Adapting to a changing swine industry landscape

Partnerships can assist with controlling assets, providing expertise, easing labor and time constraints.

Ann Hess, Content Director

April 27, 2022

5 Min Read
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When Jon De Jong meets with pork producers, one question he always likes to pose is: who's your competition? While the answers range from "my uncle" or "Fred around the corner" to an integrator or China, the president of Pipestone Nutrition says it's important to know who you are competing with, but also to recognize there may be opportunities within those assumed rivalries.

"Maybe Fred and I could share labor because labor, as we all know, is hard to come by. Maybe Fred and I can go together and buy some ingredients or buy pigs better," De Jong says. "Farmers are independent, it's why they're so awesome, but it also at times can be a hindrance because 'I'm competing with everybody.' Well maybe we don't have to compete with everybody, maybe if we work together, we can get some of those scales and efficiency tied together."

The Pipestone network of independent producers aims to be in the top third of revenue and the lowest third for cost of production. Lowering cost of production is crucial; however, De Jong argues there's massive ranges on revenue with "the haves and the have not." One way to become a "have" is to try to get a cutout contract.

"That's not always the easiest thing to go do, but I think it's important to understand that the spread on revenue is pretty significant in our industry today," De Jong says. "The spread on cost of production has tightened down. Everyone is a pretty good producer when it comes to cost."

On the revenue side, value-add opportunities such as getting a premium for not feeding Paylean, raising Durocs, practicing open pen gestation (OPG), meeting requirements for Prop 12 and switching to antibiotic-free production do exist. However, the window for seeing a return on investment can often be short.

For example, a Michigan producer De Jong works with decided to jump on getting a premium for open pen gestation production. Six months later they were still getting a premium, but they had lost their preferred dock times. Then no premium was offered, but OPG production hogs were still required at the plant to meet value chain expectations.

"I've watched this over and over again with producers at this stage of events. First there's a premium, then there's no premium, then you're getting discounted," De Jong says. "We don't need to be on the bleeding edge of some of these changes, but I'd certainly like to go get some of those premiums that are out there. I may have to give up a few things and may be in disagreement, but there's an opportunity."

Producers that own and control their assets are also usually better at cost of production, De Jong says. Those assets including owning the feed mill, the sow farm, the finishing barn, and in some cases the packing plant.

Before taking on additional ownership, De Jong advises producers to know their risk strategies:

  • What's your ability to withstand market changing events?

  • How flexible is your operation?

  • How quickly can you expand or contract?

  • What is your ability to tolerate risk?

De Jong notes that risk and volatility has been elevated over the past five years with notable events such as African swine fever in China, COVID shutdowns, slower packer line speeds and the administration incentivizing renewable diesel, thus eliminating fat from diets in some cases. If ASF reaches the United States, more production flexibility will have to come into play.

"If ASF gets here, 30% of our production for exports disappears overnight, potentially for six months or longer," De Jong says. "Can your operation withstand that? Can you flex and contract enough to make it through that?"

De Jong says the industry did learn some lessons from the COVID shutdown, one being farmers are incredibly resilient and creative. For example, one of Pipestone's producers, Prairie Queen Pork, based out of Nunda, South Dakota, raises and markets to Wholestone Farms and Smithfield Foods. The farm was able to avoid euthanizing all together during plant shutdowns — instead selling more than 2,500 pigs directly to the consumer.

Other producers were able to ship pigs to other states. For example, Oregon, which only has a pig population of around 5,000, took on an additional 10,000 fat hogs from the Midwest over the course of 90 days.

Looking toward the future, De Jong says producers must continue to withstand market volatility. They also need to identify and understand outside profit centers. Acknowledge the competition, but also note size and scale is needed to compete. Finally, look for opportunities to advance into the food chain through ownership, such as harvesting facilities.

"I think we're seeing a shift in folks understanding that revenue piece," De Jong says. "It's hard to compete when you're losing $140 a head in revenue compared to the guy next to you."

Producers also need to consider if they can handle all parts of the business in house, or if they could use partners.

"Do I have the expertise to do these things, grind my own feed, formulate the diets, diagnose disease, produce 30 pigs per sow per year?" De Jong says. "If I have the expertise and the ability to do that, I should do it myself. If not, enter a partnership that can bring value on those different things."

Partnerships can also help address ongoing labor issues, as well and make producers' time more efficient on farm.

"I think the future is bright for independent farmers and others in the swine industry, but this idea that we're going to compete with everybody, I think we got to think a little bit differently in that regard," De Jong says.

About the Author

Ann Hess

Content Director, National Hog Farmer

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