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Ron Plain Professor of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~plainr/ Swine Industry Outlook Worse than 1998?
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Iowa Farrow to Finish Profits, 1965-2008 Source: John Lawrence, Iowa State University 1965-74: $10.04/head profit 1975-84: $14.22/head profit 1985-94: $10.51/head profit 1995-04: $ 0.52/head loss
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Iowa Farrow to Finish Profits, 1997-2009 Source: John Lawrence, Iowa State University
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Pig/Month Accumulated Profits, 1990-2009 Source: John Lawrence, Iowa State University
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Corn Milled for Ethanol Forecast % corn for ethanol: 2000-01: 6% 2005-06: 14% 2007-08: 23% 2008-09: 31% 2009-10: 34%
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Source: LMIC
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Weekly Corn & Ethanol Prices, 2007-09
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Source: U.S. Energy Information Administration Weekly Gasoline & Corn Prices, 2007- 09
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Source: LMIC
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2007 Renewable Fuels Mandate
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Ethanol Production, 1990-2016 mandated use actual production Beginning in 2015, the U.S. will annually use more corn to make ethanol than the U.S. produced in any year before 1971
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Recent EPA Decisions U.S. corn ethanol has a worse impact on the environment than gasoline due to land use impact, i.e. more acres being cropped Brazilian sugarcane ethanol reduces GHG emissions by 64% compared to gasoline
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U.S. Average Corn Price, 1908-2008 Source: USDA/NASS
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U.S. Average Corn Price, 1908-2008 Source: USDA/NASS 1908-1942 35 years Avg $0.78 1942-1972 30 years Avg $1.26 1973-2006 34 years Avg $2.37
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U.S. Average Corn Price, 1908-2008 1908-1942 35 years Avg $0.78 1942-1972 30 years Avg $1.26 1973-2006 34 years Avg $2.37 The 1940s step raised corn price 62%; the 70s step 88%. A 75% step will take corn to $4.15/bu What’s the next level?
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Northwest Iowa Prices, 2006-09 Source: LMIC
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DDGS Price as % of Corn Price, Northwest Iowa, 2006-09 Source: LMIC
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WDGS Price as % of DDGS Price, Northwest Iowa, 2006-08 Source: LMIC
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Impact on hogs
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Cost of Slaughter Hog Production Iowa State University Calculations, 1987-2009 Source: John Lawrence, Iowa State University
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Hog Price & Cost, 1996-2008 2008 hog prices were $2.60 above the 13 year average 2008 production cost was $13.85 above the 13 year average
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Breakeven Hog Price & U.S. Corn Price Iowa State University Calculations, 1990-2008
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Production Efficiency Since 1930, the U.S. has reduced sow inventory by 42% and increased annual pork production by 245%
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Pigs Per Litter, 1930-2008 USDA Hogs & Pigs Reports
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Litters Per Sow Per Year, 1930-2008
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Pigs Per Sow Per Year, 1930-2008 USDA Hogs & Pigs Reports
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Average U.S. Hog Carcass Weight, 1930-2008
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Annual U.S. Pork Production Per Sow, 1930-2008 1930-80 growth rate: 2.027% 1980-07 growth rate: 2.793%
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Hog Cycle
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Annual U.S. Pork Production, 1930-2008 In 2008, U.S. pork production was 8.2% above trend
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U.S. Commercial Hog Slaughter Quarterly Data, 1970-2009
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Terminal Market Barrow & Gilt Price Quarterly Data 1970-2009
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Hog Price Flexibility Quarterly Data 1970-2009 % ch T Mkt B&G price / % ch com hog slt In 9 of last 19 quarters, price & slaughter moved in the same direction
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International Trade
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Source: USDA/FAS
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Forecast Change in Pork Production -----Percent Change----- Country 2007-082008-09 China +7.6%+5.5% E.U.-27 - 1.4%- 1.9% USA +6.4%- 2.5% Brazil +0.8%- 0.2% Russia +7.9%+4.1% Canada +1.4%+2.1% Vietnam +1.0%+0.0% Japan - 0.1%- 0.7% WORLD +4.0%+1.9% Source: USDA/FAS, April 2009
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Source: USDA/FAS
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Forecast Change in Pork Imports -----Percent Change----- Country 2007-082008-09 Japan + 4.7%- 2.1% Russia + 17.8%-28.8% Mexico + 18.6%-11.2% S. Korea - 3.8%- 7.0% U.S.A. - 14.1%+ 1.1% Hong Kong + 14.6%- 0.3% China +117.2%-30.2% Canada + 14.0%+ 5.1% Australia + 7.8%- 7.9% WORLD + 16.3%-13.3% Source: USDA/FAS, April 2009
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Source: USDA/FAS
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Forecast Change in Pork Exports -----Percent Change----- Country 2007-082008-09 U.S.A. +48.6%-13.2% E.U.-27 +33.4%-27.1% Canada + 9.3%+ 1.9% Brazil - 14.4%- 2.4% China - 36.3%- 5.8% Chile - 4.1%- 8.5% Mexico +13.8%+ 4.4% Australia - 11.1%+ 4.2% Vietnam - 42.1%+ 0.0% WORLD +18.9%-12.4% Source: USDA/FAS, April 2009
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2008 was the 17 th consecutive record year for U.S. pork exports
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Source: U.S. Meat Export Federation
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U.S. Pork Imports & Exports, 2000-2009
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U.S. Pork Production, Exports & Imports, million pounds, 2007 & 2008 Jan-Dec 2007 Jan-Dec 2008 Percent Change U.S. pork production 21,942.623,347.8 + 6.4% U.S. pork exports 3,141.2 4,668.3 + 48.6% U.S. pork imports 968.4 831.9 - 14.1% Production- exports + imports 19,769.819,511.4 - 1.3%
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U.S. Pork Exports, 2008 Change From Year Ago Country 000 lbs Percent Japan250,972 + 23.39% Mexico222,617 + 49.32% Canada 54,712 + 14.88% China & HK496,336 +139.79% S. Korea 32,113 + 12.12% Russia185,757 + 76.03% Australia 31,125 + 40.33% TOTAL 1,527,132 + 48.62%
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U.S. Pork Exports, Jan-April 09 Change From Year Ago Country 000 lbs Percent Japan 36,048 + 8.45% Mexico 95,933 + 53.95% China & HK-221,626 - 64.18% Canada - 8,998 - 6.81% S. Korea - 4,730 - 3.92% Russia - 70,222 - 47.22% Australia 12,338 + 39.95% TOTAL -166,768 - 10.79%
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U.S. Pork Exports, 2005-2009
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Pork Exports & Frozen Pork, 2006-09
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2008 hog imports were dn 6.6% compared to 2007
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Weekly Hog Imports, 2007- 09 Source: USDA/APHIS
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Weekly Hog Imports, 2008-09 Source: USDA/APHIS
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Change in Hog Slaughter: US & Canada Weekly F.I. Hog Slaughter, 2006-09
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U.S. Dollar Exchange Rate Index
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Trade Weighted Exchange Rate, 2005-2009 Source: Federal Reserve Bank of St Louis
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U.S. Pork Exports, 2006-2009
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U.S. Pork Imports & Exports as % of U.S. Pork Production, 2006-2009
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U.S. Net Pork Exports as % of U.S. Pork Production, 2006-2009
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Exchange Rate: Can $ Per US $
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Steve Meyer’s survey indicates 2009 capacity of 444,925
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U.S. Daily Slaughter Capacity PackerFall 07 Spring 09change Smithfield121,900126,300 4,400 Tyson 74,300 74,550 250 Swift 47,000 47,000 0 Excel 36,000 38,500 2,500 Hormel 36,800 37,000 200 Seaboard 16,800 19,200 2,400 Triumph 17,500 19,000 1,500 Indiana Pack 15,000 16,500 1,500 Hatfield 10,600 10,600 0 Others 52,435 56,275 3,840 Total428,335444,92516,590 Source: Steve Meyer, Paragon Economics
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17 Largest Hog Slaughter Weeks Rank Date Head. 1.12/22/072,469,770 2.01/12/082,434,492 3.01/19/082,419,483 4. 01/10/092,387,946 5.12/01/072,381,022 6.11/01/082,278,877 7.12/08/072,377,351 8.10/11/082,374,375 9.11/17/072,372,466 10.12/20/082,370,785 11.12/06/082,367,889 12.11/22/082,367,556 13.12/15/072,362,972 14.11/10/072,360,450 15.10/18/082,357,496 16.09/27/082,346,069 17.10/13/072,339,945 The 35 weeks with the largest slaughter have all been since September 2007
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Demand
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U.S. Per Capita Pork Consumption, 1930-2008
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Change in Export Pork Demand Base Elasticity = - 0.5
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6/5/09 Exchange rate: 98.18 Yen per US $
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Change in Domestic Pork Demand Base Elasticity = - 0.75
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Change in Hog Demand Base Elasticity = - 0.2
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Cheap vs Expensive Cuts
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Livestock Marketing Information Center
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Ground Chuck, Retail Price, Monthly, 2000- 2009 Source: USDA/ERS
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Choice Boneless Sirloin Steak as % of Ground Chuck, Retail Prices, Monthly, 2000-2009 Source: USDA/ERS
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Boneless Pork Chops as % of Ground Chuck Retail Prices, Monthly, 2000-2009 Source: USDA/ERS
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Boneless Chicken Breast as % of Ground Chuck Retail Prices, Monthly, 2001-2009 Source: USDA/ERS
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Whole Frozen Turkey as % of Ground Chuck Retail Prices, Monthly, 2000-2009 Source: USDA/ERS
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Bologna as % of Ground Chuck Retail Prices, Monthly, 2000-2009 Source: USDA/ERS
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Retail Boneless Pork Prices Retail Prices, Monthly, 2001-2009 Source: USDA/ERS
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Inventory Reports
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We are in the down phase of the hog cycle
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Hog Inventory Reports U.S. Mar Canada Apr
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U.S. Sows Farrowed by Quarter
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U.S. Pigs Per Litter by Quarter
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Canada Sows Farrowed by Quarter
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Sows Farrowed-U.S. & Canada Combined
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2008 sow slaughter was up 5.0% Last 13 weeks were down 13.2%
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Sow Slaughter, 2008-09 4 week moving average Source: USDA/AMS
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Estimated Gilt Retention & Sow Loss, 2007-2009 GG Cattle & Hog Fax
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Estimated Gilt Retention & Sow Loss, 2008-2009 GG Cattle & Hog Fax
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Prior to 2007, packers had never killed 2.3 million hogs in a week
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Actual & Predicted Change in Hog Slaughter U.S. Weekly F.I. Hog Slaughter, 2008-09
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Prices
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Hog Cutout Value
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Livestock Marketing Information Center
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Source: USDA Prior Day Purchased reports
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Barrow & Gilt Negotiated Live Price Source: USDA Prior Day Purchased reports
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Source: USDA’s Prior Day Slaughtered
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Pork Packer Gross Margin Per Retail Pound, Monthly, 2000-2009 Source: USDA/ERS
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My Forecast
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Commercial Hog Slaughter Forecast Million Head * actual 2007 2008 2009 Qtr 1 26.684* 29.601* 28.488* Qtr 2 25.526* 27.941* 26.700 Qtr 3 26.566* 28.696* 27.250 Qtr 4 30.396* 30.214* 29.300 Year109.172*116.452*111.738 ------Change------ 07-08 08-09. +10.9% - 3.8%. + 9.5% - 4.4% + 8.0% - 5.0% - 0.6% - 3.0% + 6.7% - 4.0% Note: Q3 07 & Q1 09 have only 63 slaughter days
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Iowa-Minn Hog Price Forecast Negotiated Base Price Per Carcass Hundredweight 2006 2007 2008 2009 Qtr 1$56.38*$59.90*$52.49* 57.23* Qtr 2$65.27*$69.45*$70.43* 57-58 Qtr 3$68.04*$66.14*$75.67* 60-63 Qtr 4$60.53*$52.08*$55.60* 54-58 Year$62.54*$61.91*$63.58* $57-60 * actual price – prior day purchased
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Iowa-Minn Live Hog Price Forecast Negotiated Live Base Price Equivalent 2006 2007 2008 2009 Qtr 1$42.85*$45.52*$39.89* 43.49* Qtr 2$49.61*$52.78*$53.53* 43-44 Qtr 3$51.71*$50.27*$57.51* 46-49 Qtr 4$46.00*$39.58*$42.26* 41-44 Year$47.53*$47.05*$48.32* $43-46 * actual carcass price x 76%
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U.S. Pork Production, Exports & Imports, million pounds, USDA forecast, 2008 & 2009 Jan-Dec 2008 Jan-Dec 2009 Percent Change U.S. pork production 23,34722,746 - 2.6% U.S. pork exports 4,668 4,183 - 10.4% U.S. pork imports 831 800 - 3.7% Production- exports + imports 19,51019,363 - 0.8% Source: USDA/OCE WASDE June 2009
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Source: USDA’s Prior Day Slaughtered
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The Non-Swine Flu
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National PDP Base and 04/24/09 CME futures minus $2
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National PDP Base and 05/29/09 CME futures minus $2
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National PDP Base and CME futures minus $2
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National PDP Base and 04/24/09 CME futures minus $2
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Impact of Non-Swine Flu CME Futures Contracts $/cwt 4/24 5/29Change Impact May$69.00$62.12-$ 6.88 -$113M June$71.65$63.92-$ 8.73 -$141M July$72.60$65.62-$ 6.98 -$126M Aug$72.05$65.97-$ 6.08 -$107M Total$$$ -$487M
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Forecast Change in Meat Production --Percent Change-- Type 2007-082008-09 Pork +6.40%-2.57% Beef+0.53%-0.37% Chicken+2.07%-4.03% Turkey +4.94%-7.30% All Meats+2.90%-2.84% Source: USDA/OCE WASDE, June 2009
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Forecast Change in Meat Production --Percent Change-- Type 2008-092009-10 Pork -2.57%- 1.76% Beef-0.37%- 1.79% Chicken-4.03%+1.43% Turkey -7.30%+1.99% All Meats-2.84%- 0.28% Source: USDA/OCE WASDE, June 2009
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Forecast Summary Farrowings trending down Continued productivity growth Fewer imports of Canadian hogs/pigs Decrease in pork exports Weak domestic demand High feed cost Red ink for producers
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Any Questions?
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