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# Small Steps To a Turnaround

The bigger you are the harder high feed prices will hit your bottom line. Case in point Smithfield Foods' recent announcement to trim their one-million-sow breeding herd by 4-5% net. Easy math tells us that's a 40,000 to 50,000-sow reduction. The move, says Smithfield, will cut their annual production by 800,000 to one million market hogs. Smithfield CEO C. Larry Pope describes the economic threats

The bigger you are — the harder high feed prices will hit your bottom line.

Case in point — Smithfield Foods' recent announcement to trim their one-million-sow breeding herd by 4-5% — net. Easy math tells us that's a 40,000 to 50,000-sow reduction. The move, says Smithfield, will cut their annual production by 800,000 to one million market hogs.

Smithfield CEO C. Larry Pope describes the economic threats facing the livestock industry as unprecedented and unsustainable.

On the 114 million-plus pigs projected for slaughter in the United States this year, the move will make a dent — albeit a little one. Let's just call it a ding.

Clearly, the company is projecting the additional culled sows would have cranked out about 20 pigs/sow/year (p/s/y). That seems a bit high.

Say you normally cull 20% of your sows; culling an additional 5% would pull the “next worst” sows — which probably are not producing 20 p/s/y.

Still, the concept has merit and the company did emphasize that this will be a “net” reduction of their sow herd.

Being a little more conservative, let's say the extra 5% of cull-sow candidates produce a paltry 15 p/s/y. That would still pull 600,000 to 750,000 pigs off the market. If an average carcass weighs 200 lb., that's 120 million to 150 million pounds of pork.

### Food for Thought

In recent USDA quarterly Hogs & Pigs reports, we've had about 6.2 million breeding animals in inventory (6.157 million in the Dec. 1, 2007 report). If you subtract the boars and open gilts held for replacement from that total, we probably have roughly 5.5 million “working sows” in the U.S. inventory most of the time.

If we follow the Smithfield lead by culling an extra 5% from the national herd, and they average 15 p/s/y, we would have 307,850 fewer sows producing 4,617,750 fewer market hogs. At a 200-lb. carcass average, that's 924 million fewer pounds of pork on the market.

Taking that a step further — say we shave 5 lb. off each 200-lb. carcass. At a projected annual slaughter of 114 million head, that's equivalent to about 2.5 million hogs, according to North American Preview author/economist Steve Meyer.

Roughly speaking, then, the 5%, 5-lb. combo would draw down our annual production by approximately 7.1 million market hogs.

As weekly slaughter counts gradually slip under total packer capacity, now would be a good time to begin a slow, deliberate reduction of slaughter weights.

By now, you've likely heard about the Canadian government's “cull breeding swine program” to reduce their breeding herd inventory by 10%. The goal is to help pork producers who are reeling from the economic trifecta they've experienced — soaring feed costs, low hog prices and the high value of the Canadian dollar.

The buyout will pay \$225 (CAN\$) per sow or boar, provided producers empty at least one breeding-gestation barn and agree to not restock it for three years. As I write this, the Canadian Pork Council says approval of the plan is imminent.

The plan is expected to reduce Canadian breeding animal numbers by roughly 150,000 head. Most will be sows, so I'll use that nice round number to project the potential impact on North American pork production.

Because the buyout requires breeding-gestation barns be emptied completely, it's fair to assume that those sows — across the boards — are probably better than the additional 5% of cull sows proposed by Smithfield. For easy calculation, let's use 20 p/s/y.

Yanking 150,000 sows from the Canadian breeding herd would theoretically trim market hog numbers by about three million. Some of those pigs would have been raised, finished and slaughtered in Canada, of course, so let's just estimate that 30-40% of them would have been sent south for finishing. If we add another 1.2 million slaughter hogs to the 7.1-million reduction noted above, we've now pulled 8.3 million market hogs off the annual slaughter total.

Economist Meyer says a 7-8% reduction in total slaughter should increase hog prices by about 25-30% — roughly what it will take to put U.S. pork producers back in the black, using current feed costs, etc.

### A Slow Process

Granted, this dual approach will take time — I'd guess 18 months to two years, realistically. But isn't it a better approach than waiting for attrition to take production out of the system?

Prospects for lower feed costs in the near future look unlikely. We all know adjustments have to be made. As we wait, some proactive actions from the production side certainly could help.

So, if you've been looking for light at the end of the tunnel, there's a flicker of one — if you're willing to take a few small steps to find it.