Mark Greenwood Posts

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AgStar is a proud sponsor of the Minnesota Pork Industry Family of the Year award, given out at the Minnesota Pork Congress. This year, the award was given to AgStar clients Charles and Wanda Patsche and their family. Read more about them and why they are so deserving of this award.

Published: 2/8/2012

Body: In this week's Hog Blog, AgStar's Mark Greenwood discusses the swine industry's financial recovery and what to watch for as the status of the industry continues to remain strong.   Click Here
Published: 2/3/2012

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Can We Repeat 2011 Results?
2011 was a very good year for the swine industry. If I could summarize 2011, it would be estimated that the average swine producer made more than $15 per head and the very good systems making more than $20 a head. Balance sheets and working capital have improved and the mood across the industry is very bright. In looking at margins for the next 12 months, (see attached chart) the margins look like producers can make close to $20 per head. The key to success for the pork industry has been export demand. Pork export in 2011 will be at record levels. Will we be able to maintain that sort of volume in 2012? Only time will tell. China has now been importing pork at a record pace (see chart). The issue is whether this trend will continue for 2012. We know from previous years (remember 2008) that this can change very quickly.

 

 

 

Can we handle prosperity without expanding?
This is a question I am asked by many people looking at our industry. In the December Hog and Pigs report, we did not show any real sizable expansion in 2011. In our view, numbers will be about one to one and a half percent more this year. Almost the entire increase will be accomplished through productivity gains, not through sow expansion. The concern I have is in the past, when we’ve made money for a period of time, we have had a tendency to want to expand numbers. In recent months, the industry has shown very good restraint on expansion. It will be interesting to see if this continues. Higher feed prices and volatility in the global marketplace have probably helped in curbing expansion. As balance sheets continue to improve, the urge to expand will be greater. This will be worth watching in 2012.

 

So what should I do with my money?
There are producers that we talk to every day asking us this question. They do have balance sheets that can allow them to expand? The question that I come back with is “where can you put capital to use to make your business more valuable?” Here is what we are seeing some clients doing instead of expanding overall sow numbers:

 

·         Owning more of their overall facilities — the swine industry has many producers that don’t own all of their facilities and, in fact, we have many contract arrangements. We have had several systems that are now trying to own more of the buildings (sow, nursery and finishing) instead of more contract production. This, to me, is a good place to invest capital.

·         Improvements on existing assets — We have many systems that are adding farrowing crates, sow filtration systems, feeders, etc. that can make existing facilities more valuable than they are today. This also makes sense.

·         Farmland — Although I don’t believe paying $10,000 an acre for farmland is a good idea, we are seeing swine producers looking at owning or controlling more land as a way of controlling feed costs. This can be done by renting more land or owning more land—and has been a growing trend as a way of managing feed costs.

 

Swine updates in the future by AgStar
Going forward, our swine team, which consists of Kent Bang, Steve Malakowsky and Justin Roelofs, along with myself, will be taking turns on this column. At AgStar, we are very fortunate to work with a lot of great clients that have allowed us to acquire knowledge to share with the industry.

 

Published: 2/2/2012

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In this week's Hog Blog, AgStar's Justin Roelofs discusses the current margin opportunities available as well as the long-term effect some protein sources could have on hog prices.

 

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Published: 1/27/2012

Body: AgStar's Steve Malakowsky shares insights on recent developments in the markets as well as his take on the impact China's economy is having on the U.S. swine industry.

 

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Published: 1/23/2012

Body: AgStar's Mark Greenwood discusses his views on shared learning between lenders and clients and introduces a new member of the AgStar Swine Team in this week's Hog Blog.    Click Here
Published: 1/11/2012

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2011 in Review
2011 will turn out to be a very good year for most producers. In looking at the information we’ve received from clients though October, and projecting what November and December earnings will be, our estimate is that most producers will average around $15 per head profit for 2011.  Even with higher feed prices, revenue for producers has been an all time high.  We’ve had a nice run of profits for the last two years, and if you want me to give you a perspective on what we believe most producers’ financial year end numbers will look, like here is our “best guess.”

·         Average Owner Equity should be close to 50% - this is a GAAP number that uses a factor of lower of cost and/or market.  I believe this is a conservative estimate.

·         Average working capital per sow equivalent > than $700. This is  a very important measurement. It is based on a farrow to finish operation. If, for example, you have 2,000 sows, you should have a minimum working capital amount of $1,400,000. (Working capital means current assets less current liabilities.)  

Compared to a year ago, when we were still coming out of the very difficult years of 2008 and 2009, we have made an improvement on owner equity of an estimated 15%. -. We at AgStar are very fortunate to work with an elite group of producers with owner equity over 60% and working capital per sow well over a $1,000. The average 2011 earnings per head for this group will be over $20. This group is not a function of size. It is about very good production, cost control and managing optimum margins. This group is constantly working on improving every facet of their business.

We are working on a database that we hope to share some time in 2012. This database would represent over 17% of the US pork industry. This data would show average costs, profit per head, sale weight, etc in a very generic dataset but would also provide a snapshot of what we are seeing on a portion of the US pork industry. This is a work in progress but we believe it is of value to share hopefully down the road.

PRRS Breaks?
It’s that time of year where we are seeing PRRS breaks again. The weather in the Midwest has been perfect from spreading this virus and it will be interesting to see how the sow filters place help with this. I don’t believe that it is any worse and or better than last year, but it is amazing virus that this time of year really creates havoc on producers.

December Hog & Pig Report and a Look in 2012
We did not see any sizeable expansion numbers coming with this report, but I do believe most numbers as we start to look forward all numbers will be greater than 2011. (see below) It would be my best guess that total pork supply in the US will be 1-2% more than 2011. Most of all of this will come through continued production efficiencies by producers. In looking at profit margins for the next 12 months they are close to $15 a head. My concern with this is that producers, from a financial perspective, will want to expand pushing lower revenue for 2013. Another concern I have is processing capacity. The US pork industry is really in a sweet spot right now and if we increase numbers too much we might not have adequate processing capacity. The other point is how our higher revenue has been driven all by exports. Let’s not forget that this could change and any reduction of exports could bring prices down.

 

Please check out our weekly video hog blog: www.agstar.com/swine

Published: 1/6/2012

Body: Check out this week's Hog Blog in which Mark Greenwood gives a financial snapshot of 2011.   Click Here
Published: 1/6/2012

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AgStar's Justin Roelofs discusses the ongoing proceedings of MF Global and a few deadlines to keep in mind on this week's Hog Blog.

 

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Published: 12/21/2011

Body: AgStar's Steve Malakowsky discusses the export markets for the U.S. swine industry. Check out the latest Hog Blog.

 

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Published: 12/16/2011

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AgStar’s Justin Roelofs gives a brief update on current hog prices, margins and feed formulations on this week’s Hog Blog.

 

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Published: 12/7/2011

Body: AgStar's Mark Greenwood gives an update on the MF Global situation and comments on the 2012 swine markets in this week's Hog Blog.   Click Here
Published: 12/2/2011

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AgStar's Justin Roelofs discusses USDA's latest report on hog carcass weights in this week's Hog Blog.

 

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Published: 11/23/2011

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MF Global Situation – Most of you, as producers, have heard or been affected by the MF Global bankruptcy. For any producer or brokerage firm who used MF Global as its clearinghouse, the last couple weeks have been a nightmare. Many of us remain in a state of disbelief. MF Global filed bankruptcy on October 31, 2011, and over the course of the next week, there was a series of emails and news stories all trying to dissect what was going to happen. Producers’ excess cash, not their entire initial margin, was at risk. We have a fair amount of producers who were affected by this bankruptcy, so we received many phone calls with clients to discuss options. In addition, we held several internal meetings to conduct scenario planning and determine how much margin money was needed to fully fund accounts that were being transferred. It was a long week for producers and a long week for many team members at AgStar. Clients have often expressed their feelings of disgust and thoughts that this bankruptcy is truly unbelievable. I can empathize with producers because this risk was not on our radar screen. As the events unfolded, producers’ initial margins were almost fully funded and the shortfall was not as extreme as we once thought it may be. Unfortunately, as of this current date, producers are still short some funds. They have managed through this situation but have three key questions that have yet to be answered:  

·         Will I get my money back?

·         How did this ever happen and where was the oversight?

·         How does this NEVER happen again? 

The answers to these questions will be played out in the future and hopefully we will receive some direction soon. Right now, many people are skeptical that this could happen again. Credibility is at stake.

Seasonal Decline But Still Record Values – The pork industry has had an amazing run with prices. Cutouts this week dropped below $90. Prices have been above $90 since almost the first part of February (see chart). This has helped producers improve their balance sheets and it is our best estimate that the average producer, by year end, will have over 50% owner equity. It is our estimate that most producers have made back half of what they lost in 2008-2009. The very good producers are now almost as strong as what they were in 2007, with very little operating debt or maybe even cash on hand.  Looking into 2012, margins are still above $20/head profit for the next 12 months. If this does play out, there will likely be some sow expansion in the U.S. The key items to watch are corn prices and exports. If corn prices go higher, this will temper the thought of expansion. If exports continue to be robust, (see chart, September was another great month for exports) this will fuel some expansion. My concern is that we are thinking we can grow more production numbers and keep prices high; remember, two years ago the industry was close to the brink. If exports falter, prices could drop quickly. When we are that dependent on exports, it is hard to build more growth in overall production with that much of your current production being exported.

Published: 11/23/2011

Body: AgStar’s Mark Greenwood gives an update on the MF Global situation and shares some general swine economics on this week’s Hog Blog.   Click Here
Published: 11/16/2011

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$100 Cutout in October!  We are in unprecedented times in the pork industry. There has been an amazing run with pork prices with this week, tipping over $100 cutout again. I have a chart (see chart below) that shows a historical view on cutout. As you can see, 2011 is a year for the record books. Even with higher feed costs, cash prices above $90 and  a consistently strong cutout have made it a very good year for pork producers.

 

This situation has been fueled by our export demand, which is on fire and continues to keep prices at very high levels and slaughter numbers at pretty large numbers — over 2.3 million per week. The question that I keep getting from producers is how long this will last? With exports, you never know and we are exporting pork at a record pace. Bbut as we all know, this could change quickly. In looking at the export data, there is a fair amount of pork going to China. Remember 2008 when we were shipping a lot of exports to China and then it went stopped seaminglly overnight? What happened to prices? We saw cash prices go from over $90 carcass to the mid $60’s in less than a 30-day period. I am not saying cash prices are going to drop, but in meeting with clients I emphasize how important it is to maintain a disciplined approach to margin management. We are seeing profits for the next 12 months between $20-$25 a head. It might not be a bad strategy  to take part of that profit now. Just remember on Labor Day, that same 12-month margin was less than $5 a head. Market volatility will continue.

 

 

Financial Snapshot of The US Pork Industry – I have given a couple of presentations recently on where we see the US Pork industry in terms of financial strength. We are very fortunate to work with producers of all sizes that give us very good data and we have good handle on their financial results through July of 2011. Currently,  in terms of owner equity, we are 45% GAAP (Generally Accepted Accounting Principles) equity. GAAP equity is a conservative view of your owner equity. Here’s an example:  if you own 10,000 head of finishing spaces that are 6-7 years old, you might be able to sell them at $160-$180 a space. Through depreciation on your balance sheet, however, you have them valued at $120, which is lower number than what the actual market value is. So, in essence, you might have a higher market value owner equity percentage. Back in 2009 we were at 25-30% owner equity and in 2007 we were at 60-65% owner equity, so we have made a little bit over half of the equity back that producers lost in 2008-2009. In addition, the current ratio average, which is current assets over current liabilities, is greater than 1.9:1. That number does not include sows as a current asset.. Back in 2009 we were slightly over a 1:1 current ratio, meaning = producers are in better shape today in terms of liquidity.

 

In looking at the amount of profit per head year-to-date, we are at close to $15, with a range of $5 a head to over $30 a head. There is still quite a variation in terms of profit per head across the sector. The difference is margin management and overall performance between operations. Pigs per-sow per-year, mortality, feed conversion and other factors all make a difference in total cost of production.There is an elite group of producers and — again — it is not a function of size, who have owner equity back to the levels of where they were in 2007. They managed the downturn very well with sound risk management and tremendous production. These producers will look at expanding next year due to the financial strength that they currently have. I would like to say they won’t but if the current price levels stay this way into 2012, there will be expansion in the swine industry – you can count on it.

Published: 11/15/2011

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AgStar’s Steve Malakowsky discusses MF Global and their current bankruptcy filing on this week’s Hog Blog.

 

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Published: 11/2/2011

Body: AgStar’s Mark Greenwood discusses values for swine facilities and briefly shares about his recent half marathon running triumph and how it relates to the swine industry. Check out this week’s Hog Blog.   Click Here
Published: 10/26/2011

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AgStar’s Justin Roelofs discusses the free trade agreement passed by congress last week and his recent trip to Washington to work with the National Pork Producers Council.

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Published: 10/25/2011

Body: AgStar’s Justin Roelofs discusses the free trade agreement passed by congress last week and his recent trip to Washington to work with the National Pork Producers Council. Click Here
Published: 10/21/2011