Iowa Pork Industry Proves Resilient

At $4.3 billion, the Iowa pork industry comprised 54% of the total cash receipts for livestock and related products in the state, according to statistics for 2005 compiled by the Iowa Farm Bureau Federation.

In the early 1900s, there were about 200,000 farms in Iowa that raised hogs in one fashion or another. Currently, that number is estimated to have dropped to around 9,600 hog farms.

Iowa's pig crop increased to 16.6 million head in 2006, up from 16.1 million head in 2005, and up from 15.3 million head in 2004. Iowa has ranked second to North Carolina in pig crop production since 1997.

Iowa producers retained their long-time number one ranking for hogs marketed in 2006, with 24.7% of all U.S. hogs marketed.

Hog prices in Iowa fell in 2006, with an average price recorded of $48.06/cwt.

Iowa's pork industry has been buffeted by the downturn of farming in the 1980s, and its sow herd has taken a big hit, punctuated by the record-low prices of the late '90s and emerging swine diseases such as porcine reproductive and respiratory syndrome (PRRS).

But it remains resilient and vibrant, fueled by a new generation of farmers vying to enter the business, says Rich Degner, executive director of the Iowa Pork Producers Association.

Hog operations have shrunk from 18,000 a few decades ago to about 9,600. The sow herd has declined from 1.4 million to just over 1 million head.

Degner reinforces obvious concerns about corn availability and price and the impact on profitability.

“Iowa pork producers with whom I interact are confident that the corn yields are going to be increasing and we are going to be able to feed the herd, and they are pretty optimistic that there is going to be profitability on the farm,” he remarks.

John Lawrence, Extension livestock economist at Iowa State University (ISU), adds that the sow herd in Iowa has stabilized. The next test will be the impact of grain prices on sow numbers.

“If we see sow farm numbers decline, I think it will come from those farms that are diversified, that see enough income coming from the crops that they have decided to get out of the hogs,” he says.

Lawrence says ISU has reworked its Estimated Returns to Livestock series, basing it on a 1,200-sow, farrow-to-finish model. That system reflects higher capital costs, but much lower production costs due to improved efficiencies, compared to the previous 160-sow, farrow-to-finish model.

“Obviously, as you increase the grain costs, producers will have higher costs in 2007 than they had in 2006,” he says. “But if you add a dollar to the cost of a bushel of corn and hold other costs constant, the increase in cost of production will come to $4-4.50/cwt.”

Lawrence says his reworked calculations now indicate that pork production will be profitable for most of 2007, making it the fourth-consecutive year of “black ink.”

He attributes that to a cost of production in the low $40s, and stronger hog prices than expected ($50/cwt.). He forecasts a $50/cwt. average in '07.

Feed Prices Spike Concern

Howard Hill, DVM, is the chief operating officer at Iowa Select Farms, a 150,000-sow, farrow-to-finish operation based in Iowa Falls that involves various contract systems to finish their pigs throughout the state.

As such, rising feed prices have already had a major impact on cost of production in Iowa's largest hog operation, he says, pushing up the cost of production by close to $15/hog.

“We try to protect ourselves through forward contracting of both corn and soybean meal commodities, and we have pretty well protected ourselves from even higher prices, but not from the supply issue,” Hill says.

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PRRS has wreaked havoc on a number of Iowa sow farms in pig-dense areas where reinfection is common.

Leon Sheets, 53, who owns a 27-year-old, 1,200-sow, farrow-to-finish operation at Ionia, IA, is the rare exception. Except for some minor blips through the years, he says his operation has come through unscathed due to:

• In-house multiplication on-site, off-site at the main farm. Replacement gilts are weaned into a modular nursery, then acclimated in a finishing barn;

• Replacement gilts vaccinated for PRRS in both nursery and finisher and

• Twice a year the operation is mass-vaccinated for PRRS.

“The key thing is to keep PRRS quiet, and it has really worked,” he says.

Daryl Olsen, DVM 53, president of the American Association of Swine Veterinarians, and co-owner of the Audubon-Manning Vet Clinic (AMVC) at Audubon, IA, provides management services to sow units in seven states.

AMVC also maintains some sow unit ownership in Iowa and North Dakota. “Some of these remote areas offer some real opportunities for well-isolated sow units where we can control the health easier and still have availability of a grain supply,” he says.

He suggests pig-dense Iowa is probably not the best bet for siting new sow operations. “I think locating a sow unit in Iowa, where you could get some isolation for a biosecure area, is probably going to be extremely difficult. So, future growth of sows in Iowa is probably going to be limited.”

Olsen cites three general challenges to hog production growth in Iowa:

• A governor who is not supportive of agriculture in general, or of the pork industry in particular;

• Lack of harmony between ethanol production and hog production for control of the corn supply; and

• Density of hog numbers that make disease control difficult.

“Our number one challenge right now is the importation of so many outside sources of pigs into Iowa, and how we can safeguard Iowa's herds and potentially track movement,” Olsen comments. Table 1 breaks down the origin of the 17.8 million pigs that were imported into Iowa in 2005. Figure 1 compares pig imports to breeding herd numbers.

John Mabry, director of the Iowa Pork Industry Center, thinks the outlook for the state's pork industry is very positive, provided the legislators and regulators don't do anything foolish.

“Iowa is a state with tremendous agricultural land, and that's not going to change,” he assures. The land begets agricultural products — corn, soybeans, wheat — whatever you want to grow.

The nutrients produced by a 2,400-head finisher or a 2,400-sow unit in the form of manure will provide the fertilizer needed for a corn-soybean rotation on a section (640 acres) of land,” he continues. “If we were to use all of the available acres in Iowa to grow crops using pig manure, we could handle three times the current pig population in the United States.” Naturally, such exponential growth probably wouldn't be welcomed in many circles. “Still, I'm pretty sure that we could sustain a 50% growth in the pig population in Iowa,” he adds. Current pig inventories run at about 17 million head (Figure 2 on page 51).

Mabry says two key issues will have a marked effect on Iowa's hog growth potential:

• Ethanol's impact on corn prices, thus profitability; and

• The sensibility of legislators and regulators.

“Look at what's changing in this industry,” he continues. “Petroleum prices have a huge effect on the economics of a pig farm. All of a sudden, the value of the manure is 2-3 times higher than recent years, so the cash flows from finishing buildings change quickly.

“We've also seen feed costs go up 25-40%. The cost of production target used to be 38-41¢/cwt., live. Now, we're looking at 48-51¢ due mainly to feed costs. With forward pricing opportunities, hogs are still profitable. I'm sure we won't see the profits of the past three years, but at $5-10/pig, we can still have a robust industry.”

Mabry is keeping an eye on North Carolina as the building moratorium expires this year. “At the present time, they can rebuild facilities on the existing sites, but they can't move permits (to another site). They're requesting from the North Carolina legislature the ability to take a permit, shut a farm down as population encroaches, and rebuild it on another isolated area. If they don't get that, there will be a decrease in pig numbers in North Carolina,” he predicts. “That would create even more opportunity for production in the Midwest.”

The impact of ethanol production from corn poses another challenge for the state. Currently, there are 66 plants in place or financed. “If all of those plants are built and operational, they would use all of the corn produced in the state last year,” he explains. Drawing from an economic assessment conducted by John Lawrence, Iowa State University (ISU), Mabry says the use of equal amounts of corn in ethanol production vs. animal agriculture, creates a 10-to-1 employment ratio difference.

“A 100-million gal. ethanol plant employs 90 people; if you put the same amount of corn through pigs, which would be comparable to the size of Iowa Select Farms, it would require 900 people,” he says.

Other concerns include foreign animal diseases, odor control and reliance on out-of-state feeder pigs for finishing.

About 10% of the pigs finished in Iowa last year were imported from Canada. “The list of weaned pig and feeder pig suppliers, is a little scary,” notes ISU Extension Swine Specialist Ken Stalder. “Particularly if you knocked out Canada because of a disease, for example.”

Still, Stalder sees the state's infrastructure as well-positioned to remain the top hog finisher. “We have a wealth of packing plants and buying stations (Figure 3), which is a big advantage.”

ISU geneticist Tom Baas teaches the basic swine production course. “We've seen an obvious decline in the number of independent producers,” he agrees. “There are a lot of farmers raising pigs, but many don't own them.”

Baas sees the trend away from sow gestation stalls as a major challenge. “It's important to remember that we moved away from pens and to stalls for a reason. If we return to pens, we'll be going back to some of those same issues,” he reminds.

Adding to that, “We have selected for an animal that will survive and thrive in a stall with very little competition. That's not the same animal that's going to make it when housed in groups.

“We will transition to a different kind of animal, and it may not be as productive as we've had in the past,” he warns. “I'd predict that production will slip for a while, then gradually build back to present levels as we select for more durable animals capable of good productivity in the environment we put them in.”

Legislative and regulatory issues will drive the future of the pork industry in Iowa, says Mabry. “A lot of the people who can influence the future of animal agriculture in Iowa are under the golden dome in Des Moines. They can enact legislation that can encourage or stop any growth in the animal industries very quickly through political appointments and legislation.”