Production and Marketing Characteristics
The 2004 Pork Industry Structure Study

On the 2003 survey a number of questions were asked to gauge the attitudes and concerns of hog producers.  Questions focused on general satisfaction with hog production and greatest concerns with challenges facing the industry.

The overall satisfaction results are presented in Table 33 through Table 35.  In 2000 and 2003 larger firms (over 50 thousand head marketed) were asked, “How satisfied are you with hog production?”  The 2000 survey followed a period of relatively good prices, and respondents seemed to be relatively well satisfied with hog production.  However, in 2003, respondents were almost indifferent in their response.  On a scale of 1 to 6, the 50 to 500 thousand head producers went from a 4.7 in 2000 to 3.8 in 2004, while the rating for the largest firms went from 5.0 to only 3.7.  The 2003 survey of small and medium sized producers included the satisfaction question, and the results were quite similar to the larger firms.

Relative to the overall satisfaction rating in Table 33, the attitudes of firms that were engaged in contract production seemed to be more satisfied (Table 34).  Satisfaction did not appear to vary much by size of firm.   Perhaps most interesting but not surprising was that the highest satisfaction rating for all the respondents was among smaller contract growers with an average satisfaction rating of 4.9.

Table 33.   How satisfied are you with hog production?

 

Firm Size (1,000 head mktd annually)

Satisfaction Rating

1 = very dissatisfied

6 = very satisfied

2000

2003

1 - 3

 

3.4

3 - 5

 

3.9

5 - 10

 

3.7

10 - 50

 

3.8

50 - 500

4.7

3.8

500+

5.0

3.7

Table 34.   How satisfied are contractors with contract hog production?

 

Firm Size

(1,000 head mktd annually)

Satisfaction Rating

1 = very dissatisfied

6 = very satisfied

1 - 50

4.43

50 - 500

4.44

500+

4.84

Table 35.   How satisfied are growers with contract hog production?

 

Firm Size

(1,000 head mktd annually)

Satisfaction Rating

1 = very dissatisfied

6 = very satisfied

1 - 50

4.9

With regard to respondents’ concerns related to various issues facing the industry, the 2003 survey listed nine “challenges” which are presented in Table 36.  Survey recipients were asked to check those that they saw as the “greatest” challenges. 

As might be expected, concerns varied somewhat by size category of the respondents, but the responses did not seem to follow a consistent pattern.  With respect to regulatory type issues such as air and water quality and antibiotic use, air quality regulations seemed to pose the biggest challenges, which may reflect the uncertainty surrounding the potential regulations.  Water quality is an issue that most firms are coping with and the regulatory trends are arguably better understood than the direction of air quality regulation.  As might be expected, a much higher proportion of the large firms considered civil suits as a major challenge to the industry.   After concerns about the oversupply of hogs, firms in the 50 to 500 thousand category most frequently checked animal rights’ issues as one of the greatest industry challenges.  Animal rights’ issues are clearly a concern of all sizes of respondent firms.

Again, perhaps predictably, the largest producers did not consider packer concentration and vertical integration as major challenges (only 4% thought so), but over half of the smallest firms felt these are major challenges to the industry.   Adoption of Country of Origin Labeling (COOL) seemed not to be a major concern, particularly for larger firms, which may indicate that the relative burden of COOL might fall on smaller producers.  Only with respect to the oversupply of hogs did the majority of respondents in all size categories seem to agree on the significance of the issue.  

Table 36.        What Do You See as the Greatest Challenges to the US Pork Industry over the Next 5 Years?                         

 

Firm Size (thousand head mktd)

1 - 50

50 - 500

500+

Air quality regulations

43%

23%

65%

Water quality regulations

43

25

39

Restrictions on antibiotic use

40

11

35

Civil suits against production units

34

23

74

Animal rights issues

45

31

61

Packer concentration

54

18

4

Vertical integration

50

14

4

Over-supply of hogs

58

87

100

Adoption of COOL

20

11

9

Results of questions related to business viability at possible future hog and corn prices are presented in Figure 14, Table 37, and Table 38.  Most producers plan to stay in business until 2008 if hog prices average from $40 to$42 and Central Iowa corn averages $2.40 per bushel.  Two thirds of producers that sell three to fifty thousand hogs per year said they could survive with that scenario.  Eighty-four and eighty-five percent of the largest sized firms indicated that they could stay in business at those prices. 

Figure 14.        Percent of Firms That Will Stay in Business until 2008 with Average Hog Price $40-42 & Central Iowa Corn Price $2.40

Table 37 provides more detailed information with respect to breakeven (“stay in”) prices for producers in the various size classes.   While it is not surprising that nine percent of firms selling three to five thousand market hogs per year indicated a breakeven hog price of $46 or higher, a similar percentage of producers selling between five and fifty thousand head were in the same breakeven range.    Except for firms in the 10 to 500 thousand head category, it appears that nearly one fourth of firms have a breakeven below $40.

Over ten percent of the respondents in the one to three thousand head marketed category indicated that they will exit hog production by 2006, regardless of prices.  This number is not surprisingly high, and below the average rate of exit observed in recent decades.  Three to four percent of respondents marketing between three and fifty thousand head per year appear poised to exit the industry over the next few years.

Table 37.   Percent of Operators Who Could Stay in Business Until 2008 at Various Hog Price Levels & $2.40/bu. Central Iowa Corn

Firm Size (thousand head mktd. annually)

Lowest avg. live hog price needed for 2004-2008 to keep operating

Will not be in business regardless of price

$34-36

$37-39

$40-42

$43-45

$46-48

$48+

1 – 3

10%

15%

30%

20%

9%

5%

11%

3 – 5

6

19

41

20

6

3

4

  5 – 10

6

18

43

23

6

1

3

10 – 50

3

30

35

22

4

3

3

  50 - 500

 

13

71

13

1

 

 

500+

13

17

55

5

1

 

 

The same data as that used for Table 37 is presented in Table 38 but translated in terms of the percentage of total U.S. hog marketings.  This table provides a better sense of proportion in terms of the amount of production that falls into the breakeven price categories.  The percentages represent the portion of U.S. marketing and the horizontal totals correspond to the market shares discussed in Table 1.  Adding vertically gives the percent of U.S. marketing for a given hog price category.  For example, approximately nine percent of the hogs marketed are produced on operations that can survive hog prices in the $34 to 36 ranges.  Over 80 percent of U.S. marketings (adding columns from left to right) come from firms that can stay in business if prices average $42 with $2.40 corn (Central Iowa basis).

Table 38.   Percent of Annual U.S. Hog Marketings by Firms Who Could Stay in Business Until 2008 at Various Hog Price Levels & $2.40/bu. Central Iowa Corn

Firm Size (thousand head mktd. annually)

Lowest avg. live hog price needed for 2004-08 to keep operating

Will not be in business regardless of price

$34-36

$37-39

$40-42

$43-45

$46-48

$48+

1 - 3

1%

1%

2%

2%

1%

 

1%

3 - 5

 

1

2

1

 

 

 

  5 - 10

1

2

4

2

1

 

 

10 - 50

1

6

7

4

1

1

1

  50 - 500

 

5

11

2

 

 

 

500+

6

8

23

3

 

 

 

Total

9%

23%

45%

14%

3%

1%

2%