Production and Marketing Characteristics
The 2004 Pork Industry Structure Study

This survey continues three decades of research into trends in the U.S. swine industry by the University of Missouri and Iowa State University.  The most recent survey was completed before the much needed improvements in swine production economics that occurred in early 2004.  This survey may represent a snapshot of the industry at the end of the financial aftershocks of the late 1990s and the end of what arguably was the worst six years in the industry since the Great Depression.  But the forces shaping the industry are unabated and many trends of the last decade are in tact.  There are fewer small and medium sized operations, and the market share of the largest firms continues to climb.  In 2000, it was reported that firms marketing over 50 thousand head had slightly over 50 percent market share at that time.  In 2003, this group of 159 producers selling over 50 thousand head now had a market share pushing 60 percent.  Firms of all sizes below this threshold lost market share.  In 2003, five more firms moved into the category of marketing over one-half million hogs, up from 20 firms in 2000.

In 2000, the average growth plans for firms in all size categories were positive through 2003, however only firms selling over ten thousand head per year managed any growth in marketings.  Firms selling less than five thousand head actually saw their market share decline by over forty percent.  Once again, most firms project growth for the 2003 to 2006 period, but relatively few plan to build new facilities and most hope to grow through productivity gains and acquisitions.

This year’s survey sheds some light on the extent of Canadian pig influence on the U.S. industry.  It was found that 10 percent or less of firms selling one to 50,000 head per year fed Canadian pigs, but over 60 percent of firms in the 50 to 500 thousand head category were buying pigs from north of the border.  Forty-three percent of the largest firms (500 thousand plus per year marketings) purchased Canadian pigs.  Except for firms in the largest size category, the vast majority of Canadian pigs were purchased on the spot market.

Respondents’ attitudes toward marketing agreements appear to have soured somewhat since the 2000 survey, particularly for larger firms.  Respondents from larger firms were less inclined to agree that they were treated fairly under their contracts, and more felt that marketing contracts were causing lower prices.  However, there was little indication that firms planned to lessen their utilization of marketing contracts, and the sentiment toward legislation or regulation of marketing contracts has not changed dramatically. 

The extent of contract production is increasing, yet the trends in contracting do not appear to be changing.  The percentage of hogs farrowed and finished by firms engaged in contracting has increased significantly since the 2000 survey, and a significant number of firms indicate they plan further expansion of contract production.  Producers appear relatively satisfied with their contract production situation, and 80 percent of growers indicated they hoped to continue raising hogs with their current contracting firm. 

There were trends that seemed to have reversed since the last survey.  In the 2000 survey, it appeared that the various networking movements had run their course.  However, since then it appears there has been a surge in networking activity.  Not only has group marketing surged, but input procurement, feed milling, and feeder pig networking appear to have increased dramatically.  Perhaps the most notable apparent trend reversal was related to the decades of “thinning” the spot/cash market. It appears, however, the pendulum may have begun to swing back to spot market utilization.  Firms marketing over 500 thousand head reported that they sold 15 percent of their hogs on the cash market, which is up from one percent of their 1999 marketings.  Other significant shifts in marketing trends included a major move away from ledger contracts and a movement toward pricing based on wholesale meat prices.  There was also a significant increase in firms of all sizes selling on a carcass merit basis.

References

Grimes, Glenn and V. James Rhodes.  Hog Production and Marketing Activities 1994 of Medium and or Very Large US Hog Producers.  Ag Economic Report 1995-5. University of Missouri.

Laurence, John, Glenn Grimes and Marvin Hayenga, Production and Marketing Characteristics of US Pork Producers 1997-98.  Staff paper 311, Department of Economics, December 1998.  Iowa State University.

Lawrence, John and Glenn Grimes, Production and Marketing Characteristics of US Pork Producers 2000.  Staff Paper 343, 2001.  Department of Economics, Iowa State University.