Producers move to a survival mode to try and weather what is becoming one of the longest economic downturns in the history of the pork industry.
In 32 years of swine veterinary practice, Tim Loula, DVM, says he has never seen it this tough for this long.
Hog farmers have been losing an average of $25-30/market hog sold since September 2007, and profitable times don't appear to be on the horizon anytime soon — maybe the spring or summer of 2010.
“Many producers (ours included) will not have any money left by that time,” Loula declares in an address at the Leman Swine Conference in mid-September in St. Paul, MN.
“Many or most producers are broke or nearly broke. I have never been to as many banker meetings and have never gotten as many calls on nights and weekends about what producers should do. It is tough when you don't have a lot of answers,” he says.
The veteran southern Minnesota swine veterinary consultant characterizes the situation “as a crisis, kind of a meltdown. We are seeing survival mode tactics going on and a ‘last man standing’ attitude from almost everybody,” he continues.
The pork industry is losing hundreds of millions of dollars in equity, taking equity levels back to the mid-1990s, when they were among the lowest ever, Loula says.
“Producers are paralyzed, but they are focused on making more pigs while dealing with very few expectations of profit over the next 18 months,” he adds.
What Went Wrong
The birth of the ethanol industry that received government subsidies combined with high oil prices translated into high corn and soybean meal prices.
“In my 32 years of practice, the range for corn was $1.25 to $2.50/bu. All of a sudden we had $7-8/bu. corn. People were telling us we were going to run out of corn, so we had to buy more (at that higher price),” Loula says.
“Ethanol added higher costs of inputs, and that is not going to go away. For example, we have 300 million gallons of ethanol coming into production very soon within 70 miles of our clinic office in St. Peter (MN). That is 100 million bushels of new corn that will be used in the ethanol industry,” he says. Producers will gain from the by-product for livestock feed (distiller's dried grains with solubles).
The Chinese export market in 2008 sent the wrong signal to pork producers. “When I was in Canada last year, I was asked if U.S. producers were liquidating, and I responded that we were not quite done expanding yet.
“We got a tremendous signal that we were going to be able to raise and sell more pork. The fact is, we got a bad signal, we expanded one year too long, and now that China has pretty much eliminated U.S. pork imports, we are paying for it,” Loula observes.
The amazing success of the porcine circovirus vaccines played a pivotal role in the overproduction of pork, too. There are easily 6-9% more pigs being produced today than before the vaccines were introduced. Not only have the vaccines worked to control circovirus, their efficacy has improved immunity of treated pigs for other diseases, according to Loula. “Veterinarians I have talked to agree that we are one notch healthier today than we were a year ago,” he says.
The federally licensed circovirus vaccines were approved in 2007. “This extra degree of health is nice in that it has eliminated many piles of dead pigs, but the result is that it has taken swine health to a new plateau, raising way more pigs and way more pounds of pork than we ever imagined.”
Producers are losing lots of money raising hogs, “but they still want to show you how few dead pigs they had last week,” he says. “They are still proud of production.”
With control of circovirus and superior genetics, nearly all farms have seen improved sow and pig performance to levels never seen before — 13-14 total pigs born/litter and targeting a 92% farrowing rate. Thirty pigs/sow/year (p/s/y) is the next horizon producers are shooting for, along with better replacement gilt production.
That said, even if producers reached 30 p/s/y and have zero pig death loss, they would still be losing money, Loula stresses. “You can't produce yourself into profitability right now.”
But producers keep trying because that is what they know and are very good at, he notes.
It has produced a “last man standing” attitude that has left the industry with three types of pork producers: those who are already over the edge and won't recover; some who are teetering on the edge; and those who are great producers and hedgers who are still quite a ways from the edge.
Midwest pork producers, especially, see all the advantages they have in fertile cropland, pigs and packing plants. They believe they are the most efficient pork producers in the world, and they feel this meltdown should not be happening to them, Loula says.
But producers need to realize this crisis is very different from the last major hog crisis in 1998. That was a much shorter event and it was resolved quicker, in part due to the departure of some old, inefficient farms that needed to leave the hog business anyway, he explains.
“With this recession, some good farms are going away, and we can't say that they will not come back into the business this time around,” he says. If they do return, Loula fears it will start the whole downward cycle again and the industry will end up with too much pork on the market.
Next Page: Mitigating the Crisis
Mitigating the Crisis
Loula admits there are no easy answers to this crisis. Producers have worked 20 years or more to reach optimum efficiency in their operations and they don't want to give that up.
“Porcine reproductive and respiratory syndrome (PRRS) has been plaguing producers' operations for 20 years or more, so maybe it's time to get on with that job,” he says.
“We know how to eradicate PRRS, so why not get on it and get it done?” he asks. “If we shut down some sow farms, the virus will eventually go away. It doesn't cost a lot of money to shut down the disease that way, and maybe we would produce a lot less pigs and prices would recover,” he says.
The term “shut down” here means to shut down the flow of gilts into a farm. “The virus eventually moves around to all animals in the farm and builds immunity in the entire population, thereby ‘burning itself out,’” he explains. The farm produces PRRS-negative pigs and naïve gilts can then be brought back into the farm.
“It is feeling a lot like 1998 when we were eradicating pseudorabies,” Loula says. State and national meetings have been held showing some interest in a national PRRS eradication program. Pork producers want something to focus on besides production losses, and PRRS eradication may in turn be a viable way to reduce production levels and prop up prices at a time when it is desperately needed.
“I always want my clients to be the most competitive. If we get rid of PRRS, it will lower our cost of production, provide welfare benefits and make us tops in the world,” Loula says.
Eliminating 10% of bottom-end sows is another way to cut production without hurting the bottom line, “because they weren't producing much in the first place,” he says.
Euthanizing bottom-end pigs is becoming a directive from owners to growers. Any pigs that are born with problems or lack viability should be eliminated.
Growers are evaluating and reviewing all vaccination schedules to determine what products can be cut back without causing undue harm.
Wean-to-finish barns are being single-stocked instead of double-stocked to take advantage of extra barns that have become available during this crisis. Single-stocking pigs saves on transportation and labor costs, he points out.
Producers still face some herd health risks so they should carefully monitor the cost and use of antibiotics at processing and weaning. Some producers are moving to targeted use of antibiotics and more individual treatment protocols, mirroring the “Walk the Pens” concept developed by Pfizer, Inc. (www.pfizerAH.com).
Loula says the Swine Veterinary Center is trying to get in front of crop harvest issues this fall to make sure that pigs don't get neglected as producers rush to complete what may be one of the biggest harvests in history.
“We kind of let pig management slide, but we can't afford mistakes even though it is harvest time,” he says. “We don't want those wrecks this fall because we don't want to make it any worse; we are not making money as it is.”
More Ways to Shave Costs
Swine Veterinary Center partner Paul Yeske, DVM, spoke in tandem with Loula at the Leman Swine Conference. He agrees that improved PRRS management and eradication of the disease should be an industry goal (read more about his views and the clinic's efforts on PRRS in a separate story beginning on page 8).
But PRRS is not the only disease that costs money. Producers need to evaluate their herd status and make sure herds have cleaned up chronic diseases (such as Mycoplasmal pneumonia, Actinobacillus pleuropneumonia, swine dysentery, mange, etc.) as they come out of this time frame, Yeske says.
Producers can also take a number of other steps.
“One of the other things we can do besides disease eradication that doesn't cost anything is a better job of marketing,” Yeske comments. Understand your packer's matrix and what market weight will provide the optimum price for a load, barn or flow of pigs to hit that box that provides the best return for your market hogs.
Elanco Knowledge Solutions has developed a program to reduce standard deviation to get your hogs in the right box (www.elanco.com). Refine your marketing approach, then review and address some of the health challenges that are causing more variation in your operation, Yeske says.
Consider taking pigs off feed near marketing time.
Set ventilation correctly and become more energy efficient by not over-ventilating this winter; seal leaks and put plastic on fan inlets on wean-to-finish barns to avoid drafts. Use automatic controllers that step down temperatures on heat lamps and save labor.
Make sure that the farrowing and weaning age goals match up with the facility. Reviewing the numbers and the flow are important to make sure they are a good fit. Many producers are adopting older weaning ages that place less demands on pig flows and allow reduction of labor needs, he says.
Loula says the U.S. pork industry shouldn't have to shrink to survive.
“We have a great industry and a great product that's very reasonably priced, especially with the low U.S. dollar. We need to find a way to market our product out of this crisis,” Yeske emphasizes.