July, 1996 . Volume 19, Number 6
July, 1996 . Volume 19, Number 6
A New Grain Era? We are experiencing the highest and most volatile grain prices since the corn blight and the Great Russian Grain Deal triggered the tripling of average annual farm corn price per bushel from $1.08 in 1971-72 to $3.02 in 1974-75. The early 1970's ushered in a dramatic new period of U.S. agriculture. Grain producers' incomes rose, land prices soared, and livestock producers were squeezed by high feed costs. Embargoes were placed upon grain exports in an attempt to arrest further feed price increases.
Now, 25 years later, are we seeing the beginning of another period parallel to the 1970's? Or is this a temporary price peak that will soon pass? The short answer is no one knows. But, there are a number of interesting parallels. In order to provide some historical perspective on the present situation, we will briefly review the corn supply-demand situation of the early 1970's.
1970's Revisited: Leading up to 1972-73, the U.S. had seen 15 years of average corn prices received by farmers which ranged from a low $1 per bushel in 1961 to a high of $1.33 in 1970-71. The average annual change was less than 10 cents per bushel. Grain prices were kept in a sandwich with the bottom government support prices and the cap a government carry-over averaging over a billion bushels or more than 25% of total disappearance.
Corn exports were relatively minor, accounting for 300 to 600 million bushels annually. Corn exports were in effect taxed by the over-valuation of the dollar. The dollar was freed up to float by the Smithsonian Agreement in 1971. As a result, the U.S. price of corn in global markets was lowered from the perspective of the foreign countries. The Soviets also eased their belt-tightening policy and began to import substantial amounts of grain. These forces resulted in a doubling of corn exports from 1.3 billion bushels in 1972-73 to the peak of 2.4 billion bushels in 1980-81. We also had huge artificial buying power because of U.S. credit. Many of these buyers did not repay U.S. and in the 1980's the reduction in exports was due in part to fewer countries able to pay U.S. for grain with no more credit.
In the meantime, the U.S. had record high cattle inventory of 132 million head in 1971. Beef consumption per capita established the record high of 157 pounds per capita. It took two years for grain prices to cut feed. Despite a 50% increase in corn prices, feed use rose in 1972-73 and only dropped slightly in 1993-94 after another 70% price increase. In 1974-75, when corn prices hit $3, corn feed use dropped from 4.6 billion bushels to 3.6 billion bushels. Added to all this in 1974-75, yields dropped 20 bushels and ending stocks shrunk to only 7% of use -- the tightest figure recorded until the current projections of only 4% ending corn stocks at the end of the current marketing year.
How does the present compare with this past? There are a number of parallels. The value of the dollar is very low on world markets and corn exports are projected to approach the 2.4 billion bushel record of 1980. Feed use has been heavy, reaching 5.5 billion bushels in 1994-95. Strong exports, big feed use coupled with a small 7.3 billion bushel corn crop in 1995-96, has whittled ending stocks to a projected 367 million for September 1, 1996, the smallest in decades. Average farm price will probably break the $3.21 record established in 1983-84, when we diverted 32 million acres of corn land, which coupled with a drought-reduced 81-bushel yield cut the corn crop in half to 4.2 billion bushels. Partly because of high world stocks, but also because of economic pressure the European Community has backed away from the massive subsidies for exports that they used in the 80's and early 90's. Will they be back if we rebuild world stocks? I doubt to the previous level.
A major difference between the present situation and the 1970's is our more market-oriented corn program. Beginning in 1976, corn loan rates and target prices were raised substantially. By 1983, when corn carryover stocks had become so burdensome, the loan rate had reached $2.52 per bushel and the target price $2.72. Under the new Freedom to Farm Bill, loan rates for corn are set at a maximum of $1.89. Target prices, acreage diversion programs, with the exception of the long-term conservation reserve program, have been eliminated. Over the past 10 years, an average of 10 million acres a year have been diverted from corn production. In the 1960's up until the early 1970's, over 20 million acres annually were diverted from corn production. Hence, the major distinction with the present with the past is that farmers will have more flexibility to plant and the safety nets will be lower.
Global Situation: As our record $60 billion of U.S. agriculture exports testify, global supply/demand situation of grains is tight. Global course grain (corn, barley, sorghum, rice, etc.) production is projected at 777 million metric tons and consumption at 826 million metric tons, resulting in a reduction of ending stocks to 84 million metric tons. Global grain ending stocks are the smallest in more than a decade and production the smallest since 1988-89.
China has been a big factor in global markets, just as the USSR was in the 1970's. China, the world's most populated country with 1.2 billion people, has been enjoying an economic boom. During the early 1990's, China regularly exported a half a billion bushels of feed grains annually. But in the past two years, China has become one of the biggest importers importing 250 million bushels. Further tightening in supplies, Australia, a huge exporter had a very short crop in 1995 and its exports plummeted from 250 million bushels to 50 million bushels. The point is, the global market is tight for grains.
What's next? USDA's Prospective Plantings report indicates farmers intend to plant 79.9 million acres of corn, up from 71.2 planted in 1995. Market prices have strengthened since the early march planting survey, so farmers may plant 1 or 2 million acres more. Assuming plantings do reach 82 million acres and 75 million are harvested for grain at the trend yield of 127 bushels per acre, corn production this year would be 9.5 billion, the third largest on record. However, due to the very small beginning stocks, total available supply would be 9.8 billion bushels which has been exceeded 8 times in the past. If usage remains similar to that projected for 1995-96, corn stocks for 1996-97 will remain moderately tight at 12% of use and farm prices might average around $3. If yields are excellent, say 140 bushels, production would be a record 10.6 billion and corn prices may sag to $2.75. If yields are poor, say 110 bushels per acre, production would be 7.5 billion bushels and prices might average $3.75.
Looking beyond this year to the 1997/98 and 1998/99 crops, assuming average yields and a continuation of 82 million acres planted, we would expect corn prices to drop $.25 each year. Of course, the weather and global politics play a key role in these projections.
Continued Price Volatility: With the extremely tight U.S. and global grain supplies, we will experience continued price volatility until the current crop is made. A favorable or unfavorable crop conditions report, a larger or smaller than expected plantings report, a new trade deal or an old one canceled (We will not even mention a grain embargo.), will cause prices to soar or sink.
Over the past 20 years, nearby corn futures prices on the Chicago Board of Trade have averaged near $2.60. These futures prices have followed seasonal pattern of bottoming in March, then rising in May through July before sinking in July and August in anticipation of harvest. In years of tight supply such as 1996, when the harvest prospects look promising, prices will begin to sink sooner. Prices run-up in April and May, farmers get too busy with field work and delay marketing their old crop.
Southern States
Feed Division Notes
Frank Hollowell, Extension On-farm Performance Testing Research Assistant, has been certified by the National Swine Improvement Federation as an ultrasound technician. Frank achieved this recognition at the National Swine Certification Workshop held in Ames, Iowa on May 1, 1996.
In order to achieve certification status, technicians had to scan fat depth and loin muscle area at the tenth rib on fifty market hogs. After the initial scans were completed, all fifty hogs had to be rescanned in a randomized order. All fifty hogs were then slaughtered to determine actual fat depths and loin muscle areas in the carcasses. In order to certify, technicians had to meet rigid requirements for (1) accuracy - the ability to accurately measure fat depth and loin muscle area in the carcass by scanning the live hog, (2) repeatability -the degree to which repeated measurements obtained by scanning the same hog were alike, and (3) bias - the amount by which the average of all ultrasound measurements deviated either above or below the actual carcass measurements.
Charles Stanislaw
Independent pork producers are looking at sow pools as a way to take advantage of such technologies as all-in/all-out pig flow and improved genetics.
In sow pools, cooperating producers depopulate their individual sow herds and use a combined herd, which is kept in the central unit, for breeding and gestation. Sows are transported back and forth between members' farms and the central unit according to a predetermined schedule.
The goal of the sow pool is to produce pregnant sows for delivery to the members' farms 5-10 days before farrowing. At weaning, the sows return to the central unit and weaned pigs are retained by the members for sale as feeder pigs or for the production of market hogs.
Animal scientists at the University of Minnesota believe sow pools provide the following advantages for producers:
Genetics. A successful sow pool will be stocked with highly productive, high-health females that possess the potential to produce pigs with high lean gain.
Improved pig flow. Bred sows are delivered from the central unit on a predetermined schedule and farrow within a short time, enabling producers to use all-in/all-out pig flow through the nursery, grower and finisher phases of production.
Professional management. Managers of the central unit will have the most responsibility for the sow herd, thus allowing pool members to focus on other phases of the enterprise.
Marketing groups. With every sow pool member having similar genetics, members should be able to cooperate in offering large, uniform groups of hogs to packers.
Renovation of facilities. Members of the pool no longer need their own breeding and gestation facilities. These facilities could be remodeled for additional farrowing, nursery or growing-finishing space.
Producers must be aware that there is a higher health risk in sow pools. The scientists advise that strict adherence to sound biosecurity measure is a must for all producers utilizing the sow pool.
HogHealth
Vol. 6, No. 2
Thanks to widespread carcass-value pricing and improved genetics, U.S. hogs are becoming leaner. But, according to some surveys, pork quality has a long way to go before retailers are satisfied.
By the end of the decade, a good percentage of U.S. pork will be as lean as anything produced in Europe, but Canadian research shows that producers must consider the "challenges" associated with producing high-lean pork.
According to a comprehensive carcass cut-out study conducted by Agriculture Canada, the Canadian Meat Council and the Canadian Pork Producer Council, lean carcasses are significantly softer than their fat counterparts. The Canadian findings add significantly to the practical understanding of lean-pork biochemistry.
Scientists have known for some time that fat firmness is linked to fatty acid saturation. Agriculture Canada researchers found that as adipose tissue thickens, its water percentage declines and chemical fat content rises. The percentage of linoleic acid also decreases.
"Extremely lean pork has a much higher frequency of soft fat, which influences the firmness of retail cuts," the scientists report. This explains why extremely lean bacon tends to be quite soft, with excessive drip loss in the package.
Soft fat influences product appearance and shelf life, since higher unsaturated fat content promotes rancidity. Unsaturated fat, however, can be controlled nutritionally.
HogHealth
Vol. 6, No. 2
Researchers have found that crosses between genetically diverse pig breeds are proving to be very useful when trying to identify the position on the pig chromosomes of genes controlling key traits.
Studies conducted at the University of Uppsala, Sweden, crossed wild boars with large whites and found the likely chromosome position for a gene affecting backfat thickness. It was calculated to contribute almost 5 mm to the difference in fat depth between the source breeds.
Also detected were genes for growth rate and for length of the small intestine, further helping international attempts at developing a map of the pig genome for use in future genetic improvement work.
HogHealth
Vol. 6, No. 1