financial outcome

SwineCast 1114, At The Meeting - COVID-19 Creating Long-lasting Effects On Swine Industry

SwineCast 1114 Show Notes:
  • 'At The Meeting' Honoring Dr. Bob Morrison hears from Mark Greenwood, Chief Diversified Markets Officer with Compeer Financial, on the impact Coronavirus / COVID-19 is having on the business of pork.
  • Dr. Montserrat Torremorell (College of Veterinary Medicine, University of Minnesota), Dr. Gordon Spronk (Pipestone Veterinary Services), and Dr. Tom Wetzell (Swine Veterinary Consultant), learn from Greenwood that the Coronavirus / COVID-19-driven unpredictability and volatility in pig markets has left the industry confused and perhaps paralyzed. Greenwood predicts another wave of industry consolidations.
  • Mr. Greenwood is the latest guest on the 15th episode in a series of Leaders Leading recordings produced by the 'At The Meeting' team. Future editions will highlight insights and perspectives from leaders within the swine industry.
  • 'At the Meeting', Honoring Dr. Bob Morrison is a podcast sponsored by Boehringer Ingelheim Animal Health USA Inc. and is focused on the the most recent topics in swine health and production.

"When You Are Out of Cash, You are Out of Business"

"When you are out of cash, you are out of business", is a truism which should be on the top of everyone's mind these days.  With the bankruptcy filing of Pilgrim's Pride and VeraSun we are witnessing the turmoil and equity destruction which has been brought on by the tremendous volatility in commodity prices experienced over the last year.  This volatility is directly related to (but not completely the result of) government policy interventions, especially ethanol policy.

Contract Production: Counting the Cost

     On the surface, most people think of contract production in swine as a low cost method of production.  In fact it is in most cases the opposite.  It has been employed primarily to allow added scale to achieve other cost reduction goals and to preserve limited capital.

     As costs of facilities have risen, the amortization options have been extended by lenders to 12 and 15 years from the traditional 10 year paydown on modern swine buildilngs.  As previously mentioned, a 10 year payoff of a 25+ year asset imposes cashflow strains that increase the opportunity cost and the actual cost of this method of production.  The grower expenses the asset based on its useful life while achieving a paydown in less than half of that time.  That's called a windfall gain. 

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