Expansion is not just occurring in the swine business. Production for beef and chicken is also climbing. In fact, the Rabobank Food & Agribusiness Research and Advisory team expects U.S. protein production overall to grow 2.5% every year through 2018. William Sawyer, Rabobank executive director of animal protein research, says by late last year it was clear not only that expansion was occurring in the individual sectors, but also that all the major proteins were expanding at the same time — a phenomenon that just does not happen every year.
As a global financial institution, Rabobank keeps a close eye on the global marketplace. In a recently released report looking at the big picture, Rabobank anticipated a more challenging profit environment by the end of the expansion cycle in 2018. Nevertheless, Sawyer says, “it could be a strategic opportunity for those producers with the capital and foresight to take advantage of it.”
He further explains, “There are some real trade opportunities that we did not really expect. We have been talking the whole pork trade to China for over a year now, and it is really there. Also, Mexico remains an important customer to us.”
Still, the global meat trade is facing aggressive competition with exchange rate volatility. Now is a good time for hog producers to examine their marketing goals and determine the target consumer.
Rabobank identifies five paths for success for U.S. animal proteins.
■ Find the value of value-added. Companies that move into value-added meats generally find better margins and less exposure to price swings.
■ Find your niche. Higher prices and more attractive margins are available in niche-market segments.
■ Own more links in the supply chain. Companies that control more links in the supply chain will be able to capitalize on rapid changes in protein consumption trends.
■ Bigger is better. Consolidation opportunities are expected in pork production. However, those with an acquisition appetite will need to show restraint.
■ Find the trade balance. As U.S. supply expansion becomes increasingly exposed to trade interruptions, animal protein companies need to tailor their export offerings to the preferences of the international customer.
Across the U.S. hog sector, Sawyer says the majority of the expansion is not occurring among the largest producers.
He explains, “If you look at the top 10 hog producers, there is not a ton of expansion going on. Where we do see a higher degree — at least on a percentage basis — is your smaller hog producers. These are the producers who have new contracts with their packers. Their contracts have gotten a little bit of a boost at a time where hog supplies are ample and packing capacity is tight. We have packers already thinking about 2017 and 2018.”
Looking ahead, packers are trying to keep the hog producer happy to some degree. The terms of the contracts are changing. In some instances, the contract is not just tied to a live price, but to cutout value also.
Sawyer recommends pig farmers evaluate the ideal consumer of the pork product on their farm. The marketplace is ever-changing. Now may be a good time to adjust the production model and pursue new opportunities to increase profits.
The first step is opening a dialogue with packers in the regional area. Sawyer says, “If you are someone who has primarily sent your supplies into one plant for a number of years, I think entertaining the idea of going the distance you have never gone before is only going to improve your contract at the end.”
Secondly, hog producers need to be receptive to producing ractopamine-free pork. In Sawyer’s opinion, more international customers will be requesting ractopamine-free pork, especially as the appetite for U.S. pork grows in China. He says, “If you have been resistant to being a ractopamine-free producer, then it is something you need to consider seriously.”
For independent hog producers, niche supply chains may be a way for you to reach a bigger margin. Sawyer recommends these producers think about the local geographic area and the advantage a small producer can bring to the consumer demanding specialized products.
Switching to supply a niche market does not happen overnight. Sawyer says, “It is far more an art than science. It takes a level of management and attention to detail that independent producers tend to have.”
Supplying the niche market
When buying stations near Missouri hog producer Bill Kessler’s farm closed six years ago, he had to make a tough decision. Kessler frankly says, “It was either get out of the hog business or do something different.”
Kessler was not the only pork producer in the area confronted with this conundrum. As a result, 21 hog producers joined together to form a local co-op and pool their hogs to increase marketing opportunities. Furthermore, the group decided to raise antibiotic-free pigs. After a little adjustment in packing plants, the pigs now are shipped to Coleman Natural Foods plant in Rantoul, Ill.
Kessler says raising ABF pigs is not for every hog producer. Along with producing antibiotic-free pigs, Kessler must meet other supplier standards required by Coleman and its parent company, Perdue Farms Inc. “It is a niche a program. It is not like the entire world is going on it, and that is how you have to treat it,” says Kessler.
Coleman has a two-tier system with different premium levels for meeting certain suppliers’ standards. The top-tier level pays a higher premium for bedding hogs on long-stem bedding on 75% solid area, group sow housing and using turnaround 6-by-8-foot farrowing stalls. For all ABF pigs, there are also stipulations on feedstuffs, including feeding plant-based proteins.
Changing your standard production model to qualify for a niche program can increase labor time. It takes a meticulous producer to raise the ABF hogs and a different mindset. Kessler says, “The animals are going to fight more. You are going to have a little more death loss.”
Kessler utilizes contract growers to finish the hogs. The finishing facilities still have to meet the supplier standards. One thing that is noticeable is the lower feed efficiency versus traditional pork production. He explains that the older-style barns — open-fronted — with natural ventilation alone will hinder feed efficiency, but they work the best for the ABF program. For the Coleman program, there are certain feed rations that are preferred. In addition to using plant-based feed supplements, there are set nutrient minimum requirements.
Kessler never loses focus on raising healthy pigs. A strong vaccination program is essential, along with keeping the gut healthy. He says, “I learned a long time ago to use a lot of probiotics. If I keep that gut balanced, then you do not have some of the sickness and some of the problems that cause diseases. Probiotics keep the gut right to also make the vaccine work right.”
As is true for all hog operations, a good relationship with a veterinarian is invaluable. Kessler routinely evaluates his hog farm operations with his veterinarian, making adjustments in the program as needed. From time to time during the audit of the sows, Kessler will have the veterinarian on hand for a couple of hours. This helps the veterinarian understand the items necessary for the program.
Raising ABF pigs does not mean Kessler ignores sick hogs. If a sick pig requires medication, Kessler treats the pig, then properly identifies it and places it in a separate pen. These pigs are shipped to an alternative market. On average, Kessler says for a facility finishing 1,000 pigs approximately 25 receive some type of medication that takes the animal out of the program. He says, “I will not let them die because I do not want to use antibiotics. You just do not treat the whole building. You learn to treat the individual pig.”
Coleman pays a third-party audit to verify all suppliers in the program are following the company’s rigid standards. The audits are performed annually, and all participants are subjected to spot-checks at any time.
As Kessler explains, hog producers can pay for their own audit and sell to anyone, but that is a very costly expense. On the downside, if a company like Coleman pays for the audit, it can only be used for that company.
For his farrow-to-finish facility, it takes a day and a half to complete the audit to ensure all supplier standard prerequisites are achieved, including checking paperwork and verifying square footage in housing and during transportation. Kessler explains, “They are always worried about square footage and space requirement per hog.”
Kessler confirms that the recordkeeping is extensive and time-consuming. He says, “Everyone keeps a lot of paperwork, but I thought Coleman requires an awful lot of paperwork.”
Similar to other swine welfare audits, auditors look at your body condition score and death loss. Hog producers following the program cannot dock tails or clip teeth. Kessler says that if an audit reveals you are having trouble with tail biting in a certain group of hogs, a producer is allowed to clip tails on limited basis.
Kessler does not deny that the cost to raise hogs for this niche program is higher, considering feeding plant-based proteins, extra expense for bedding, increased labor and converting from individual gestation stalls. Still, it is a trade-off for the premium received. He says, “There is a little more cost to it. That is why I say there needs to be a $30 to $40 premium per pig to cover the cost.”
As a seasoned hog farmer and National Pork Producers Council board member, Kessler knows firsthand that ABF pork is not superior to traditionally raised pork. He reaffirms that all pork is antibiotic-free because U.S. hog producers follow withdrawal periods. However, his labeled ABF pork is verified to have no antibiotics ever. ABF pork has the same nutritional value, but an ABF pork loin will sell for $5.11 per pound in Whole Foods compared with the same pork loin raised on Kessler’s farm with the same genetics costing $1.49 per pound in the local grocery store. Frankly, Kessler says it comes down to raising pigs for a target consumer and market.
Before moving forward with feeding pigs for a niche market, Kessler advises hog farmers to do their homework. The first thing to evaluate is if your farm is in close proximity to a processing plant in the specialized market. The other option is participating in a co-op to combine hogs with other pork producers to fill contracts.
Another vital component to qualify for programs similar to Coleman is the facilities. The biggest expense is converting traditional individual gestation stalls to turnaround farrowing stalls and group housing. It is also necessary to find finishing barns that are not completely slotted. Kessler recommends calculating those conversion costs before even considering raising pigs for a niche market.
If feed is purchased through a local feedmill, then it is a good idea to communicate prior to switching production models. Feed rations for ABF pigs cannot be run directly after a batch of feed containing antibiotics. It takes coordination with a feed mill to ensure the proper procedure and cleaning sanitization is followed.
For Kessler, producing ABF pork meant fewer sows. Under traditional methods, he had 750 sows, but now his operation has 400. The reasons for fewer sows range from increased paperwork to additional square footage requirements. Basically, unless you are building a brand-new facility, it is practical to expect downsizing the herd to fulfill all contract conditions.
In reality, it comes down to making sure the premium is large enough to cover the expenses and gaps in efficiency, along with the extra headaches of learning to raise hogs differently. As a producer, Kessler says you have to ask yourself what are your limits. There are niche-market programs that want pigs raised outside with limited shelter. But he is not willing to go to back to weathering the extreme temperatures of Missouri winters and summers. The climate is controlled year around in the barns, and the pigs are happier in that type of environment. He says, “If we have to double production in livestock and crops by 2050, we are not going to do it by going backward.”