On this page in the June 1998 issue, I proposed that over the next two to three years, many pork industry players would ask the question: "Should I stay in this business?"
The 1998 Pork Industry Structure Study – and producers' phenomenal growth plans – prompted that question. While not all of the growth materialized, producers raising 5,000 or more hogs annually did increase production.
Certainly 1998 and 1999 live hog prices had everyone inquiring about their future in the industry at one time or another. And it's easy money to bet that the question will resurface on any given day in the future.
The answer, however, isn't always easy to find. It depends on a host of personal and business considerations.
The Pork Industry Structure Study returns this year, outlining some of the trends and developments that deserve consideration as you look ahead.
While it's not exactly a hold-the-presses revelation, production consolidation continues. Profit margins will continue to narrow and you will have to raise hogs under a least-cost strategy.
The trend to larger operations means hog marketings will occur on a more regular schedule. Less fluctuation in slaughter should mean less volatile prices. It will also mean less room for those not covered by a producer/packer pre-arranged marketing agreement.
Contract production continues to grow, 46 percent of surveyed producers in the 10,000-to-49,999 size category were contract growers; the tally was 23 percent for those in the 5,000-to-9,999-head group.
These folks tend to approach business and industry issues differently than traditional independents. This will change the dynamics of the pork industry.
Producers that raise fewer than 5,000 hogs annually may only raise 20 percent of the nation's hogs, but they still have a majority voice. This presents another interesting dynamic because numbers that vote tend to carry political clout.
Growth into 2003 is set for a modest pace – from 2 percent for the smallest producers to 13 percent and 8 percent for the largest. But survey respondents indicated that live hog prices at $36 per hundredweight would stress profits. During the last price downturn, it was clear who could afford to buy ailing operations – Smithfield. Will other packers take the same route if the opportunity arises?
Sows will farrow in the fringe states with pigs finished in the Corn Belt. There are many reasons for this, but corn supply is the key.
This complements the evolution of sow cooperatives, which has helped several producers shift into larger production categories. More than 25 of the 156 largest operations in the survey were identified as sow cooperatives. Translate that into the marketing categories and you'll find producers with annual marketings of 3,000 or more hogs are members of those co-ops.
Don't forget about Canada. You can't overlook your neighbors to the north as you plan for the future. The Pork Industry Structure Study didn't look at Canada, but next time it probably should.
Canadian producers have goals of their own, which include raising more hogs. Canada can't eat all the pork it produces so it has to go somewhere, either as live hogs or pork. Not only does Canada compete for the same pork export markets as you do; it exports large amounts of pork into the United States.
Last year, the United States slaughtered 4.4 million Canadian hogs (compared to 4.1 million in 1999). So far, this year is again posting gains, a growing share of which are feeder pigs.
Securing feeder pig supplies is a challenge for Midwest growers and Canadian pigs offer an economic alternative. The feeder pig trend is more of a long-term business structure than selling market hogs, and it will continue to grow.
It's natural, even healthy to ask "Should I stay in this business?" Looking for the answer can rejuvenate you and refocus your attention.
There are still many and varied opportunities in pork production today. The business is as diverse as it's ever been; your diversity of thought and approach will influence your competitiveness.