Like the current hog market, most people gave the event “two thumbs up.”
The smiles came a little easier and lasted a little longer as pork producers toured the World Pork Expo trade show this year. The occasional thunderstorms that whirled through the Iowa State Fairgrounds sent attendees scampering for cover, but the threats paled in comparison to the financial storms most had weathered over the last 2-3 years.
When the rains stopped, the storm clouds parted and the sun again shone through, spirits were lifted in a way that only summer sun and higher hog prices can do.
I would describe the overall tone of this year’s World Pork Expo as “serious, contemplative, sprinkled with a healthy dose of moderation.”
Serious in the sense that nothing in the pork industry is being taken for granted. Not hog prices. Not feed costs. Not capital availability. Not export markets.
Moderate in the sense of reality checks and the knowledge that an unknown factor could again send shock waves through the industry, much as the H1N1 influenza virus did just 15 months ago.
I did sense a greater clarity of purpose, which was reinforced by a near-universal effort to imprint the multi-faceted “We Care” initiative onto any and every pork checkoff and non-checkoff program proponed by the National Pork Board and the National Pork Producers Council, respectively.
The Silver Lining
Perhaps the silver lining in those dark clouds that has hovered over the pork industry the last 24-30 months is that they have nudged many producers toward new levels of risk management and production efficiency. Marginal sows were culled without a second chance. Feed sourcing and processing rose higher on most priority lists. Alternative feed sources were sought out and found, relieving at least some of the pressure created by ethanol- and biodiesel-driven feedgrain markets.
As I visited with producers at Expo, a few things stood out:
• Producers and lenders are being very cautious. Lenders are scrutinizing balance sheets closely. Capital expenditures will be financed as balance sheets are brought back to financial health. While some producers are scratching to return to marginal profits, others are pocketing $15-18/head. One vendor noted: “Producers are looking for ways to improve efficiency. If a product doesn’t improve their performance, they’re not interested.”
• Risk management is not optional. The lessons learned in recent years must be kept in place and improved on in a leaner, perhaps meaner (aka, more competitive) pork industry.
• When things start to turn and market projections remain positive, folks in the pork industry just can’t help themselves. In hushed tones, they glance around to see who’s within earshot, and then ask: “When do you think expansion will come?” Most brace themselves for the answer, secretly hoping that no one is even thinking about it right now, but reluctant still to be left behind.
Don’t Even Think About It
For now at least, “expansion” is a dirty word. The consensus of producers and allied industry folks that I talked with are doing their level best to tamp down any talk of expansion.
Yes, there are probably some sow units sitting empty. But as Mark Greenwood, with highly invested AgStar Financial Services, is quick to point out: “Those sow units are empty for a reason.” They’re often too small to fit modern grow-finish pig flows, or they may be situated in a hog-dense area where disease cycles are difficult if not impossible to overcome.
Perhaps the best perspective for tempering talk about expansion came from a producer from southwest Iowa, who stated matter-of-factly: “It probably won’t be good for as long as it was bad.”
Hang your hat on the “moderation” peg for a while, rebuild your balance sheets, take advantage of the strong sow market and the hog market rallies — and have a great summer.