Economics

SwineCast 0426, WPE - Producer Retirement Program for Sow Herds Buzz On The Street

SwineCast 0426 Show Notes:

  • A unique buyout program is presented by independent pork producers Chuck Wirtz and Brad Freking. The Producer Retirement Program is entirely run by pork producers and is designed to reduce sow populations and industry losses.

    Swine producers will have the option of voluntarily buying into a co-op and bid a premium which is paid per each sow that is sold. Reductions may include all or a portion of a herd.

    Two of the caveats include prohibited use of sow reproduction facilities and a two-year moratorium on repopulation. For the full story, click here.

SwineCast 0425, WPE - Economics Update From World Pork Expo

SwineCast 0425 Show Notes:
  • National Pork Producers Council Don Butler and Neal Dirk present a rollercoaster perspective of the industry’s economic outlook in light of recent events.

    While some foreign markets have been reopened, hog price increases have offset expenditures, the media’s exacerbation of H1N1 is slowly moving behind us, and the economic outlook won’t be as optimistic as desired.

Increasing Intended Production

It's time to get intensive. By that I mean we need to focus on existing but overlooked means to extract more value from our production. One way to do that is to focus on our revenue stream and the process which generates it so we become just as celebrated in our knowledge of this as we are for knowing our cost of production. Once that happens, we will have the components which make up profits (revenue and cost) and some really big changes will start to happen. But since almost no production workers have full access to the revenue numbers of the farm, they are continually focused only on cost of production and production metrics. Because of that, we still operate in a fifteen year old notion/and the "irrational exuberance" that believes if production rises and/or costs fall, we will automatically make more profits. The key error in this thinking is that pounds and pigs are not measures of value, they are measures of physical output and weight.

Swine Industry Update for April 2009

Mark Greenwood
April 2009

I Never Forecast Price but...

When you consider price movements in hogs, there are at least three regular patterns of price movements that are happening simultaneously and their interaction sometimes gives us an unusual outcome.  The three patterns are the seaonal, cyclical and trend patterns in prices that work together to nudge prices around a fairly predictable grand cycle though levels of prices, rather than their patterns of rise and fall are of course harder to predict.  I generally believe there are too many variables with too much variance to adequately provide a price forecast beyond a few weeks.  Since we live in the age of random shocks, all it takes is something like the H1N1 situation on top of a global recession to make price forecasting the terrible task that it always is.  There is a saying that price forecasters should know that seems especially appropriate and that is..."If you must forecast, forecast often." 

SwineCast 0418, H1N1 - Determining the Industry Cost

SwineCast 0418 Show Notes:

  • Steve Meyer's CME Daily Livestock Report pencils in some numbers on cost of H1N1 to producers
  • U.S. Meat Export Federation CEO Phil Seng shares on fallout and possible recovery period for flu residue in international markets

More Meddling in Markets or "The Problem of Too Many Balls in the Air" Revisited

     We have in the US energy policy regarding ethanol an illustration of the classic problem in economics which I like to call "too many balls in the air".  When it comes to economic thinking and analysis, individuals or groups with "skin in the game" tend to focus tightly on the single variable they want to improve (like the corn price in the case of ethanol) and fail to understand that markets are complex interactions of sometimes hundreds of linked transactions and markets all of which can and usually are affected by extra-market interventions to move the target variable.  There are economic models that can and do attempt to account for all of these impacts simulataneously and track the movement to a new equilibrium in all affected markets but they can be large and clumsy and not very good at tracking the short term movements to new long term equilibria.

You've Been Branded!

Nope, I don’t mean that someone has physically placed a hot iron in a conspicuous place in order to lay claim. What I do mean is that you may very well have branded yourself regarding your career choices. Generations of managers from just about any industry (especially agriculture) have pigeon holed - and been pigeon holed because of degree, or experience of their career early on. Today, I’ll take a break from the normal conversation of career options - and talk about something much more important. Developing your personal brand.

One Bit of Good News in a Sea of Disappointment

We are seeing something almost as destructive as a limited terrorist attack in terms of producing fear, panic, overreaction and economic injury.  Media misinformation and paniced responses from some world governments (like Egypt deciding to cull every pig, some 400,000 of them) has produced a sensationalized reaction from what at the end of the day will very likely be a very mild flu virus spreading around the world (http://www.latimes.com/features/health/la-sci-swine-reality30-2009apr30,0,3606923.story) but monitored like it was the bubonic plague.  Of course these scientists could be wrong and it is the fear of being wrong that has set the world in motion. 

The Crystal Ball is Opaque

     Unfortunately, we are at a time not only in the meat industry but also in the general U.S. and world economy when what little anyone had to make a forecast for the future has largely disappeared into an opaque soup of uncertainty.  There is little doubt that demand for meat, both in the United States and worldwide, is tied to among other things, per-capita income and a behavioral variable related to perceived and actual wealth (although there is some controvery about the wealth effect).  Both are down with rising unemployment and plummeting asset values. 

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