Swine Industry Update for April 2009

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Mark Greenwood
April 2009

Looking for a Sign of Hope – The March quarterly hog and pigs report will come out this Friday, March 27th. Everyone is hoping we are going to see less hog numbers on feed and less sows in the US sow herd. If this is true, we can then hope that cash hog prices improve as well as hog future prices. Every producer has their fingers crossed that we are going to see optimism in this report and the industry will be profitable. The industry is getting weary from not having profits since October of 2007. That being said, no one wants to cut back or reduce the number of pigs they are raising on their farms. We are in a game of “last man standing”, with each producer hoping they are the people standing when it does turn profitable. The next 60-90 days will be crucial for cash hog prices to improve to a level of profitability. Producers are starting to run short on working capital and some are running out of options to get additional cash into their operations. If the cash markets improve it will give producers a welcome relief to their operations. If not, difficult decisions will need to be made by everyone involved.

Why do you keep saying we need to cut back? I have written and spoken on this issue many times over the past year. I am not convinced that we can keep the demand on exports at the same pace as last year (please see chart attached). Additionally,the US economy is struggling and I am concerned with demand for pork in the US. You cannot continue to produce the same amount of pigs if you do not have the demand to buy your product. I have stated on several occasions that we need to reduce numbers in the US by 7 million, or produce a number of 110 million head per year. The ways we can make reductions with the least amount of pain are as follows:

  • Reduce the amount of wean pigs or feeder pigs coming into the US from Canada. Last year we had approximately 6.674 million head of pigs that came in this form from Canada last year. I know there are many producers who buy these pigs, but a long-term viable model for the US industry is farrow-to-finish. What I mean is that producers need to own the sows and feed the pigs all the way to market. There cannot be two profit centers, one being the owner of the sow and the other being the finisher. The best option for a long-term, sustainable system is controlling all of the production . The number of wean pigs will be reduced by the implementation of COOL which will help reduce the number by an estimated 3-4 million head.
  • Reduce sows in the US by at least 300,000. In 2009, sow slaughter is DOWN by 50,000 head compared to the same period in 2008. The industry needs to look at culling or reducing nonperforming sows or systems in the US. I can identify multiple systems today that are marketing 20 pigs per sow per year. If the whole industry gets to that level, we would be over 120 million of US pigs instead of the level of a 110 million. The industry needs to look at getting rid of nonperforming systems. In examining production levels today, it will be very difficult to compete with the other production systems if you are not marketing close to 20 pigs per sow per year.

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That being said, I am convinced the industry is going down the path of “last man standing” My challenge to all of you is to recognize this path will be hard and painful for the majority of the industry. Producers will need to be better than the average, not only in terms of production, but also at managing risks and margins for your operation. You will need to work harder and smarter than you ever have done in the past. I hope I am wrong with this analogy and instead we see $90 hogs and a return to a steady level of profits to our industry. The industry is a lot more fun to write about during those times