 3% jump in milk replacement heifers.

Recent modest expansion of the dairy herd has been in response to strong demand, which has been driven in large part by rising population. But most of the increase in total milk consumption over the past few decades has been satisfied by increased production per cow. It has just been in the past 8 or 10 years that stability has returned to the milk cow herd.

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The profitability outlook for milk production into next year is dicey. There is the possibility of $20/cwt milk prices thanks to robust demand and the likelihood of a moderate drop in production. However, using the futures markets as a price discovery tool, the milk:feed cost ratio is expected to be at or below 2:1 for the foreseeable future. This ratio needs to be at 3:1 or higher to ensure profit milk production.

Editor's note: There is never a dull moment in the livestock industry. In light of the current boom in feed prices, we invited industry leaders to share their thoughts on how their sectors are coping with this new challenge.

by Lynn Henderson, Editorial Director
COPYRIGHT 2008 Henderson Communications, LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2008 Gale, Cengage Learning. All rights reserved.

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Author:Henderson, Lynn
Publication:Agri Marketing
Article Type:Editorial
Geographic Code:1USA
Date:Jun 1, 2008
Words:2363
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