Swine Industry Update: I must be dreaming

I must be dreaming
I try to find to words to express the events that have occurred this year. Imagine that you have been stranded on an island for about 10 months. And when you make it back, you ask someone what happened this past year? They then told you the following:

Corn prices were over $8.00 in July, 120 days later, corn prices were below $3.80

In July, oil was$145 a barrel which increased gas prices to $4.00 a gallon

Oil in October went to almost $60 a barrel and now you can buy gas below $2.00 a gallon

Soybeans were over $16 a bushel in July and they went below $8.50 a bushel in October

Some producers received over $90 per carcass cwt in August for their hogs and summer futures in 2009 went to $100 per carcass cwt. on the board. (We were afraid to lock in because that price wasn’t high enough!)

Lehman Brothers is no longer and we needed a $700 billion economic bailout because the US financial industry is in a severe credit crisis

I think after the third point they might ask you to start telling them the truth. No one would ever believe the events of this year but all of this has occurred. Daily, I talk to producers and almost all of them say, “Well, what is next?” All I can say for now is probably more of the same. I have empathy with producers trying to figure how to develop a marketing plan during this time of volatility. I know of producers that locked up corn and meal at higher prices and now they are beating themselves up because they wish they would have waited. I also tell them I should have taken my money out of my 401K last year, but I didn’t. The point is that you can’t look back and change history - you can only look forward. There are a couple of key items that I believe successful producers are doing during this time of volatility and I would like to point them out.

• They stick to their plan and don’t deviate – This year’s profitable producers are disciplined marketers and they do not deviate from that strategy. They work on certain margin that they can accept and then they execute on that strategy. They do not look back. They might not hit the home run this year, but they are profitable.
  
• They focus on costs but they focus more on margins (profitable margins) – I had somebody ask me this week what is a benchmark for cost of production? I said, “I benchmark producers on profitability, not costs.” Never has that been more important than this year. I can show you cost of production difference of over $30 a head but the low cost might not be the most profitable. I have producers that have cost of production going into 09 that will average close to $160 a head but they will also be profitable because of their risk management plan.
  
• They are all very good at producing pork – I continue to be more and more impressed at the survivors in this business. They are continuing to work on being better at production. We have many farms today that are weaning over 10.5 pigs per litter. I can show you over 15,000 sows that are producing over 28 PSY. I can also show you mortality wean-to-finish in larger systems that are under 3%, it is very impressive and I am proud to work with an industry that is the best in the world at what they do.

In my opinion, if you are to be successful, you need to concentrate on these three things.