Our normal discussions of U.S. farrow-to-finish hog operations and their economic situation and prospects belie the fact that there is a substantial portion of market hog production that is accomplished through separate farrowing and feeding operations.

While not nearly as dominant as the separate cow-calf and cattle feeding (with, for many cattle, stocker and backgrounding lots operations thrown in) system in the beef industry, the non-integrated method of getting pigs to market weight accounts for a significant portion of the U.S. market hog supply.

The trouble is that no one knows just how large this segment is since many of these pigs move through private transactions that are never reported to USDA. Prices for 5.134 million weaned pigs and 1.185 million feeder pigs were reported to USDA last year. That is just 6.319 million reported head compared to 2011 total barrow and gilt slaughter of over 106 million. The prices of both feeder and weaned pigs reported weekly to USDA are shown in the chart at right.

Let’s consider a bit of history and clarify terminologies. There was a time when the production of 40-50 pound feeder pigs was an huge part of the U.S. pork industry.

Many of those pigs were produced in southern states where weather was milder and allowed low-investment production systems using pasture– or wood-lands. Midwestern farmer-feeders tapped this supply, as well as pigs from Cornbelt region feeder pig producers, when they made “sell or feed” decisions regarding their corn crop each year. Just about every local auction barn and many specialized feeder pig markets offered pigs on a regular basis.

This system, however, began to decline when several diseases became more widespread the U.S. swine herd. When present in individual herds, most were manageable through immunity and treatment but when pigs from separate herds were mixed, the diseases reduced performance and increased death losses to the point that many producers abandoned the practice of buying feeder pigs and either established their own sow herds or bought in to larger sow herds that supplied several farms with single-source pigs. The number of feeder pigs markets shrank dramatically and public information on feeder pigs prices became difficult to obtain.

Technology shifted the paradigm once again, however, in the 1990s when researchers discovered that pigs weaned and completely removed from the farm on which they were born at around 20 days of age were far more healthy than later-weaned pigs or pigs fed in onfarm nurseries for several weeks post-weaning. The reason is that these “weaned pigs” were protected by maternal antibodies up to about 28 days.

Separating them from a) their mothers and b) the farrowing farm environment kept them from picking up the diseases endemic to their home farm and provided health and performance benefits all the way to market. A key to the success of early weaning was nutrient-dense feeds that were palatable and digestible enough for pigs to thrive at such young ages.

Producers also found that, when handled properly, these apparently frail 10-12 pound weaned pigs were extremely tough and adaptable; able to be transported hundreds of miles without harm. Their performance was remarkable.

This development reversed the move toward integrated pig production and pig feeding and created a brand new market for 10-12 pound weaned pigs. But there was a hitch: These things were unstorable. The farms that produced them generally had no facilities to house them after weaning and farrowing (ie. birthing) rooms had to be emptied on a precise schedule because another group of bred sows was always ready to farrow.

When the time came to go, the pigs HAD TO GO. Therefore, many of these pigs are traded on long-term arrangements with either set prices or prices determined by formulas, most of which involve deferred Lean Hogs futures. Corn and Soybean Meal futures prices have been added to many of those formulas since 2007. We believe that most of the pigs sold on these long-term agreements are never reported to USDA.

But there is still a spot market — and it is a wild ride for those who sell in it. The “have to move them” and, from time to time, “have to have them”, factors as well as future hog and feed values all come into play in this market. It is clear to see how higher feed costs diminished both weaned and feeder pigs prices from 2006 through 2009 and how rising hog values have enhanced pig values since then. It is also clear to see that low futures prices and high feed prices can result in VERY LOW spot pig values from time to time.

There were times in the summers of 2008 and 2009 when weaned pigs could be obtained by just paying the cost of trucking. Last summer was almost that bad. Spot prices for both feeder pigs and weaned pigs have been record high this winter, however, with weaners eclipsing $60/head in January.

The prices are reflective of normal seasonal tightness in supply (winter litters are usually fewer and smaller due to temperatureinduced reductions in summer breeding efficiency), additional productivity impacts of last summer’s extreme heat in July and August and PRRS (porcine respiratory and reproductive syndrome) related death losses that have left many producers scrambling to fill finishing buildings this winter.

Are these PRRS losses any worse than normal? The level of chatter indicates they may be. But our experience and many more years of experience by Professor Grimes of Missouri and others, tells us that it will be hard to see the impact on hog numbers come summer. There’s a first time for everything but . . . .