Michigan producers expand from production groups to a marketing group.
A group of pork producers nestled into the "thumb" of Michigan have always been just a little ahead of the industry with their cooperative way of production.
Located in a fertile farming area but away from the Hog Belt, this group first formed a sow corporation in 1979. The corporation thrived through the 1980s while other sow co-ops disbanded. A management team including Bob Bloomer, Sebewaing, MI; the Cooperative Elevator Co., Pigeon, MI; and Purina Mills nutritionists kept the group on track.
By the late 1980s, the group had expanded to four corporations, housing about 2,500 sows. Now the group includes three corporations with 3,900 sows. This represents over half of the hog population in Huron County.
Shareholders from the corporations broke more new ground in 1991 when they formed a marketing group. Some 6,100 market hogs were sold in the first four-month finishing cycle. Today, 22,250 hogs are sold in one cycle. The marketing group operates on a unique payment program that averages a cycle's market price. Producers are paid the average price.
The groups of farmers continue to change their production methods as the pork industry changes. They operate commingled, off-site nurseries. Many of the shareholders have their pigs finished on contracts in new facilities. And the feed regimen has kept pace with the industry by using split-sex and phase feeding.
Today, the groups look ahead to joining in one corporation and possible expansion. Maybe they'll have the corporation retain ownership of the pigs, too. Then the shareholders will be the contract finishers.
But whatever happens, they plan to make the changes necessary to stay in business.
Cooperative Mentality Phil Leipprandt of Caseville, MI, is a charter member of the first sow corporation, West Huron Farrowing. That corporation grew gradually from 305 sows in 1979 to 1,750 in 1994.
A crop farmer, Leipprandt says he and his family wanted to spread out their cash flow and market corn through hogs. So they cleaned out an old machine shed and started finishing hogs from the new West Huron group.
"We are from an area that is co-op minded," Leipprandt says. "We always work together no matter what. We're going to market sugar beets, beans, etc. together."
Indeed, this area of Michigan, located near the coast of Lake Huron and two hours north of Detroit, has been cooperative minded. A local cooperative elevator is 85 years old. Farmers here have always banded together, sharing equipment and markets. So the introduction of a sow corporation fit this mentality.
Dan Bates, feed division manager of the Cooperative Elevator, attributes the success of the sow groups and marketing groups to this mentality.
"They are a group who like to work together," Bates says. "They are very business minded. They are open to stepping back and looking at things from a business viewpoint.
"I've also seen them do what may not be in their individual best interest but is for the good of all," he adds.
A strong supporter of the growing sow groups, Leipprandt and his family kept up with the growth. They built a modified, open-front building for 500 head in the early 1980s.
A decade later, they built curtain-sided, tunnel-ventilated buildings to house 1,040 head. Today, they fill their 1,500-head site in one day with hogs from a commingled nursery.
Growth Bob Bloomer, manager of the corporations, oversees the growth and production of the sow corporations including the 1,750-sow West Huron Farrowing.
Pigs R Us was started in the early 1980s and grew to 500 sows. In 1991, it became the multiplier herd for the other three corporations.
Thumb Quality Farrowing started in 1988 and East Huron Enterprise in 1989. Both sow corporations housed 700 sows each and grew to 1,200 sows in 1994.
As production changed, the groups did, too. They wanted to put their pigs in off-site nurseries. So in 1994, a limited liability corporation called Thumb Commingled Company was created for the off-site nurseries. The four sow groups were shareowners.
Two nursery sites, 20 miles apart, with eight, 800-head nursery rooms were constructed. By last year, the nurseries were overcrowded.
Then, one sow corporation, East Huron Enterprise, decided to split from the group and go on their own. The amicable split solved the nursery crowding, Bloomer says. Unfortunately, they had to disband the nurseries' LLC and form a new corporation. Members cannot be removed from a LLC, he explains.
Now Bloomer manages 3,900 sows in the three corporations plus the nursery group. The three sow groups hope to merge into one corporation this year. Bloomer says some of the shareholders are involved in more than one of the corporations. They are tired of attending meetings and going through the hierarchy of four corporations and boards to make decisions.
Slimming down the decision-making process should keep the group efficient and ready for future changes. Bloomer sees the group keeping ownership of the hogs to market in the future. This will allow more negotiating power at the packer and with suppliers.
New Marketing Group The group of enterprising Michigan producers includes still another corporation, and probably the most unique. Michigan Lean Genetics (MLG) was formed in in 1991 to market hogs for the shareholders who wanted to participate.
Today, MLG markets about 76,000 hogs/year. This accounts for 90"percent" of the hogs raised in the three corporations. All the producers are paid the same price for their hogs. The hogs are of the same genetics and the feed programs must be comparable.
The Co-op Elevator handles the recordkeeping and the money for MLG. Bates, with the elevator, says the prices paid through MLG are based on an average price for a cycle. A cycle covers one complete turn of finishing hogs through the buildings, about four months. MLG has completed 20 cycles since it started in 1991.
Once a cycle starts, Bates says the average price for the first few loads becomes the base price. A group of MLG producers and Bates set this price, which usually is fairly conservative.
When producers sell hogs, they are paid the base price. Their hogs are weighed at the nearest scale to eliminate any unfairness over shrinkage. Some hogs are shipped to packers eight hours away and others go three hours away.
At the end of the cycle, any remaining money is paid out on an equal poundage basis, plus interest.
"Let's say the base price is $45," Bloomer says. "If the average for the cycle is $48, you would get the rest of the money at the end of the cycle (plus interest)." This price is minus shrink, commission, trucking and checkoff.
Once in a while, the base price must be changed during a cycle. Leipprandt recalls 1994 when hogs hit $28/cwt. as one of those times. The prices dropped $10/cwt. in one cycle. But overall for that year, the MLG members received $41/cwt. for pounds of pork that left the farm.
Marketing Every Day Averaging out the price over a cycle represents one of the big benefits of this system. "In theory, I fill my floors in one day and I sell them in one day," Bloomer says. "But I'm really marketing my hogs every day of the week."
Bates tracks the prices with other markets. "Our back-to-the-farm price with everything out (like shrink, discounts, trucking, checkoff) in 17 cycles was $0.61/cwt. above the Peoria Tri-State market," he says.
Producers like Leipprandt helped develop this system. "We wanted to market together, but everyone wanted to sell pigs in July," he explains. "Well someone had to sell pigs in December. So we thought about how to even that out." The cycle idea and average prices solved the problem.
Marketing through MLG also helped him market better. Years ago, he used to sell just 30 head/week and suffer a 20"percent" sort loss. Now their hogs go direct to the packer with little or no sort loss.
At the end of each cycle, the Cooperative Elevator gives all the MLG members a complete record of everyone's market hog records. This includes things like weights in and out of barns, average daily gain and mortality. It also includes average weight marketed, average amount received and average price. Bates says this allows the members to compare, learn from each other and improve.
Production Changes Their extensive records helped the group spot the improvements made when production techniques changed.
Probably the biggest change occurred when the groups went to all-in, all-out production from continuous flow in the finishing units in 1991. >From the first cycle to the third, the feed efficiency went from 3.42 to 3.11. Today, feed efficiency runs around 2.90.
The change to AIAO cut days to market by 12 days from the first to third cycle, too.
"Before we went to AIAO, everyone thought they were getting good feed conversions," Bates recalls. "Everyone was shocked at how bad it really was in their own facilities. Since then, we've been very concerned about making sure we have the numbers to know what we're doing."
Switching Nurseries Another big improvement occurred when the group switched to off-site, commingled nurseries. Most of the finishers had been receiving mixed-source pigs. Carcass quality improved when they finished pigs from commingled nurseries.
"We didn't expect to see an improvement in cutability when we went to commingled nurseries," Bates reports. "But we found the pig has more opportunities to lay down lean growth if their immune system is not challenged."
Instead, the immune challenge occurs earlier at weaning and in the nurseries. Pigs are weaned twice a week at 18 days of age or younger. The average weight at weaning is 11.2 lb.
Pigs are split-sex fed with a four-phase program in finishing.
A look at performance in the finishing units also gave the producers another eye-opening fact. Older, totally slotted buildings that are well-managed can perform as well as the new, tunnel-ventilated buildings.
Bates says this leads them to conclude a finisher has more opportunity to improve through management than improving through the age or design of a building.
While the Cooperative Elevator and Purina Mills provide some management services for the corporations, shareholders are not required to buy Purina's feed. Those not buying Purina's feed, are charged a service fee, Bates says.
Genetic Changes The group uses a mix of genetics they've developed over the years of tracking production data. Pigs R Us produces the breeding stock with GIS (Genetic Improvement Services) females, boars from PIC (Pig Improvement Company), and semen from Newsham Hybrids and PIC.
Bloomer says making changes in genetics through the several corporations was a lengthy process. Each corporation's board had to approve the genetic decisions. This is another reason for consolidating the three corporations into one. No doubt, the groups and Bloomer will look at this change and many others to keep their units competitive and profitable.
They will keep this unique area in Michigan hog-friendly and productive for producers