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Struggling to Survive

Article-Struggling to Survive

Low hog returns and repeated battles with porcine reproductive and respiratory syndrome (PRRS) are pushing change in the pork industry.

Low hog returns and repeated battles with porcine reproductive and respiratory syndrome (PRRS) are pushing change in the pork industry.

The traditional pork industry profit center, the farrow-to-finish enterprise, is facing certain change in the Hoosier state and elsewhere.

Stung by poor prices and health issues often beyond their control, producers are making their operations more specialized in hopes they can save the equity in their farms. Many are selling off sows and turning to feeding out pigs. Some are converting to breed-to-wean systems.

Still others are simply depopulating their hog operations or are being forced out of business by their lender.

Restructuring Process

John Vincent, feed sales consultant with Indiana-based United Feeds, says his company is betting their independent pork producer clients will survive.

A number of United Feeds' small-to-medium-sized customers (200-500 sows) across the U.S. are undecided as to their future in the hog business, he says. His company strongly advises producers not to exit the industry now or they will miss profits later this year and next.

Most of United's Indiana customers who have chosen to restructure their hog operations have opted to sell off sows and convert to finishing pigs, says Vincent.

“Most of these guys have a solid land base with an ample corn supply and good hog facilities, and can handle the extra feed grinding and manure. This all fits in with their management style,” he points out. Plus, there are three major packers within reasonable driving distance: IBP at Logansport, IN; IPC at Delphi, IN; and Swift at Louisville, KY.

Switch to Finishing Only

One of the biggest financial and emotional drains on these mostly single-site hog farms has been dealing with repeated outbreaks of the PRRS virus.

Bob Stafford and son, Tim, of Tipton, IN, owned a 500-sow, farrow-to-finish operation with 3,000 acres of farmland. They struggled with selling off the sows, but herd health problems forced a change.

“It seemed like we were vaccinating the breeding herd for everything including PRRS,” recalls Tim. After gilts were acclimated, vaccinated for PRRS and then introduced into the sow herd, another new strain of the virus would sweep through the herd, he says. PRRS especially caused problems in the nursery. The respiratory form of the virus proved almost untreatable on this farm, adds Vincent. They also had problems with Actinobacillus pleuropneumonia causing sudden deaths in the finisher.

Throw in the long economic downturn and the pair decided the best move would be to convert their separate nursery-to-finish barns to feed out segregated early weaned pigs.

Bob Stafford says the original farrowing facilities, overdue for remodeling, dated back to the '70s. In contrast, the nurseries and finishers were in good shape.

They converted farrowing to nurseries, and gestation and breeding units to finishing.

In January 2003, they started buying 200-300, 11-lb. pigs per week. Used to four-week weaning, the switch to early weaned pigs presented some challenges, admits Tim.

“It's challenging and pretty intense labor for the first 2-3 hours after arrival because you have to hand pick every one of them, get them sized, sexed, give them a shot and put them in a pen. These pigs need more constant, individual care,” says Tim. Plastic flooring was added in the nursery to provide a warmer environment for the younger pigs.

“I would have never thought that such an itty bitty pig like this could survive, but they have proven to be very hardy,” adds Bob.

Without the sows, the Staffords have been able to cut back on vaccines. Pigs are only vaccinated for erysipelas, salmonella and Mycoplasmal pneumonia. PRRS has not been diagnosed.

Broad-spectrum antibiotics are used to maintain pig health and growth. But feed medication use has declined as overall performance has improved, says Bob.

In efforts to boost efficiency, throughput and revenue, the Staffords plan to increase annual hogs marketed from 7,000 to 12,000 head.

They are selling hogs at 260-270 lb. to IBP at Logansport, IN. United Feeds' Vincent supports feeding hogs to heavier weights.

“Producers are paying an average of $32/pig to properly compensate breed-to-wean producers for those 11-lb. pigs,” he says. “Finishers will probably have $95 in that pig counting the cost of the pig, feed, labor and facilities. By feeding out hogs to those heavier weights up to 275 lb. or so, you dilute that cost out over more pounds of pork produced.”

For example, if you sell at 250 lb., with $95 in production cost, your cost of production for wean-to-finish is $38/cwt. ($95 divided by 2.5 = $38/cwt.).

By taking that pig 25 lb. heavier, you add about $4.50 in feed costs ($0.18/lb. × 25 lb. = $4.50) and about $1.50/pig in facility costs. That equals $6 ($4.50 + $1.50) for that extra 25 lb. of gain. It pushes production costs to $101/hog ($95 + $6) divided by 2.75 cwts., which equals $36.73/cwt.

“You've actually dropped your production cost by $1.27/cwt. ($38 - $36.73 = $1.27), which is why more producers are feeding hogs to heavier weights,” says Vincent. Most genetic lines are viable to these heavier weights, and IBP's buying grids reward producers for lean, heavy hogs. If you are selling to other packers, find out their acceptable weight ranges, he advises.

Vincent admits that selling hogs at 275 lb. increases the natural weight spread of the group and adds to sort loss. But he figures the total gross dollars feeding to heavier weights outweighs that loss.

Fed Up with Prices, PRRS

Changes in Frankfort, IN, pork producer Mike Beard's farming enterprise have all hinged on survival. “We keep a pretty doggone good set of records; I don't want to give away too much equity,” he explains.

Beard used the dairy buyout program in 1987 to sell off his 200-cow herd when prices sunk.

In 1999, he sold off his 450-sow operation in the pseudorabies buyout program after the disease and market losses of '98 dug a deep hole in his financial equity.

He repopulated to 450 sows later that same year, with the promise of good returns, which materialized through 2001.

However, with a lengthy run of poor prices in 2002-2003, and return of the PRRS virus, Beard decided to sell off his sow herd again; the last sow farrowed April 8.

“We thought we were clean, but PRRS came back when we repopulated in 1999, and we have battled it ever since,” he remarks. “We've thrown a lot of money at the PRRS issue, trying every new remedy to come out every six months or so, along with heightened biosecurity. Those steps just haven't kept it out,” he laments. PRRS regularly caused 10% sow death loss, meaning finishers were seldom full, and 20% of surviving pigs were slow growers.

An offsite nursery-finisher was built in 2001 to try to improve pig health. But in 18 months, the facility has never been more than half full due to PRRS complications in sows.

Beard hasn't decided on his future in the hog business. He will miss working with sows — but not the PRRS virus that goes with them.

The 57-year-old producer still has an offsite, 4,000-head contract finisher and may choose to contract feed pigs on the home farm. He has the grain operation and last fall started a dragline custom manure hauling business.

Profits Turn Sour

“We lost a lot of equity in '98-'99, had a real good hog year in 2001,” says Dana Scott of Logansport, IN. “We expected last year to be profitable, too. Instead, it was negative.”

Scott, 45, a 400-sow, farrow-to-finish producer, said those unexpected low markets led he and his brother, Kevin, to sell off their sows. The last were shipped this spring.

He remarks: “It feels good. I've always liked working with the sows, but when you keep doing it for nothing, it gets old.”

Contributing to the cost crunch was an on-farm retail meat store featuring their locally processed pork. It was popular, but never became financially successful.

The brothers also decided to cut staff to reduce overhead. They let an employee go earlier this year. Dana's 23-year-old son and his brother's 18-year-old son were told they'd have to pursue off-farm careers.

Pig production now consists of buying 500 head of 12-lb., single-source pigs every two weeks. The pigs will flow all-in, all-out through four, 500-head nurseries, one 200-head nursery and 3,300 finisher spaces they remodeled.

Declares Scott: “You can't guarantee your price, so you've got to cut your costs. We are paying $32/head in a five-year contract for these pigs. We think we will be able to finish them at a breakeven cost of right at 37¢/lb.”

Buying the early weaned pigs costs a bit more than the cost of raising them, which used to be 38-40¢/lb., says Scott. But he figures by producing nearly twice as many pounds of pork through the operation, the reduction in their cost of production will more than make up the difference. Their output will increase from 7,000 to 13,000 hogs marketed/year, and hogs will be sold at 255-275 lb. to IBP at Logansport.

No More Bleeding

P.L. Wilson, 65, built his basic 250-sow, farrow-to-finish operation in stages from 1969 to 1973, paying for each in cash. He added finishing in '78 and another nursery in '92.

Debt was low, but problems loomed. In '94, hog prices dipped to 28¢. Wilson was shocked to learn that a neighbor who lost his banking business to high interest rates, and whose hog operation was faltering, killed himself.

In 1997, his son, Ped, returned to the Wabash, IN, hog farm after receiving a degree in business management from Purdue University.

The fall of '98 brought more financial bleeding as the hog market crashed. P.L. and Ped decided to depopulate and repopulate the herd in '99 due to PRRS problems.

This January, following another bad hog year, the elder Wilson took refuge with a month-long vacation in Texas. No sooner had he arrived in Browns-ville when he learned another hog farmer neighbor committed suicide.

For his part, P.L. figures he has lost $300,000 in equity since '99, and countless hours of sleep, keeping his small hog farm afloat. He has struggled, but will soon finish paying off a six-year note for $300,000 on another farm he purchased.

The bottom line for the elder Wilson is that the joy has gone out of working in the hog barns. Although he has yet to make a move, he vows he won't let the hogs take the family farm.

Ped, 28, wants to build a 4,000-head contract hog barn. But he realizes it probably won't be long before Dad sells off the hogs, and he will be forced to dust off his degree and find a job outside of the hog business he so loves.

Veterinary Advice

Swine veterinarian Max Rodibaugh has seen many pork producers exit the hog business in his 25 years of practice in the Frankfort, IN, area.

As numbers continue to dwindle, the survivors must first know their costs to make good business decisions, he advises.

When choosing a production option, look for local arrangements that offer advantages of proximity, he says.

Also, figure out a way in which both the farrower and the finisher share the risk. “There needs to be an equitable return for each segment,” stresses Rodibaugh.

There's nothing wrong with producers converting to a hog-feeding-only venture, he says. “But don't think that just because you lost money in farrow-to-finish that you are going to automatically make money in this new effort. There is no more profit in that (feeding only) equation. The only way to make it work is if you have better efficiency to capture some of that cost,” he concludes.