On the hog side, lower feed costs are becoming evident as we transition into a new crop.

December 20, 2023

2 Min Read
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By Chris Murphy, Compeer Financial

The past 12 months have undoubtedly been challenging for the swine industry. As my father and several coaches and mentors have emphasized over the years, you learn more about yourself in times of adversity and when grappling with tough questions than in moments of triumph. While this process may not be enjoyable, it is crucial to delve into it and make necessary adjustments to position yourself for success. Here are a couple of critical areas to comprehend and ensure clear insight in your businesses.

Enterprise financials

Many families and agricultural companies operate in multiple business segments, such as hogs, cattle, different crops and transportation. While these operations often have high-quality overall or consolidated financials, sometimes they lack enterprise financials broken down by business unit. If you don’t have this information, I would encourage you to work toward obtaining it, as measuring success or failure requires a detailed examination.

While you may have a general idea of your overall financial standing, the key question is whether you have thoroughly scrutinized the numbers to identify the sources of profits or losses. Understanding this is crucial to pinpoint growth opportunities and make wise capital investments for maximum returns.

Cost of production

Input costs in agriculture remain dynamic. On the hog side, lower feed costs are becoming evident as we transition into a new crop. Understanding the extent to which this is purchased and fed is essential. What is the cost of procurement, and how does it affect your inventory cost of animals moving forward?

It’s vital to grasp the costs and timing of the flow through your operation, considering factors like health and pig flow, and their impact on your production costs. In this environment, updating projections regularly is critical to making informed marketing decisions based on anticipated costs.

Asset optimization

After addressing the first two areas, you should have a comprehensive understanding of your business and identified potential areas for improvement. Agriculture is ever-evolving, and it’s important to evaluate your land base and fixed asset ownership, including real estate and barns. Assess the amount of capital invested, competitiveness in throughput, productivity and cost structure, and profitability during industry cycles.

Are there upcoming capital expenditure needs or deferred maintenance issues to address? Consider whether changes are necessary, recognizing that fixed assets are often costly. Many assets have a limited useful life and may require replacement or further investment at some point.

I encourage you and your key advisors to ask the tough questions and assess whether adjustments are needed. Just because you’ve always done something a certain way doesn’t mean it’s the best approach for the future. Delve into a thorough analysis of your business and make adjustments that will benefit you in the long run.

Murphy is senior animal ag lending specialist – swine for Compeer Financial. For more insights from Murphy and the Compeer Swine Team, visit their website.

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