"Should I stay in this business?" That's a question everyone asks from time to time, no matter their occupation. Certainly most of you will raise the question in the next year or two.
I'm not suggesting you shouldn't stay in pork production. Our philosophy at PORK'98 is to provide information that helps pork producers prosper regardless of their operations' type or size.
I am saying you should evaluate your position and your goals periodically.
Because PORK'98 editors want to help you find the answers, we're sharing the preliminary results of the Pork Industry Structure Study. Typically we wait until all the results are in before we present them. But we wanted you to have the data sooner vs. later to use in outlining future strategies.
University of Missouri economist Glenn Grimes tallied the numbers from producers raising more than 50,000 hogs annually. He hopes providing the information will encourage some producers to rethink their plans. I sense he'd like to look back on this survey and say "the growth projections just didn't pan out."
Here's some insight as you read between the lines.
- In 1997, the large producers raised 34 percent of the U.S. domestic hog slaughter. But that's a far cry from the 50 percent some have pegged them.
- By 2000, they plan to increase market share by 54 percent (from 1997 domestic slaughter numbers.) That's 16 million more hogs, of which half are likely in place or have a place reserved.
- But plans don't always pan out. Combine social animosity toward large farms with environmental issues and you have to wonder where these producers can expand. Some of the sites are
selected, with permits in hand. But not all. And we've seen how communities can stop a well-planned project cold.
- Large producers often are better able to implement environmental technology than those running smaller operations. However, some lenders are tightening the purse strings, leaving the large producer without the capital to meet environmental standards.
- Contracting is one way large producers dilute animal concentration and attention. If you're on that side of the fence, check your contract for profit prospects in what's going to be a low- or no-margin market for a few years.
- Producers marketing 50,000 to 499,999 hogs a year have grown the fastest, and may pay the highest price. Through 2002, 76 percent said they need market prices of $40 per hundredweight (live basis) or more to stay afloat. Of producers raising more than 500,000 hogs annually, 56 percent said they need prices at $40 or higher.
- Grimes' projections for the next three years has prices hovering around $35. It doesn't take much of a businessperson to see that doesn't pencil out.
- Granted, market prices are illusive. Between carcass premiums and pre-arranged marketing agreements, some producers will pull in extra dollars. Of the large producers, 72 percent had some type of marketing deal in hand; as did 93 percent of the ultralarge group.
- What about producers raising less than 50,000 hogs a year? We have yet to hear their plans. So, we're on track to add more than 16 million hogs to the already bulging supply headed for 2000.
- Grimes' demand numbers suggest the U.S. pork industry can handle 12 percent growth through 2000 without hurting prices too much or too long. We're on track for an 18 percent increase, minimum.
- Someone will pay a price for overproduction. But it's naive to think it will automatically be the small to mid-size producers. Recent years have been profitable and many are on sound footing.
- Large producers tend to be risk takers – which is partly why they're large. Risk takers tend to win big, or lose big.
- Being competitive will be more an issue of debt/equity, attitude, desire and innovation, not size – just as it has always been. There are more operations of all sizes doing a better job of producing pork today than ever before.
- The industry could expand pork demand, which means developing new markets and expanding old ones. That will make pork quality, processing, packaging and food safety issues even more important, not less. Domestic consumers demand it. Export markets won't open their doors without it.
That's a lot to think about, and more information will come. While it's little consolation, these growing pains are not unique to the pork industry.
In the next few years, at some time each of us will likely ask: "Should I stay in this business?"
The answer depends on your financial stability, business and personal goals and desire. There will always be opportunities in pork production. But those opportunities may change.
There are no easy answers.