If you are involved in the swine industry, the last couple of months have been encouraging. Cash prices have been over $80/cwt., carcass, for the last month (Figure 1) and producers are finally able to improve their balance sheets. The industry needs an extended run of profits to get back to where it was in 2007. Not only will it take some time to repair the economic damage of the past two years, there were many production system items placed on the back burner due to a lack of cash. If profits continue – and I think they will – I believe we will see many production systems looking at the following investments over the next 12 months:
Sow Parity – The last couple of years, producers have retained sows for more parities. In many productions systems, the sow parity average was over 4. With cull sow prices over 50 cents/lb., you can replace those older sows with gilts and bring the average parity of your sow herd back to a more typical level. Down the road, this will lead to better production in your sow herd.
Human Resources – I think many companies stretched their people resources to their limits over the last two years. In visiting with many companies, we have learned that people could do more if asked; but, now may be a good time to invest in these key employees (e.g., training, bonuses), which will likely pay dividends down the road. There is always a limit to how much you can push employees. Investing in human resources should be on the list for many production companies.
Fixing and Repairing – Many companies put any major repairs on existing buildings on hold. Because of limited cash, many production systems spent only the bare minimum to maintain their buildings. There will be many gates, feeders, crates, slats, etc. that need replacing across the industry. As balance sheets continue to heal, equipment suppliers will likely be busy, as will businesses in new construction.
Invest Where You Can Get Your Best Return – There are swine producers who managed through the last two years ahead of the industry average loss of $20-$25/head. Some producers lost less than $10/head. Some even came close to breaking even. Those producers worked hard to implement a risk management strategy and now will have very strong balance sheets as early as year-end. In meeting with those producers, I often challenge them to invest in areas where they can get their best return. Instead of expanding, perhaps they could invest in their current system to make it better and more efficient. In some cases, that may mean hiring someone to oversee finishing, for example. This person could focus on reducing mortality rates or making sure pigs are sold at optimum weights. Others may want to invest in grain storage to gain better control of their feed supply. Still others may want to invest in a filtration system for the sow barn, particularly if they have a history of porcine reproductive and respiratory syndrome (PRRS) outbreaks. The point is – challenge your current thought process. If you have dollars that you want to invest in your business, it does not always have to be in a new sow unit. Expansion may not be what is best for your business in the long term. Ultimately, that is what you need to consider.