Hog Business Not Unlike Running a Marathon

Those of you who know me know that I am a runner. I try to do a couple of races every year — always a local 10k for charity in the spring and then a couple of long races in the fall. I enjoy the Twin City 10-mile, which is the first weekend in October every year and then a half marathon in my hometown about three weeks later. The Twin City 10-mile has a limited entry of 6,000 runners, which are chosen in a lottery. I have run this race for five out of the last six years. Last year I actually ran my fastest time – 80:01 – which for an old guy isn’t bad. The interesting part of this is that runners are placed in corrals according to how fast they are. I have always been in Corral No. 1, which is the fastest group and I assumed with my time last year I would still be in Corral No.1. When I got my registration packet, I learned I was in Corral No. 2!

In perspective, now I know what it’s like trying to keep up in today’s swine industry. You are constantly working on trying to get better in all phases of your business – sow productivity, nursery/finishing performance, risk management, etc. – but you feel like you can’t keep up with the pack. You are always trying to find ways to improve, but you don’t know if it is still good enough to be counted amongst the best. The amount of volatility in the marketplace has made this even more difficult.

The swine industry (like running) is very competitive. You need to constantly assess your business and determine what areas you need to work on. The bottom line is you must work to make your business better in all phases, everyday. To compete, you must also have the desire to constantly reassess your business plan. I don’t like Corral No. 2, but that doesn’t mean I can’t compete.

Demand Remains Strong – We still have carcass cutout values over $95 (Figure 1, attached). Exports have been a strong driver on keeping prices at these levels. Demand for pork continues to be very strong, with exports at a record pace. We are currently up 16 % from a year ago and it looks like 2011 will be a record year. If export demands change dramatically, I would hate to think about where prices would go. Although the United States is the world’s best pork supplier, we are walking a very thin line on pork prices and our dependence on exports.

Feed Costs Keep Expansion in Check – I do not anticipate any huge surprises coming out of the September Hogs and Pig Report. We have not seen any measurable expansion of the sow herd and high feed prices are keeping any thoughts of expansion in check. In addition, some smaller operations have decided to sell their corn instead of feeding it to livestock.

A couple of things to watch for in 2012 – The heat experienced this summer in the Midwest left producers with more sow death losses than usual. The impact of these losses will hit in March or April farrowings. In meetings with several production systems, we are seeing lower conception rates in that time frame, which could reduce market hog numbers next summer. It’s too early to tell, but it’s worth watching.

Hard to Imagine – It is hard to imagine that with record hog prices, pork producers are still uncomfortable. Feed costs and supply are major concerns for any producer. In looking at breakeven prices for a 270-lb market hog, we are between $170-175/head ($83-$85/cwt., carcass). Currently, there is over a $15/head profit potential for the next 12 months. Two weeks ago, profits were below $5/head. As Figure 2 reinforces, these market fluctuations could be the norm for the foreseeable future.

Click to view graphs.

Mark Greenwood
Swine Industry Consultant
Contact Greenwood at mgreenw@agstar.com