I use this analogy as I sit in southern Minnesota, having received the news that my hometown of New Richland, MN, received nearly 10 in. of rain in a 48-hour period. Much of southern Minnesota was hit with very heavy rain this week – not good for this time of year when farmers are anxious to start the fall harvest.
Most pork producers have this “dark cloud” mentality as they consider any form of expansion in their hog operations. Most have zero interest in adding more sows, even though the economics have been good so far this year and some have the financial capacity to expand. This is the first time I can remember that the interest in expansion is virtually nonexistent. I am writing this before the USDA’s Hogs and Pig report is released on Friday (Sept. 24).
Whether you are a large or small producer, the deciding factor is the price of corn. If the average corn price on the board for next year is above $5/bu., you will need $143 to 147/head to break even. If you have to buy all of your corn, you will also be at the mercy of 2011 prices. For prices to stay at current levels and to ensure an adequate corn supply going forward, we will need very good planting and growing conditions.
For those who raise a lot of the corn needed, the question is whether you want to risk raising hogs or would it be less risky to just sell your corn out of the field? Your answer might depend on whether or not you currently have an empty hog facility. From what I have heard, these are the producers who are contemplating trying to find pig sources to keep their barns full. From a lender’s perspective, you still must have the right production model and risk management profile to be successful in the long term. To expand merely to fill up empty barns is not the right reason, in my opinion.
Integrating Back – Some pork producers who do not produce all of their corn needs are considering whether or not to purchase or rent more land to gain better control of their feed supply. I have heard this more and more from producers with strong balance sheets who could expand on the swine side, but instead are looking at controlling more of their corn supply. This trend has been slowly growing. If current economics stay in place, more pork producers will explore this avenue as a form of risk management. With land selling in Iowa for close to $8,000/acre, does this make sense?
Leman Swine Conference – I attended the Leman Swine Conference last week. It is one of the very best conferences I attend every year. Dr. Bob Morrison and his colleagues at the University of Minnesota put together a great program that encourages people in the swine industry to think about and discuss many ways to make the industry better. The program always challenges your thinking and focuses on what the industry must consider in the long term to be viable and successful. I want to applaud their efforts wholeheartedly.
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Swine Industry Consultant
Contact Greenwood at [email protected]