Volatility in the swine industry continues. Even so, the continued growth of the U.S. sow herd is evidence of ongoing optimism in our industry. Surely there will be growing pains experienced as producers and processors look for ways to take advantage of the 10 percent slaughter capacity increase that will be brought online over the next few years. The added supply of pork product will need the corresponding increase in demand to sustain prices. To prepare for cyclical profit challenges, hungry producers are continuously looking for ways to improve. More importantly, they work hard to stay at the front of the pack, seeking improvement internally to stay competitive with the best of their industry peers.
The biggest challenge when it comes to benchmarking is finding other operations to make a true comparison with. Each operation is unique in its own way with a wide array of accounting and production record keeping methodology. For this reason, most producers start with benchmarking internally.
I recently had the opportunity to sit down with the CEO of a successful company who has diversified their business across a broad spectrum of industries, both in and outside of agriculture. He shared that the number one thing he focused on across all ventures was yield. He was quick to admit that they have a strong team who aggressively monitors costs, but he knew that success relied on efficiently maximizing throughput. I see a similar approach being taken by the successful swine operations that we are blessed to work with.
Identifying and measuring key metrics that a production team can incorporate into actionable plans is important. There are some great benchmarking companies in the marketplace who can provide a wide array of key production indicators to measure. The trick is finding standardized production-based measurements that incorporate a cost comparison. Looking at total cost per hundred weight sold continues to be the least common denominator when analyzing performance. This blends in production volume with the cost to accomplish these goals. It’s simple, but still the most holistic assessment of how each farm compares month over month and year over year.
The three largest cost centers in raising hogs are weaned pig costs, total feed costs and yardage. Start by documenting these measurements then, with these costs in mind, look internally to compare pig flows and growers within your finishing barn networks. This internal dataset is proof of what is achievable and clearly, identifies opportunities for improvement within systems.
While more difficult, having an awareness of where you are at within the pack is incredibly important. You may be improving year-over-year internally, but how do you know that your rate of improvement has kept pace with the fast moving industry advancements? As noted earlier, the challenge with measuring yourself against other operations is having a true comparison.
Producers frequently share with us that they struggle using broad data sets to compare themselves to. Business structures vary widely, as do the results and costs to achieve these results. To provide clarity in these comparison efforts, producers have shared with us that they benefit from benchmarking directly with neighbors and industry peers. Working with other operations similar business models and standardized reporting methodologies will give a clearer comparison. Working directly with other producers requires trust, respect and a common purpose to seek continuous improvement.
The ‘why’ matters
Tracking production and financial performance isn’t new to the industry, nor is comparing internal performance to peers. As you talk to individuals from struggling operations to the most successful producers across the industry, the difference benchmarking makes in improvements and competitive edge is why they do it. Benchmarking success is driven by a culture where people are motivated to the process of capturing data accurately, measuring it frequently, and ultimately designing a purposeful action plan to improve and effectively communicating with their team to implement changes. It isn’t enough to simply track your performance and to then passively look at the reports from time to time. Building a culture where everyone is engaged in the process is pivotal.
Timmerman is a senior financial services executive for AgStar Financial Services. For more insights from Timmerman and the AgStar Swine Team, visit AgStarEdge.com.