Key Biscayne Compromise: Relief for high grain prices?

Is a proposed compromise on ethanol mandates a win for both poultry and grain producers?

The shouting match between corn producers and livestock producers over U.S. biofuels policy was lowered a decibel or two June 19 when a poultry industry economist and the CEO of the National Corn Growers Association discussed a compromise proposal for a limit on corn use for ethanol and a switch to a variable federal subsidy on ethanol.

With one-third of the nation’s corn crop now going to ethanol production and the government mandated portion still headed upward, poultry and livestock producers are concerned about future corn prices.

During the USA Poultry & Egg Export Council (USAPEEC) Executive Conference & Annual meeting in Key Biscayne, Fla., poultry industry consultant Dr. Paul Aho offered what is being referred to as the Key Biscayne Compromise:
Limit corn use for ethanol to 15 billion gallons
No corn diversion to meet mandates for cellulosic ethanol
Variable blend credit and tariff
15% ethanol-gasoline blends

National Corn Growers Association CEO Rick Tolman, who joined Dr. Aho on the podium as a speaker, called some of the ideas in the proposal “interesting” before a crowd of U.S poultry exporters.

“I like the [proposal for a] variable subsidy,” Tolman said.

In making his proposal, Aho said, “The Key Biscayne Compromise would be to limit the mandated corn use to 15 billion gallons as is laid out in the law today. We’re up to 12 billion gallons next year so 15 billion gallons is not that much further. But let’s limit the mandated use to 15 billion gallons just like the law says, but not use corn if the cellulosic ethanol doesn’t pan out.”

Aho said the variable blend credit in tariff should follow proposals previously made by Dr. Wallace Tyner at Purdue University.

His proposal point on cellulosic ethanol arises from poultry and livestock producers’ concern that additional corn might be diverted to satisfy mandates for the production of ethanol from cellulosic stock. Sixteen billion gallons of ethanol from cellulosic stock are mandated by 2022, but no commercially feasible technology exists to meet the mandate.

Aho also proposed that 15 percent ethanol blends be allowed. “There’s no problem with 15 percent blends if the total mandated use is limited to 15 billion gallons and a variable blend credit is used,” he said.

During a speech that preceded Aho’s compromise proposal, Tolman said corn growers are increasingly productive with U.S. 2007 corn yields at 151.1 bushels per acre. As a result, corn growers are concerned about having markets in place for that production.

Aho responded to the concern by saying that containing high corn prices and reducing price volatility would result in more corn usage in poultry and livestock feeds.

“The important thing is that if we can keep that mandated corn-based ethanol use to 15 billion gallons there may be chance for a compromise here between the users and the producers of corn,” he said.

Speaking before the crowd of exporters, Tolman said the proposal was “interesting,” if the poultry and livestock industries would end up using more corn for chickens, hogs and cattle.

Dr. Aho invited Mr. Tolman to shake hands as a sign of willingness to consider the idea of compromise between users and producers of grain. The two shook hands on stage, though Tolman told the crowd that he does not represent the ethanol industry and cannot represent the corn industry on matters of policy unilaterally.

Following publication of the photo of the handshake, Tolman made it clear through a National Corn Producers Association spokesperson that the handshake “was made out of a desire to work together, not to seal any sort of contract or agreement.”

Mr. Tolman, the spokesperson said, expressed interest at the meeting in further study regarding one or more separate parts of a proposed compromise, such as a variable VEETC (volumetric ethanol excise tax credit).

He emphasized that no compromise agreement was made by Mr. Tolman regarding the future of corn ethanol. Updated June 23: Includes additional clarifying paragraphs. Shown in photo: Dr. Paul Aho, Poultry Perspective, and Rick Tolman, CEO of the National Corn Growers Association.

Mexico's meat industry shares lessons from 'swine flu'

Mexico’s economy and public infrastructure are still reeling from the outbreak of H1N1 influenza, and meat and poultry industry representatives from Mexico say there are lessons to be learned about the fragility of the world’s health system and the need for better preparation on the part of governments and businesses – especially the meat and poultry industries.

Pork consumption fell 80% and prices fell 25% from April to May following the H1N1 outbreak. In the same period, the average price of pork in Mexican pesos fell from $20.53 per kilo to $16.35 per kilo.

Now the country is dealing with its worst economic crisis in years – on par with the tequila crisis of 1995, an economic downturn of historic proportion for Mexico. Speaking at the USA Poultry & Egg Export Council Executive Conference & Annual Membership Meeting, Eugenio Salinas, the chairman of Consejo Mexicano de la Carne, a leading meat industry group in Mexico, outlined industry responses that helped shore up consumer confidence.

COMECARNE, for example, was instrumental in getting the name of the flu in the outbreak changed from swine flu to human flu. The group also engaged in consumer education, telling consumers pork consumption was safe and not related to catching the flu.

In the wake of the outbreak, the group also pushed five major initiatives: a campaign to restore pork consumption; government procurements; lines of credit; money to support grain purchases; and import substitution by the processing industry.

Salinas, and Cesar de Anda, former UNA president and chairman of the NAFTA Egg and Poultry Partnership, expressed great concern over continued pronouncements by the country’s minister of health that stoke public fear of the potential for an avian flu outbreak.

“The minister has repeatedly reassured consumers over H1N1 by saying ‘at least it’s not the bird flu which would be worse,'” de Anda said.

Mexico’s pork industry, fortunately, did not lose its major export market, Japan. Sales there fell, however, by 15%, said Salinas.

“The experience with H1N1 influenza shows how fragile the world health system is and how easily a new virus can circulate around the world,” he said.

“Last month pork was adversely affected; next time it could be beef or pork or poultry. We have to be prepared to act immediately. Let’s keep working together on a strategic crisis plan for a future outbreak.”

US, Russians to meet about poultry plant delistings

U.S. poultry exporters plan to meet today in Key Biscayne, Fla., with representatives of Russian poultry importers to discuss mechanisms to smooth poultry trade between the two countries. The two sides hope to find ways to reduce the delistings of U.S. poultry plants which have seriously curtailed trade in recent months.

Meeting at the USA Poultry & Egg Export Council Executive Conference & Annual Membership Meeting, the groups are expected to discuss a proposed 90-day investigative period that would take effect before plants are delisted by the Russian government.

The 90-day period, proposed last month at meetings in Paris between Russian and U.S. industry and government representatives, would allow U.S. poultry exporters to appeal delistings before they take effect. Depending on what is worked out, the 90-day period might also permit corrections to processes or facilities in U.S. plants to avoid delistings.

During the first five months of 2009, Russian poultry imports have been down 57%. While the Russian government is working to replace imports with domestic production, the Russian poultry industry is not able to fully supply the demand. As a result, poultry prices to Russian consumers have risen in 2009.

Poultry exporters try a change of latitude

Poultry exporters and friends at a reception at the USA Poultry & Egg Export Council’s Executive Conference & Annual Membership Meeting enjoyed the pleasant ocean breezes of Key Biscayne, Fla., Wednesday evening. Thursday, attendees will tackle market development issues as staff members from around the world make presentations.

USDA's David Bowden participates in export meeting

David Bowden, USDA-AMS-Poultry (right), joined Mark Lobstein, USA Poultry & Egg Export Council, at a welcoming reception at the USAPEEC Executive Conference & Annual Membership Meeting Wednesday. Earlier in the day, Bowden and Lobstein participated in discussions about trade with Russia, China and other key markets for U.S. poultry.

US poultry exporters gather in Key Biscayne

U.S. poultry exporters met Wednesday at the USA Poultry & Egg Export Council Executive Conference & Annual Membership Meeting. Afterward, they gathered beach side in Key Biscayne, Fla., for a reception sponsored by Butterball, Keystone Foods, Astral Group, Lamex Foods and Port of New Orleans.

Vaccination issues

During the Hy-Line International Technical School, Dr. Kenton Kreager from Fort Dodge Animal Health said a good time to do water vaccination is first thing in the morning, since birds tend to consume a lot of water within the first hour.

Salmonella control

On day three of the Hy-Line International Technical School in Des Moines, Iowa, Antonio Paraguassu stressed that everything on the farm had to be tested for salmonella contamination on a regular basis, not just the birds.

Tour of Iowa State University

The participants at the Hy-Line International Technical School toured the facilities at Iowa State University, including a visit to the Veterinary Teaching Hospital and the Veterinary Diagnostic Lab.

Feather sexing

Hy-Line staff demonstrate feather-sexing of layers at their Dallas Center, Iowa, facilities as part of the Hy-Line International Technical School.

Infectious Bronchitis in layers

Dr. Darell Trampel from Iowa State University said Infectious Bronchitis is the fastest spreading poultry disease we know of, and that it can reduce egg production anywhere from 10% to 50%.

His comments were made during the Hy-International Technical Seminar in Des Moines, Iowa.

Importance of lighting programs

During the Hy-Line International Technical Seminar, Dr. Jesus Arango mentioned differences in pullet growth rate due to lighting programs continue during the lay period, based on his research.

He also said lighting programs cannot be used to manipulate egg mass.

WATT's European sales staff

Taken Friday, June 12, in Utrecht, The Netherlands.

Bob Krouse discusses US egg industry

During the Hy-Line International Technical School in Des Moines, Iowa, Bob Krouse, CEO of Midwest Poultry Services, commented that today there are 250 egg producers in the US, averaging 1 million birds in size.

He also said 70% of US eggs are sold to grocery stores or restaurants.

Hy-Line Technical School

There is a record attendance at this year's Hy-Line International Technical School in Des Moines, Iowa. There are 112 participants, from 27 countries and 5 continents, by far the largest ever.

Tom Dixon discusses Chinese egg production

At the Hy-Line International Technical School in Des Moines, Iowa, Tom Dixon talks about how China produces the most eggs in the world by far.

On the cutting edge of technology

James Borel, group vice president of agriculture at DuPont, addresses ag industry and academic leaders at "Generation: Ag" at Monsanto's Danforth Plant Science Center.

Topics include the role of science and technology in the agribusiness marketplace and the importance of ag workforce development for US global competitiveness.

This afternoon, the Under Secretary of Research, Education and Economics and Chief Scientist at the USDA, Rajiv Shah, M.D., will deliver the keynote address. Newly appointed, this will be Dr Shah's first public address as under secretary.

Visiting Schauer in Austria

Michael Van Den Dries and Karl Denk at Schauer in Austria.

Peter Best and Jim Watt

Peter Best celebrates 36 years at WATT with Jim Watt.

Good industrial hygiene requires sampling, control

What is good industrial hygiene for poultry companies?

It means getting control of any factors in the workplace that may cause sickness, impaired health and well-being or significant discomfort and inefficiency among workers. That requires a systematic evaluation of the work environment, sampling, plus the application of OSHA’s hierarchy of controls where necessary, says Dr. Myrtle Turner, director of the OSHA Training Institute Education Center at the Georgia Tech Research Institute.

Sometimes these processes require thinking outside the box, she added. Speaking at the National Safety Conference for the Poultry Industry this week, Dr. Turner outlined approaches to industrial hygiene with an emphasis on air quality sampling and record keeping.

Evaluating the occupational environment is an important first step. This requires recognizing potential hazards, preparing and performing a survey and interpreting results. This includes periodically reviewing and observing job activities of work areas, observing patterns and studying existing control measures.

Where potential hazards are found, OSHA’s hierarchy should be applied as follows:

1. Engineering controls
2. Work practice controls
3. Administrative controls
4. Personal protective equipment

Sustainablity is about three things

After the inauguration of Novus’ new Global Headquarters, which is a sustainable building, Joyce Cacho, PhD, Novus’ chief sustainability officer, mentioned that “Sustainability is about three things: community, environment and commercial. My job is to align the inside and outside of the business. This new building reminds us of our commitment to sustainability.”

Soybean meal prices to remain high and volatile

Soybean meal prices through early October are likely to remain “high and volatile, potentially explosive,” a leading U.S. grain marketing economist said at the opening day of the World Pork Expo in Des Moines, Iowa, June 3.

“Local shortages of soybean meal in August and September are a definite possibility with the sharp drop in South America’s spring 2009 harvest,” said Dr. Robert Wisner, Iowa State University, USA, economist.

See entire presentation.

August 1 anticipated soybean stocks of just 2.2 weeks supply versus 3.5 weeks in 2007-08 “is the tightest since at least 1965,” Wisner said.

Likewise, corn prices are up 29 cents per bushel since “the April 20 break-out” on weather concerns. One report suggests about 1 million less 2009 corn planted acres, due to late plantings in the Eastern Corn Belt, Wisner noted.

One “wild card” in soybean meal prices, he said, is that 56 million bushels of old crop bean export orders to China have not been shipped and that could be added to new crop meal exports, which would add pressure to prices.

Wisner expects soybean meal prices to average $425/ton this year. “There is a sharp drop in soybean crush, exports are coming up, and China is stocking up on soybeans.”

Wisner sees “a little relief” in soybean meal prices for livestock producers in 2010, however, when he looks for meal to average $280/ton.

He looks for corn prices to average $4.25/bu., but with yield problems, prices could go over $5.

On May 29, July corn futures were $4.36/bu., with December futures of $4.58. He expects volatile corn prices until the June 30 USDA acreage report.

Several factors are combining to drive feed prices higher. The first is delayed planting of corn acres in the Midwest. As of May 31, 4 million acres were not yet planted to corn in the Eastern Corn Belt.

“That’s pretty late,” Wisner said, and some of those acres will shift into other crops, and some won’t be planted at all.

A second factor, he said, is the huge drop in South American crops that will boost exports of U.S. feed. China, he said, will shift some of its purchases from South America to the U.S. In its May 12, report, the U.S. Department of Agriculture estimated total South American corn crop prospects to be down 675 million bushels from 2008 levels, with soybean production down 711 million bushels.

And the third factor is the decline in feed wheat supplies, which has been a competitor to corn. He added that one additional factor adding pressure to crop prices is a return of commodity investment funds in futures prices, an event he advised producers to watch.

Wisner said that weather trouble spots are dry weather in the heart of the key corn/soybean production area in China, and frost on the wheat crop and dry weather in Canada.

For the current crop year, delayed U.S. planting will likely mean yields below trend. In addition, he looks for a sharp increase in ethanol demand from mandates in the energy bill, with increases in biofuel production overall.

“Biofuel mandates will be enforced next year,” he said.

“Biofuels mandates are on a collision course with greenhouse gas emission regulations and allowable ethanol blend levels."

The only decline in demand he sees is coming from reduced U.S. livestock numbers.

Looking at the general economy, Wisner looks for three trends: a weaker dollar longer term; increasing inflation beginning in mid 2009; and higher interest rates beginning mid 2010.

Wisner does not see a recovery in the world economy until at least the first quarter 2010. He looks for crude oil prices in the $55-65 level through 2009, then gradually increasing into 2011.

This will increase ethanol prices, and when combined with higher government mandates, increase demand for corn.

“Higher gasoline and ethanol prices reinforce corn price strength potential with weather concerns,” he said.

Wisner sees four types of possible economic recoveries: a V-shape, the sharp decline followed by a sharply higher recovery, a scenario looking less likely; a W-shape, or temporary recover; a U-shape or gradual recovery; and an L-shape, extended period of stagnation (with inflation).

The latter can’t be ruled out with cap-and-trade legislation, Wisner said.

He gives a cap and trade bill on greenhouse gases a 50-50 chance of passage, which would increase energy costs. If the U.S. government mandates the use of E-15 ethanol, thus increasing ethanol demand, corn used for ethanol could increase by 43% to 45%.

At present, he said, the ethanol industry is just covering its costs if plants have been buying corn in the spot market. But plants that contracted corn last year at higher prices are losing money, and that’s been the cause of recent bankruptcies.

No profits for pork until 2010

Were it not for the impact of the H1N1 virus, U.S. pork producers would be about break-even right now.

But because of the drop in demand due to the wrongly named virus, it will likely be well into 2010 before producers see any black ink, Glenn Grimes, University of Missouri economist, said at a market outlook session at the opening day of the World Pork Expo June 3, in Des Moines, Iowa.

Producers have been losing money since 2007, one of the longest periods of losses in recent history.

“No question, at the time when we should have had a rally in prices (this spring), we had really had news," said Grimes.

Grimes estimates the total losses from H1N1 during May to be $113 million and $141 million in June. Total losses to U.S. producers from the virus outbreak through August may be as much as $500 million.

Yet despite two years of losses, sow numbers have not yet been reduced to bring supply and demand into balance.

“We have to downsize and we have to downsize substantially,” Grimes said.

The only producers making any money, he said, are those who locked in futures prices at levels above $70/head, which was possible prior to the outbreak of H1N1 April 24.

For the first time in the past 20 months, futures markets gave producers the opportunity to lock in profits, both with higher hog price expectations and lower feed prices earlier in the year. The outlook for both has now changed.

On March 1, the U.S. breeding herd was down slightly from the previous year.

“But we have to be down a minimum of 5%, maybe 10%,” he said.

In addition, he said, hog weights have been increasing “at a time when we don’t need it.”

H1N1 notwithstanding, the losses of the past two years have not been due to weak demand, but rather to high oil prices, high ethanol demand, and as a result, high feed prices, which has meant red ink.

The problem of the past two years has not been demand, it’s been cost. Going from $2/bu corn to $4/bu corn means that “producers have to cut down the hog herd and we have not done that.”

One reason why, he says, is continued increases in productivity, which has been improving at a rate of about 2% per year.

Through March, demand for pork in 2008 had been in positive territory, similar to poultry, while beef demand had been a negative, he said.

From 1980 to 2008, pigs per litter have increased from 7.5 to 9.5, litters per sow per year have increased from 1.6 to 2.2 and pigs per sow per year have increased from 13-14 in 1980 to above 20 in 2008.

“These are dramatic changes,” Grimes said.

The bright spot for the industry the past two years has been pork exports, he said. Last year saw a 6% to 7% increase in demand for U.S. hogs, “and most of that was exports.”

In 2008, U.S. exports were up 46.6% from the previous year, but are expected to decline 13.2% this year, Grimes said.

European Union pork exports, meanwhile, were up 33.4% last year, but will likely decline by 27.1% this year.

Third shift, fleet safety emerging challenges

J. Craig Wyvill, former chief of Georgia Tech Research Institute’s Food Processing Technology Division, said training and oversight of third-shift safety and machine safety are emerging challenges facing the poultry industry.

Speaking at the National Safety Conference for the Poultry Industry, Wyvill said the industry has made great strides in noise abatement, industrial hygiene and fire safety and egress. While the industry must continue progress in those fields, new areas for focus include third-shift sanitation, maintenance safety and fleet safety.

The increasing use of robotics in processing plants is another potential safety challenge, he said. This is a technology that may reduce injury risks by automating manual tasks, but, at the same time, may create new, as yet unknown, safety challenges.

New Novus HQ

Exterior view of Novus International's new energy efficient and sustainable building.

Personnel encouraged to take advantage of SAFER tools

Guy Young, Georgia Motor Trucking Association, encouraged attendees at the National Safety Conference for the Poultry Industry to take advantage of resources like Roadcheck, the Commercial Vehicle Safety Alliance’s 72-hour road check, scheduled for June 2-4 across the country.

More than 70,000 inspections by 8,500 inspectors are expected to take place in this year’s Roadcheck.

Young also described other programs like the Federal Motor Carrier Safety Administration Safety and Fitness Electronic Records System, which offers company safety data and related services to those in the industry and the public over the Internet.

The SAFER system also allows companies to see what the FMCSA knows about their operations. Users can search FMCSA databases, register for a USDOT number, pay fines online, order company safety profiles, challenge FMCSA data using the DataQs system, access the Hazardous Material Route registry, obtain National Crash and Out of Service rates for Hazmat Permit Registration, get printable registration forms and find information about other FMCSA Information Systems.

CVSA sponsors Roadcheck each year with the Federal Motor Carrier Safety Administration, Canadian Council of Motor Transport Administrators, Transport Canada and the Secretariat of Communications and Transportation (Mexico).

Thad Simons inaugurates Novus headquarters

Thad Simons, Novus International president and CEO, said the project for the new sustainable building was all about cost, culture and communication.

Gov Nixon praises Novus

Missouri Governor Jay Nixon participated in the Novus ribbon-cutting ceremony. The Governor praised Novus for its spirit of innovation.

Ceremony starts

Don Vondriska, director of business development at Novus, gave the opening remarks at the ribbon-cutting ceremony.

He said "being green has always been the way of doing business at Novus."

The crowd gathers

Guests explore the Novus International Global Headquarters before the official ribbon-cutting ceremony June 3.

Cargill's Klun: safety should include SMART goals

Cargill's business unit manager for environment, health and safety says successful corporate safety programs start with corporate commitment, vision and strategic planning, but should also include SMART goals.

Goals should be SMART -- specific, measurable, achievable, relevant and timely, Mike Klun said.

Speaking at the National Safety Conference for the Poultry Industry, Klun said successful safety programs start with corporate commitment and strategic planning but even after the strategic plan and goals are in place, communication, execution, measurement and continuous improvement are required.

Safety strategy must be real and aligned with the business. This requires bringing the right resources, people and strategies to bear on safety goals. The organization must establish a process for assessing new opportunities and risks and then make recommendations.

Companies can make goals timely and relevant by basing them on recent employee engagement. This also improves employee awareness of safe work practices.

The National Safety Conference for the Poultry Industry is sponsored by the National Chicken Council, National Turkey Federation, Georgia Poultry Federation and Georgia Tech Research Institute Agricultural Technology Research Program.

Enforcement-oriented OSHA back with appetite for fines

“OSHA is back! The best advice I can give you is get ready,” Larry Stine of Wimberly & Lawson told listeners at the National Safety Conference for the Poultry Industry in Hilton Head Island, S.C.

Stine said the Occupational Health & Safety Administration, with Jordan Barab appointed as acting OSHA chief, is back with a renewed mandate for aggressive enforcement. OSHA has a big budget and an even bigger appetite not only for fines, but also for stiff monetary penalties that far exceed their their non-punitive stance, Stine said.

“Remember those ergonomics standards that the Clinton administration published on their way out the door, and that the the Bush Administration canceled during its first weeks in office? Get ready, they’re coming back. As a matter of fact, that’s the best advice I can give you: Get ready!"

Among other advice, Stine said companies should plan ahead and be prepared for OSHA visits. He also advised companies to correct conditions before inspectors enter the premises.

Haloftis says OSHA to go after 'under reporting'

Alcmene Haloftis of the Occupational Health and Safety Administration said OSHA’s new enforcement focus under the Obama Administration may be on “under reporting” of injuries and illnesses.

Addressing the National Safety Conference for the Poultry Industry, Haloftis told listeners OSHA may focus on low-rate employers in high-rate industries.

Haloftis, who is with OSHA’s Directorate of Enforcement Programs, said a high-level task force at OSHA is working to revamp the agency’s Enhanced Enforcement Program, and the new program should be in place by the end of the summer of 2009.