I recently had the honor of speaking at the National Pork Industry Conference held in the Wisconsin Dells. I focused on the current financial state of the U.S. pork industry because there seems to be a rather large discrepancy regarding how quickly producers are recovering, financially.
Through May, we saw producers who broke even, while others recorded profits of up to $18/head, year-to-date. In my presentation, I pointed out that this difference could be illustrated by taking out hedge gains and/or losses, and just looking at operational profits. That’s essentially what we are seeing in our loan portfolio.
The main variance in the profit/loss picture is cost of production, year-to-date. Some production systems have breakeven costs of $0.45/lb., live wt., while others run as high as $0.55/lb., live wt. The difference calculates to over $27/head on a 270-lb. market hog. The major drivers in these discrepancies are overall herd health and feed cost/head.
A couple of key benchmark figures to focus on are weaned pig costs under $32/head and total wean-to-finish costs/lb. of gain under $0.38. If you are weaning a 12-lb. pig and selling market hogs at 270 lb., that means your total costs from 12 to 270 lb. should be under $98 (258 lb. of gain x 38 cents).
Producers with costs at these levels or below are challenging their feed formulations without giving up performance. In the past, many producers figured it took 10 bu. of corn to raise a pig. Today, many producers figure it takes just 6 bu. of corn to raise a pig. Distillers dried grains with solubles (DDGS) and other alternative ingredients can lower feed costs without giving up performance. You must be willing to think out of the box and change how you look at diet composition.
Another key item is herd health. We have systems today reporting wean-to-finish mortality at 10%, while others have held it under 4%. These differences affect costs of production greatly.
Manage Your Margin – In the past couple of weeks, we have seen rather dramatic swings in grain prices, which certainly affect the margins in the swine industry. It’s vital that you continue to stay focused on managing your margin. It is very hard to predict what hog prices or feed prices might do, but if you stay focused on developing a sound plan to manage your profit margin, you will be able to control your own financial destiny.
GIPSA Rule Comment Period – I urge everyone involved in the pork industry to go the National Pork Producers Council (NPPC) site, www.nppc.org/, and read the rule that the Grain Inspection, Packers and Stockyards Administration (GIPSA) has proposed. The 2008 Farm Bill authorized the U.S. Department of Agriculture, through GIPSA, to promulgate regulations related to livestock and poultry contracts.
I believe all sides need more time to fully understand what the implications of the rule are for producers, so I feel an extension beyond the current deadline of Aug. 23 should be granted. It is important to fully understand what is being proposed and to file your opinion with your representative.
From a lender’s perspective, I’m concerned that we do not have enough time to fully analyze and comprehend the proposed rule and what the risks might be for pork producers. More time and debate on the ruling is needed to make sure the best interests of the industry are taken into account.
Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com