Production and Marketing Characteristics
The 2004 Pork Industry Structure Study

Figure 1 reports the producers generalized financial results from 2001 through 2003. In 2001, well over 80 percent of the firms in the two largest size category reported that they had made a profit, while approximately half of the producers in the four smaller sized categories reported a profit. However, in 2002, it appeared that only about one third of producers in each size felt they made a profit. The exception in 2002 was the firms in the 50 to 500 thousand head category, where only 11 percent claimed they made a profit. In 2003, half of producers in the four categories, marketing less than 50 thousand hogs per year, reported a profit.  In a stark contrast to 2001, of the largest producers (50 to 500 thousand and 500+), only about one fourth felt that 2003 was a profitable year.

The results presented in Figure 1 do not seem to follow a consistent pattern.  When looking at all three years, it is hard to conclude that the largest firms are consistently more profitable than the smaller firms.  A number of issues could be distorting responses and results. For example, many of the largest firms are likely to be on fiscal years and thus the 12 months being referenced may differ from the calendar years that most smaller producers referenced. Secondly, larger firms likely refer to profit after all cash and non-cash costs such as depreciation, whereas smaller firms may be referring to positive cash-flow. Finally, it might be that many of the smaller producers are likely to think of profit of “the farm” which may include enterprises besides swine. 

Figure 1.         Percent of Firms Reporting a Profit by year

Figure 2 provide insights into the tenure of U.S. hog producing firms. Half or more of the firms selling fewer than 5,000 hogs per year in 2003 started prior to 1975.  Approximately 40 percent of firms selling 5 to 10 and 10 to 50 thousand hogs annually have been in operation since prior to 1975, while 15 percent or less of the very largest firms have been selling hogs that long.  About 30 percent of the firms who are now in the three smallest size categories started selling hogs in the 1976 to 1985 period.  Eleven percent of the firms now marketing between 50 and 500 thousand hogs and fifteen percent of the very largest producers began marketing in this period. The 1986 to 1995 period was when the greatest percentage of the large firms started selling hogs.  Sixty percent of firms selling between 50 to 500 thousand hogs per year, started between 1986 and 1995. Six percent of the surveyed firms in the two smallest categories started selling hogs since 1995. Fifteen to seventeen percent of the larger firms have started since 1995.

Figure 2.         When Firms Started Marketing Hogs by Year

A number of questions were directed toward production practices employed on the surveyed farms.  Table 10 reports the prevalence of practices related to input procurement, facilities, and feeding practices. Except for those producers marketing 50 to 500 thousand head per year, most respondents indicated that they prepare their own feed. Only 40 percent of respondents in the 50 to 500 thousand head category produce their own feed. 

Conversely, with regard to replacement gilts, firms in the 50 to 500 thousand head per category were the only category where a clear majority purchases their replacement gilts. In the one to three, three to five, and five to ten thousand head categories, approximately one third in each, indicated that they purchased replacements. Only a small percentage (10 percent) of the firms marketing over 500 thousand head purchased replacement gilts. These firms have their own gilt multiplier units.

Not surprisingly, survey results indicated that the overwhelming majority of hogs marketed in the U.S. are raised in indoor facilities. In the four largest categories, from five to ten through 500+ thousand head marketed, 90 to 98 percent of respondents indicated that their hogs were raised indoors. If Table 10 is interpreted with the market shares of each category in Table 1, a rough estimate of U.S. hogs raised outdoors at some stages of their life would be around eight percent.

Except for the respondents in the very smallest category, most firms indicated that they fed barrows and gilts separately. Perhaps the most interesting result in Table 10 is that while split sex feeding is generally considered economically advantageous, approximately one fourth of hogs raised by the largest producers are not fed in male/female groups.  

With respect to facility types, firms were asked what percentage of their finishing buildings was wean-to-finish (W-F). The level of W-F facilities was surprising given that three site production (farrowing-nursery-finishing) models have dominated the structural change in U.S. hog production in the last two decades and is for the most part fixed. The average responses by category were surprisingly high considering that W-F is relatively new and the amount of construction in recent years has been much lower than in the 1990’s. 

Table 10.        Production Information 2003 (average of percentages reported by individual firms)

Percent of the firm’s –

Firm Size (thousand head mktd.)

1-3

3-5

5-10

10-50

50-500

500+

feed is self-prepared

83%

78%

65%

65%

40%

59%

replacement gilts are purchased

31

29

38

51

67

10

hogs are raised indoors

78

84

90

91

91

98

feeding is split sex

35

54

69

76

77

72

facilities are wean-finish

21

16

16

26

22

20

 

In the most recent survey, firms marketing 50 thousand head or less per year were asked about involvement in networking activities such as input/feed purchasing, marketing, information sharing, genetic access, and pig procurement. The responses relative to prior years are presented in Figure 3.  The results from the 1997 and 2000 surveys did not indicate a high level of network activity, nor were significant changes observed from 1997 to 2000. However, in the most recent survey, there appears to be a surprising shift in the level of collective action among small and medium sized producers. In all but one form of networking, the level of networking appears to more than double from 2000. The biggest surge in networking was in hog marketing where nearly one third of the respondents indicated that they were involved in group marketing.  While a great deal of networking discussion and education programs began in earnest in 1995, it appears that producers may finally be moving up a learning curve or into a comfort zone where more rapid adoption of networking practices is beginning to occur.

Only network farrow-finish, where one firm specializing in farrowing might connect with another to finish, exhibited little change over the three survey periods. This is probably indicative of the difficulty of establishing and governing such a relationship. This close, narrowly focused relationship clearly poses the greatest challenges in terms of personal compatibility and difficulty in negotiating risk sharing and dividing any economic gains that might emerge from the relationship. 

Figure 3.         Networking Activities of Producers Marketing 1,000-50,000 Head Annually

In the 2003 survey, small to medium sized producers were questioned about the other farm enterprises on their operations. Table 11 and 12 present the results of these questions. As could be expected, these responses may reflect the traditional geographic location of hog production, particularly for the small and medium sized farms. For example a very high percentage of respondents (Table 11) indicated that they also had corn and soybean operations on their farms. This relationship weakened for the larger farms, which reflect specialized investment in larger operations in recent decades within and outside of the Corn Belt region.

Not surprisingly, for farms marketing relatively few hogs, there was significant diversification. Half or more of all small to medium sized producers considered corn production their other most important enterprise (Table 11). Roughly one fourth of the producers in the 1-3 and 3-5 thousand head marketed per year categories, had beef enterprises, and nearly a third also grew wheat.

Table 11.          Percent of Hog Operations Producing Other Commodities

Commodity

Firm Size (thousand head mktd.)

1-3

3-5

5-10

10-50

Corn

94%

90%

84%

73%

Soybeans

90

89

80

68

Wheat

29

30

26

24

Dairy/milk

5

2

4

5

Beef cow/calf

27

23

16

20

Beef stockers

7

7

5

6

Beef fed cattle

23

21

18

16

Table 12.        Other Commodity Considered Most  Important Produced on Hog Operation (percent of total firms in size category)

           Commodity

Firm Size (thousand head mktd.)

1-3

3-5

5-10

10-50

Corn

52%

61%

56%

50%

Soybeans

5

4

3

2

Dairy/milk

3

1

1

1

Beef cow/calf

8

3

2

2

Beef fed cattle

7

4

3

2

The changes in the usage of artificial insemination (AI) from 1997 to 2003 are reported in Table 13.  The largest producers had almost completely moved to AI by 2000. In 2003, it appears that AI is used on almost all litters produced by firms marketing over 50 thousand head annually. While the percent of litters sired by AI on the small and medium sized firms increased significantly from 1997 to 2000, the adoption of AI since 2000 has been dramatic. AI usage by firms marketing three to five and five to ten thousand head per year doubled from 2000 to 2003. For firms marketing ten to fifty thousand head, AI usage increased almost 50 percent and the usage rate for these firms is approaching that of the largest firms.

Table 13.        Percent of Litters Sired by Artificial Insemination 1997, 2000, 2003

Firm size (thousand head mktd. annually)

1997

2000

2003

1 – 3

10%

23%

60%

3 – 5

21

33

66

5 – 10

39

40

79

10 – 50

58

65

91

50 – 500

75

95

98

500+

84

91

100

In addition to asking producers about AI usage, a follow-up question was asked regarding the source of semen on farms using AI. The results in Table 14 show which sources of semen were employed by firms in each size category. Some firms utilize multiple sources, thus the percentages indicate the percent of firms that utilized a given source, not the percent of semen acquired from a source (A column total of 100 percent indicates all respondents in the category indicated a single source).

Most firms (61 to 76 percent) in all the categories that marketed less than 500 thousand head per year purchased semen from another firm. Less than 20 percent of the farms that marketed less than ten thousand collected on the farm and roughly a quarter of firms in the ten to fifty and 50 to 500 thousand head categories collected semen. The fact that almost 90 percent of the largest firms indicated that they collected semen on the farms, is indicative of the closed herd nature of many large firms, and economies of scale their size provides in semen collection.

While 14 percent of the 50 to 500 thousand head group and 22 percent of the 500+ category indicated a part-owned stud source, few (less than 10 percent) of the smaller categories indicated investments in boar studs.

Table 14.        Where Firms Acquired Semen (percent of firms responding in size category)

 

Firm Size (thousand head mktd.)

1-3

3-5

5-10

10-50

50-500

500+

Collected by firm

18%

14%

16%

30%

23%

87%

Purchased

76

76

76

61

68

26

Part-owned stud

6

7

6

8

14

22

Other

 

3

1

1

 

 

The level of imports of Canadian-born feeder pigs has been a “hot button” issue in recent years and was the subject of two questions on the most recent survey. Tables 15 and 16 reveal the prevalence of Canadian pig sourcing and pricing practices in 2003.

Ten percent or less of firms marketing fewer than 50 thousand hogs per year indicated that they finished Canadian-born pigs. The highest prevalence of Canadian-born sourcing was with firms marketing 50 to 500 thousand head per year. Over 60 percent of these firms indicated that they utilized pigs from Canada. Forty-three percent of the very largest firms indicated that they finished Canadian pigs in 2003.

Of the firms that indicated they finished Canadian pigs, spot market pricing was utilized by most of the firms except for the respondents in the 500+ thousand head category. Over two-thirds of the largest firms finishing Canadian pigs purchased them under a marketing contract which contrasts sharply to the 50 to 500 thousand head category, where only two percent of firms purchased Canadian pigs under a marketing contract. The heavy reliance on the spot market by Canadian weaner pig producers is surely indicative of the significant price and currency risks these producers face in their own industry.

Table 15.        Firms Finishing Canadian-born Pigs

Firm Size (1,000 head mktd annually)

Percent of Firms

1 – 3

5%

3 – 5

4%

5 – 10

10%

10 – 50

10%

50 – 500

61%

500+

43%

Table 16.        Method of Pricing Canadian-born Pigs (percent of firms that fed Canadian pigs by size category)

 

Firm Size (thousand head mktd.)

1-3

3-5

5-10

10-50

50-500

500+

Spot market

89%

67%

72%

71%

96%

42%

Under marketing contract

11

33

28

24

2

67

Transfer from own facility in Canada

 

 

 

 

2