The years 1998-2000 taught this Iowa producer-veterinarian that risk management must be a top priority, even when prices are very good.
It would be easy for pork producers to get complacent when hog prices have been good for a stretch.
“Certainly, these (late 2004) prices are uncharted. We haven't seen profits of this magnitude for many years,” says 47-year-old Craig Rowles, DVM.
Rowles worked at the Carroll, IA, veterinary clinic for several years, then formed a partnership in 1996 to start Elite Pork Partnership, a 5,000-sow, farrow-to-finish operation near Carroll.
He understands the pent-up demand for new farm and hog equipment.
Some replacements are needed, but he cautions: “I would hope that everyone remembers the pain of '98-'00. And, I hope the lenders remember that pain as well, because we are our own worst enemies in terms of wanting to expand production once we make profits.”
Lead by Example
For his part, Rowles hopes to lead by example. He wants the 28 employees of Elite Pork to see that he didn't run right out and buy a new pickup, for instance. Instead, he traded his six-year-old truck for a four-year-old truck.
“The example I want to set for my employees is that just because we are making big money doesn't mean I am going to go out and buy a brand new truck — I am watching the money,” he says.
And Rowles vows he's not planning a big expansion of his operation in response to the price spikes of 2004. He is in the process of adding an additional farrowing room to existing facilities, not to add sows, but to move from an 18-day weaning age to a 22-day weaning age.
“It is our major project for us this year, but we can afford to do it because we are making some money,” he stresses.
Adding farrowing crates does add to costs, but it provides a measurable payback. Weaning later improves throughput, breedback and sow longevity, and is virtually guaranteed to lower production costs, Rowles stresses.
Making money by lowering costs is the goal he has set for the closely managed operation. His November and year-to-date production costs were precisely $39.09 and $40.37, respectively, and that number was falling rapidly as feed costs continued their decline with the record harvest. Eventually, he predicts production costs will need to reach the mid-$30s to survive in the pork industry.
Especially for smaller, independent producers, the first step is ensuring costs are being measured — and measured accurately, says Rowles. Independent producers often have several different enterprises in the farming business, and they need to separate those enterprises for billing purposes, particularly grain production from hog production.
Once costs are measured, they can be evaluated and benchmarked against different production systems. This can be done using your veterinarian, consultant or accountant.
“In our case, when we went through that 1998 to 2000 phase, we really went through a heavy analysis of every single item that went into our business, and tried to measure what was giving us a clear, consistent and measurable return. That is the standard by which we tried to evaluate everything that we were doing,” Rowles states. “And if we couldn't measure a clear, consistent and measurable return, then we didn't keep it.”
Cost-cutting measures included:
Reduced reliance on vaccines.
Reduced use of antibiotics and discontinued use of growth-promotant antibiotics.
Monitored diet inputs to provide the best-cost formulation within feed budgets.
Planned annual purchases of energy needs to optimize costs and supplies.
Utilized an outside trucking firm for hauling hogs and feed.
Switched to an internal gilt multiplication breeding program. “We have reduced our costs by going to internal multiplication. The other reason we went to it was biosecurity. In fact, biosecurity is probably more important because it reduces our costs by reducing the disease outbreaks.”
Rowles simply got tired of bringing in a new bug every time he introduced breeding stock. “We just kept running through this cycle of PRRS (porcine reproductive and respiratory syndrome) outbreaks, and I finally just threw up my hands. Since we went to internal multiplication a couple of years ago, the health of our operation has stabilized,” he says.
Instituted flexible risk management strategies to provide market price protection (for inputs), while hedging about 50% of production to capture profitable market swings during high-risk months.