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Articles from 1999 In February


New Strain Of Swine Flu Strikes Herds

A new strain of swine influenza virus (SIV) has hit herds in North Carolina, Iowa and Minnesota. The strain, H3N2, has previously been identified in European herds. It is only the second known strain of SIV in the U.S., the other being H1N1, still the dominant strain of SIV.

First Case In North Carolina The first case of H3N2 was isolated by Gene Erickson, DVM, of the North Carolina Microbiology Testing Laboratory.

That first case involved a 2,000-sow herd that had been in production about one year, comments Erickson. They had been using a half dose of SIV vaccine on just the 40% of the herd's new gilts that came from North Carolina. The other 60% of gilts, originating from out of state, were not vaccinated for SIV before shipment or at the time the herd was assembled. All sows and gilts, regardless of background, were given a half dose of SIV vaccine pre-farrowing. (Schering-Plough Animal Health has the only SIV vaccine on the market.)

First farrowing was normal. But during the second farrowing, in late August '98, the farm veterinarian called to report some unusual problems. Sows were very sick with temperatures up to 106 degrees F; some were dying. The veterinarian told Erickson the outbreak looked a lot like SIV, but said he was confounded by the fact that he had been vaccinating and there were still problems. He acknowledged he hadn't used the full dose of vaccine, as is recommended by the company, because he was afraid of reactivity problems in the breeding herd and was also trying to cut costs. Label directions for the Schering vaccine call for two doses three weeks apart (pigs or sows) and a booster dose for sows.

According to Erickson the outbreak of H3N2 SIV was the hardest on those gilts that had never been vaccinated for SIV.

The disease swept through that entire herd in less than a week, relates Erickson. In the end, a total of 27 sows aborted and 56 sows died. Most sows that had been bred 30 days earlier, returned to heat.

Iowa, Minnesota Experience So far, says Bruce Janke of Iowa State University's diagnostic laboratory, four isolates of the new H3N2 SIV have been identified. Two cases were from Iowa; two were from southern Minnesota.

The first outbreak occurred in a 400-head, off-site nursery in Iowa. In a few days, a nearby farm containing sows in a farrowing unit and nursery pigs on the same site became ill. From 40-80% of sows were affected.

A second Iowa case involved a 3,200-sow operation in which flu-like conditions affected about 200 sows and nursing pigs. Again, there were a few abortions but no sow deaths, he reports. Replacement gilts had been vaccinated for SIV twice on entrance into the breeding herd. Virus was isolated from sows and 14- to 19-day-old pigs.

In the two cases of SIV from Minnesota, sows experienced typical flu-like symptoms. One of the two cases had flu problems in the nursery and finisher on and off all fall, before the outbreak occurred in sows in the other herd, relates Janke.

According to Rick Sibbel, Schering-Plough veterinarian, the company has applied for federal license for an H3N2 strain SIV vaccine. Eventually, plans are to develop a bivalent vaccine that contains both SIV strains.

Packer Ledger Account: Asset Or Liability

As pork producers filed year-end financial reports for 1998 or prepared statements for 1999 operating loans, accountants and lenders were forced to give a look at a new item on many producers' balance sheets, the ledger account.

And with that new ledger account item totaling hundreds of thousands of dollars for some producers, the look accountants and lenders were giving ledger accounts was long, hard and concerned.

The ledger account is the account tied to some forms of packer contracts. Under these contracts, when the open market price drops below a pre-determined (or "contract") price, producers receive the pre-determined price. But, they create a deficit (or "ledger account") with the packer equal to the difference of the two prices.

On the flip side, when open market prices exceed the contract price, producers still receive the price they've contracted, but their ledger balance is reduced by the difference between the two prices.

It's dangerous to generalize on contracts though, as they vary from packer to packer. In some, a split of the up or down side may be involved, for example.

Although the extremely low prices of recent months have resulted in some staggering ledger account balances, it appears that most lenders and accountants are taking an understanding, yet wary, view of these balances.

An informal survey conducted by a Minnesota banking association showed that six out of seven banks that dealt with ledger contracts were classifying them as contingent liabilities, rather than accounts payable.

How to classify ledger accounts is a subject accountants have wrestled with. "In reviewing these contracts, we only see producers having a financial obligation for payment of their ledger account when certain events happen. So, we're calling these balances a 'contingent liability,' making them a footnoted item on the balance sheet," explains Dale Carlson, an accountant with Schuetzle and Carlson, New Ulm, MN.

The differentiation is huge. By not putting the ledger account balance on the balance sheet, otherwise sick balance sheets can be made healthy with the stroke of a pen.

Lee Fuchs, Senior Lending Officer for Agribank, St. Paul, MN, while cautioning that it's tough to make generalizations on multi-varied contract terms and individual producer's financial situations, thinks that ledger accounts should be listed as a liability. "If it's probable that they're going to have to pay it, and the amount can be reasonably estimated, then it's a liability," said Fuchs.

Fuchs thinks a strong case can be made, though, for listing the ledger balance as a long-term liability. He recommends breaking out the amount you think will be paid back in a year's time as a current liability.

"Most of the lenders and accountants out there may be trying to take the more lenient way and calling it a contingent liability and they will probably get away with that until the (bank) regulators catch up with this," said Fuchs.

Carlson also adds that all the contracts have their own nuances and that each must be reviewed individually. He says that if the account is interest-bearing, a different classification may be needed. Or, if the packer has the right to cancel the contract if the producer is deemed financially unstable, another classification may be needed.

The question of what the packer is going to do is one that weighs on many producers' minds. Ray Bjornson, vice-president with Hormel Foods, Austin, MN, says actions probably speak louder than words.

"If we didn't intend to honor these contracts and stick with them for the long term, we certainly would have found a way out of them before now," Bjornson comments. He says Hormel bought about 50% of its hogs under various ledger contracts in 1998. Hormel processes about 32,000 hogs per day in plants in Illinois, Minnesota and Nebraska. When prices dropped below $15/cwt., if 16,000 of those hogs were on a ledger contract, the contracts were costing Hormel about $1 million/day.

Accountant Carlson fears that "one of the saddest things that's going to happen here is that some producers will not live as long as the contracts." The producer may have figured on paying back the debt through hog sales when times were good, says Carlson. He's unclear on what will happen when the spouse or heir has no desire to maintain the hog operation and must settle the account with cash.

Hormel's Bjornson, while not having had to deal with a death of a contract holder, says that they will be willing to help transfer or re-assign contracts.

"We look at a ledger contract as nothing more than a cash flow stabilizer," says Tom Ricke, regional manager Norwest Ag Credit, Des Moines, IA. He says that "yes, you are incurring a liability, in effect getting a loan." But, compared with the alternative of receiving the open market price, he considers those on contract as probably better off.

"Looking beyond the near term and into the future is key in evaluating a ledger account," says Norwest's Ricke. "Right now all we're looking at is who's going to survive. But at what cost does a ledger contract provide survival?" he wonders. "In many cases, producers have forfeited future profits to pay for this." Ricke says that some of his clients are now being approached by a packer that wants to accelerate the payback schedule.

Producer Groups Ask For More Help

USDA's program of $50 million in direct cash payments to pork producers was a good-faith gesture. But it didn't go nearly far enough, say industry leaders.

National Pork Producers Council (NPPC) President Donna Reifschneider characterized it as "the first step in addressing the liquidity crisis facing pork producers." She says NPPC was informed of the limited resources for such a program and stressed NPPC would continue to work with USDA and Congress to find ways of providing additional cash infusion to pork producers.

The USDA program only applies to producers marketing fewer than 1,000 market hogs during the last six months of 1998. Maximum payment is $2,500.

Reps Marcy Kaptur (D-Ohio) and Tom Latham (R-Iowa) have introduced a resolution urging the Clinton Administration to take immediate action to help financially strapped producers. The resolution calls for: passage of a supplemental appropriations bill for direct and guaranteed farm ownership loans; a report to Congress (by Feb. 1) on a potential disaster assistance program for pork producers; expanded loan and debt restructuring programs; and producer compensation for lost markets from the flood of hog imports into the U.S.

American Farm Bureau Federation (AFBF) leaders meeting with Secretary of Agriculture Dan Glickman outlined a federal short-term loan program to aid pork producers who may be forced out of business because lenders are refusing to continue financing.

Under the Farm Bureau plan, loans would be made to producers for the number of feeder pigs, barrows, gilts and sows marketed for slaughter between Oct. 1, 1998 and April 1, 1999. The loan would be repaid when hog prices go above a set price.

State Funding Efforts A number of states surveyed have proposed funding initiatives to help beleaguered pork producers:

Iowa: The Iowa Department of Agriculture proposes a Livestock Economic Emergency Program. It offers three packages of federal and state financial assistance.

The first package is a federal/state interest buy-down and loan guarantee option. The second package is an interest buy-down and loan restructure option, while the third plan offers financial planning and mediation.

State officials stress this plan is aimed at helping family pork producers. To qualify, gross farm income must exceed $50,000 and 50% or more of it must be derived from livestock sales.

Illinois: Under a $50 million program announced by Gov. Jim Edgar, the Illinois Farm Development Authority (IFDA) is working with local lenders to offer pork producers guaranteed loans at lower interest rates.

The program is designed to consolidate and extend existing debt over a longer term at reduced rates. Applicants must derive 50% or more of their income from farming, have a debt-to-asset ratio between 40% and 65% and have sufficient collateral and cash flow. Maximum loan is $500,000. Contact the IFDA at 1-800-406-4332.

Minnesota: Gov. Jesse Ventura has budgeted $10 million to go to the "hardest-hit" farmers. An $80 million property tax relief bill for farmers is being proposed by the Minnesota House of Representatives Republican Caucus.

The Republican proposal would givelivestock farmers with 160 acres or less half of their property tax payment. Those who rent or own more than 160 acres of cropland will receive $4 cash/acre to apply toward their property taxes.

South Dakota: Pork producer delegates at their annual meeting in early January passed a resolution calling for $1 billion in federal aid.

They also asked Gov. Bill Janklow to consider a state disaster assistance program.

"Our estimates are it will take about a billion dollars for any payment plan to be meaningful to our family farmers," points out Dennis Michael, state pork producer president.

Wisconsin: Gov. Tommy Thompson recently approved an emergency loan program. The $5 million program features a $50,000 loan limit and three-year repayment period. Applications are available on a first-come, first-served basis. Applications must be received by July 31, 1999. To qualify, farmers must have derived at least 30% of their income from hog production. For more information, contact your local lending institution.

Open Market Sales Now Only 30%

Who's getting paid what? That's the million dollar question in the hog markets lately.

On the day hogs traded near $10/cwt., how many producers actually bargained for and accepted a bid for that amount? Maybe only 30%, if USDA's new hog report provides any indication of true market conditions.

The USDA has been overhauling its report of daily hog prices. Starting in mid-November, USDA's market reporters in Des Moines, IA, added a new wrinkle to their daily report on Iowa and southern Minnesota sales direct to the packer. The wrinkle is a line called "negotiated sales." In January, the reports for direct sales to the packer for the Illinois and Indiana-Ohio markets also started posting negotiated sales.

Negotiated sales are sales based on a negotiation between the buyer and seller for delivery of hogs within a week. Sales based on a prearranged contract or formula and sales made over a week in advance are not considered negotiated sales. What USDA calls negotiated sales are what most producers think of as spot or open market sales.

The negotiated sales number has moved up and down but was generally in a range of 20% to 40% of the total sales in Iowa and southern Minnesota through January. USDA's estimated daily movement of hogs varied between 115,000 and 140,000 throughout January.

The Illinois reports tend to have a higher percentage of negotiated sales, generally 30-50%. Daily movement there ranged from 25,000 to 42,000.

The Indiana-Ohio percentage of negotiated sales tracked the Iowa-southern Minnesota numbers fairly close. Daily movement in that region was between 28,000 and 40,000.

On the east coast, there are hardly any negotiated sales. Almost all are formula sales, according to Mike Erwin, of the USDA Agricultural Marketing Service's Des Moines office, but most are tied via a pricing agreement to the reported prices in the Midwest. He puts the number of negotiated sales at 30% nationally.

Erwin says that although there are many hogs now sold on a predetermined fixed price, or on a corn and soybean meal matrix, the majority of hogs bought in the U.S. are still based, to some degree, on the quoted USDA price.

For example, a producer who agrees to deliver a semi-load of pigs every week for the weekly average of the USDA quoted Iowa-southern Minnesota plus $3/cwt. Or, a producer may sign an agreement to sell hogs on a contract price which splits the difference between $40/cwt. and the USDA quoted price.

But on a daily basis, Erwin figures only 30% of the hogs sold are sold on the spot market.

Erwin suggests tracking the number of negotiated sales can give the producer some idea of how many hogs a packer needs to buy as compared to how many he already has locked in.

John Lawrence, Iowa State ag economist, notes that while there is a concern about the shrinking percentage of negotiated sales, he still thinks the number of sales is large in total. "There is a sense there is no open market left. If we see 50,000 hogs priced in negotiated sales in a day, and assume on average they were 100 hog lots, that's still 500 separate sales," Lawrence explains.

The reporting of negotiated sales is just one of a number of changes the USDA is adding to its reports to try and better reflect actual prices.

Erwin points to the tremendous change recently seen in the hog industry's marketing structure as the reasons for the changes. Among the biggest he cites are:

* Negotiated sales have declined to less than a third of the total sales of hogs nationally.

* Over 85% of hogs are bought on a carcass basis, rather than live weight.

* Packers may have purchased hogs a week or more before they kill them.

* The industry has moved to a percent lean basis, with the average hog in the 51-52% lean, compared to 46-48% lean that was the standard used since 1978.

* Hogs are heavier, leaner, and have a higher dressing percentage, now in the 74-75% range.

10 Free Nutrition Tips

Whenever John Goihl and Dean Koehler think they've seen everything in feeding hogs, there's another day, another hog farm and another surprise.

The Shakopee, MN, nutritionists are partners in Agri-Nutrition Services Inc. They serve as nutrition consultants for hog producers in several Midwest and western states. Their top 10 feeding ideas that could make the biggest difference in profits on most hog farms are:

Customize Nutrition Programs. Koehler and Goihl formulate diets based on what is happening on a particular farm. Diets that work for the producer down the road may not be right for you, they say.

"We had a case where the hog producer had extra finishing space so he bought pigs of the same genetic source that he produces and there was day and night difference in how those pigs performed," Goihl adds. Diets must be tailored to include management, type of facilities, health status and genetics, he says.

"Another client has both modern confinement facilities and buildings that are more exposed to the elements," says Koehler. "We have formulated two different nutrition programs for that hog producer."

Using their Agri-Nutrition Service Grow-Finish model and Sow Lactation model, Koehler and Goihl draw on herd data from clients to help guide diet recommendations for a particular herd.

Farm-specific nutritional planning starts with gestating sows and follows through to producing the carcass that maximizes profitability.

Evaluate Feed Additives. There's nothing wrong with feed additives when they're needed. The problem Goihl and Koehler find is additives often don't get taken out when they're no longer adding value.

"Producers and nutritionists often assume that the diets on file, are what's being fed," says Koehler. "But we had a case where we checked a client's current file diets against those actual diets being fed and found about $8/ton of additional feed additives and antibiotics.

"Different things had been added at different times - extra minerals, vitamins and trace minerals, fiber and some antibiotics. But nothing was ever taken out. The owner was shocked that all those additives were still in there."

The situation often occurs when a consultant suggests trying an additive in the diet for 30 days, it may or may not solve the problem, but six months later somebody realizes that the additive is still being added.

Use Real Numbers. Production records are too often accepted as the gospel truth, says Koehler. Unfortunately, a lot of records have incorrect data because proper controls weren't used in the gathering process.

"We had a hog producer who routinely over-filled pens to start with and then would pull six or eight pigs out of each pen later on. That distorted daily gain, feed intake and conversion. If you formulate diets based on that, you're going to make mistakes that cost dollars," Goihl explains.

Accurate recordkeeping must be a priority. "You need a series of close-out records because they vary," says Koehler.

Nursery production costs are a classic example. A lot of people use a fixed cost per pound of gain as a benchmark. But if you start with a lighter weight pig, your cost is going to be higher. There will also be a big difference if pigs leave the nursery stage at 40 lb. vs. 60 lb. Even if the starting and ending weights are the same benchmarks are still subjective. Health, facilities and management play a major role in determining nursery feed costs.

Your weight parameters don't have to be the same as everybody else's. What's important is that you count the pigs right, measure the feed right and record the numbers accurately. Then, diets can be formulated to fit your system.

Think Profit Vs. Maximum Performance. Koehler says achieving maximum daily gain, feed efficiency and lean premium goals does not guarantee the most profitable outcome.

"For example, we can look at whether or not to use fat in finishing diets," he explains. "If we want to get maximum feed conversion, we are going to add fat. But if I look at fat cost vs. grain sources at the current time and consider the impact of that fat on the carcass, I might decide to not use fat in that diet."

Using a corn production analogy, he says you can keep fertilizing until you get tremendous yields but the added cost of fertilizer may exceed the value of added bushels long before you hit that maximum yield. It's the same with hogs except it's even more complicated when you factor in the effect of fat on the carcass and the economic impact of extra weight and backfat under different buying systems.

Increase Sow Production. "If you are going to get production throughout the whole sow herd, the key is to get sows fed correctly during lactation," Koehler stresses. "Producers go to great lengths to get sows that mobilize excess body stores in lactation back into condition during gestation. The futility of this strategy is proven by high breeding herd turnover rates. Sows that lose excess lean tissue simply will not last in your herd.

"You have already lost it as far as re-breeding if she is losing condition, especially body protein, during lactation," he adds. "You will likely have trouble with re-breeding and small subsequent litter size."

When replacement gilts are being raised under a fixed price contract, Goihl suggests some negotiation and cooperation is needed to ensure that the gilts are properly fed. This strategy will assist in ensuring optimum breeding herd performance.

In truth, if the person raising those gilts feeds them properly, it costs him more. But, proper feeding likely reduces his customer's culling rate and extends parities in production.

Gilt buyers need to calculate the benefits of having gilts stay in the herd longer. They may even find it's worth paying some of the extra cost for both feed and the sale of fewer gilts.

Avoid Waste In Starter Diets. Excessive nursery feed costs may result from over-feeding of the first few stages of the pig starter program. They eat good, look good, says Goihl, but it costs.

As pigs advance through the typical nursery diet phases, the cost of the diets decreases. Therefore, you want to get them to that last phase and lower cost as fast as you can. It's costly to continue feeding early diets any longer than necessary.

One of the problems is uniformity of pig size in the pens. It's not unusual to overfeed the big ones in order to provide for the smaller ones.

Another problem is simply the small amount of feed often needed for early phases, say 800 lb., but the mill sets a 1 ton minimum so that is what goes into the producer's feed budget. Some producers have even gone to bagged feed for these low volume, early phases, says Goihl. Look for solutions rather than overfeeding.

Maximize Uniformity. "There's a big benefit to having all pigs in a weaning group within a week of the same age so that they are uniform when they go into the growing and finishing stage," says Koehler. "If there's a two-week (or more) range in age, we need to phase less aggressively and avoid just aiming at an average of the nutritional needs. If you feed for the average, you will leave the smaller pigs behind and create a greater spread in market weights."

Fit Feeding Phases To Your Farm. Some operations use as many as 12 to 16 grow-finish diet phases. Goihl and Koehler take a more practical approach, suggesting producers match diet changes to what's realistic for their business.

"We recommend to most producers that they use four to six phases," says Goihl. "As you go from two feeding phases to four, the savings are pretty dramatic. Even up to six, the savings are significant. But economic calculationsshow that each additional phase beyond that might save you only a few pennies per pig. And that's the theoretical savings. All pigs within a group do not have identical nutrient needs. Overly aggressive phase feeding programs will not meet the needs of pigs with the highest requirements and may wipe out much or all of that savings."

When you get to 16 phases, for example, Koehler says that is close to being absurd. "We saw one program where the difference was 8 lb./ton of soybean meal between the final two diets," he explains. "The best feed mills we have out there have a plus or minus 5 lb./ton tolerance. Therefore, we can't even attain an 8-lb. difference with accuracy."

Take A Broad View. Problems come disguised in many ways. A problem may look like a nutrition problem when it might be caused by health, genetics, environment or management.

"We can usually recognize what genetic, health, environment and management problems look like," says Goihl. "But, as nutritionists, our job should stop at recognizing them and reporting them to the right specialist."

"It's best when all who are needed for a particular problem are there at the same time rather than communicating through the producer," says Koehler.

Think Business, Not Volume. Size of operation has no influence on who is susceptible to nutrition problems, say Koehler and Goihl. The mistakes may just carry bigger dollar signs.

"Some of the most sophisticated diet formulations are being used in 200- to 300-sow operations," says Goihl. "We have also seen some of the sloppiest efforts in very large operations."

In fact, rapid expansion can be an underlying cause of problems. "The big concern becomes whether the contractor is going to be there on time and if the finishing unit is going to be ready by the time pigs are ready to go in it," Koehler explains. "That's why some of the most basic things get overlooked."

Gene Berger developed an extensive spread sheet to put on his office wall. It shows the benefits of the $35,000-40,000/year he saves on protein costs.

"If anybody tried to get me to change my feeding program, I could show them what my nutritionist helped me do," he explains. "That kind of savings drops right to the profit line."

Berger operates a 300-sow, farrow-to-finish business at Norcross, MN.

"A feed company sold me on the idea that I could afford to feed more protein because it would eventually pay for itself," Berger explains. "I doubted that and as I was talking with several feed companies and nutritionists, John Goihl and Dean Koehler indicated that the amount of protein we were feeding seemed a bit high."

That "a bit high" was over $35,000 per year. Even spread over 300 sows, it was nearly $120 per sow - every year.

Did It Affect Performance? "We monitor both rate of gain and feed efficiency," says Berger. "We also get cutout information. We found no change. The extra protein wasn't doing anything for us."

You can relate that savings to a lot of things. It could be a pretty good standard of living for a family. Berger looks at it as a way he can afford to have somebody grind and mix the diets for him.

Long Term Sows It's harder for Don Herzog, a Rapelje, MT, producer to put a dollars and cents value on the nutrition help he received. He sells most of the production from his 300-sow operation as feeder pigs.

The biggest benefit he's seen since taking the nutritionists' advice is that his sows stay in the herd longer than sows in many other herds.

"When Goihl and Koehler looked at our diets, they felt our sows were borderline on lysine during lactation," he says. "They averaged 4 to 4.5 litters per sow." His nutritionists note that many herds are in the 2 to 2.5 litter parity range. "We could have dropped to that level pretty fast as we pushed our sows harder," Herzog adds.

He kept track of all feed fed during lactation and 21-day litter weights. Then the nutritionists put it all together in a sow model.

"The diets are formulated to meet the needs of the top one-third of the sows," Herzog explains. "That means that, on the lower end, we are probably over-feeding a little. But the nutritionists point out that if we don't feed those highly productive sows to their potential, they won't stay in the herd long.

"The key is that the diets are tailored to our herd," he adds. "All herds are different because of weather, facilities, management and feedstuffs. We use barley as the main energy source, for example."

Herzog says he's been told that, on a body weight basis, a top-producing sow will produce more pounds of milk than a high-producing dairy cow.

One definite benefit he has seen is that 21-day litter weights are a higher percentage of the sow's weight than they ever were before.

"If you're expecting that sow to wean a litter and breed back in five or six days, and repeat that cycle every five months, that's a lot of pressure," says Herzog. "There are probably a lot of sows that are under nourished. But it shows up in reduced performance one way or another."

When Opportunity Knocks

Disaster for some often spells opportunity for others. On one hand, producer Dave Hinman sees "maybe our biggest transfer of wealth from the hog industry ever." On the other, he sees opportunity for some producers to update and/or expand at "fire sale" prices.

Hinman owns an 800-sow, farrow-to-finish operation called Jen-Rae Pork Farm near St. Ansgar, IA. He expects to see some modern hog facilities, built within the last year or two, sell for 30 cents to 40 cents on the dollar in the next few months.

In mid-January, a consultant representing an equity-strong producer called Hinman, asking if he knew of any recently built facilities for sale.

"Their goal was to buy at 40-50% of cost to lower their existing, average facility cost," says Hinman. "If you can buy near-new facilities at 40 cents on the dollar, it can be a good investment."

Circle the word "can" in that statement. A bargain basement price for facilities doesn't guarantee success.

"Our budgets suggest building and equipment costs, for a building with the technology we want for modern hog production, will be $6-7/cwt., farrow-to-finish," says Chris Hurt, agricultural economist at Purdue University. "If you can buy those buildings at 40% of the replacement cost, that cost would drop to about $3-3.50/cwt. Don't discount the full 60% because some costs will not be affected by the low purchase price."

If you figure breakeven at $36/cwt. with current feed prices, Hurt explains dropping to $32.50-33/cwt. is a savings of about 8.3-9.7%. "That's very substantial," he adds. Plus, you have that savings for the life of the facilities.

Analyze what you're buying very carefully, urges Hurt. He offers a 9-point checklist.

1. Determine why the facility failed. "The assumption is going to be that the owner was over-leveraged," says Hurt. "But sometimes the facilities just don't work well."

Are there inherent things about the physical part of the facility that simply do not allow it to function well? What are the bottlenecks?

Maybe high nursery death losses resulted from poor design, for example. Dig deep to figure out if those things might have contributed to the financial difficulties, he says. Can the problem be corrected? If so, will correcting it be cost effective?

2. Analyze whether or not this facility fits with your present operation.

You may have a pretty strict system and the target facilities just won't fit in. Will it create inefficiencies in your system? Is it in a good location? Does the equipment match the production system? How good is the security? How does it mesh with the labor and management of your present operation?

"We will see some pretty big operations shut down simply because they don't fit in the modern hog production scheme of things," Hurt predicts.

3. Check for other liabilities that come with the operation. How much mortgage comes with it? Are there liens on facilities, feed or supplies?

Hurt suggests that you go to the courthouse to check for liens. Also talk to lenders and suppliers.

4. Find out if a "discouragement factor" set in before the operation failed. Sometimes, the owners and managers get so sick of it that they just walk away, he explains.

That often creates another set of liabilities. "You find a lot of things that haven't been done," says Hurt, admitting he has first-hand experience after closing down his hog operation in the early '80s.

"You'll find fans that haven't been serviced, pens that haven't been cleaned, repairs that have been neglected. There can be a lot of loose ends when that discouragement factor hits," he adds.

5. Look for other assets of the operation that can be beneficial. Contracts, for example. Maybe there's a management team, even family management, that can continue.

"Some of the neatest deals going are that a family finds somebody to buy the business before it collapses financially and the new owner wants the family to stay in that operation as managers," says Hurt.

"The family mindset has to be right so it doesn't interfere with their management abilities," he warns. "First, that family has to get to the point where they understand that they have lost everything. Then if they can look at the offer to stay on as an opportunity, it can be valuable to the new owner."

If you can pick up a decent marketing contract, that may add value too. But check your obligation. You don't want to be tied to a contract that's not beneficial.

6. Study all the records you can get your hands on. Go back much farther than the last disastrous year. Performance records are especially important. In times like this, people with excellent performance can still go broke.

"In fact, the ideal purchase could be a business that was excellent in production," says Hurt. "There may have been nothing wrong with the management. They just couldn't financially get through the period of low hog prices."

Paul Gogerty, an Iowa Farm Business Association consultant at Osage, IA, points out that once hog prices dropped below $20, his farrow-to-finish clients have lost about $1/head/week for every hog produced annually.

"For a 500-sow operation, finishing about 10,000 head per year, that eats up $10,000 of equity per week," he explains. "That started in November for a lot of producers and means an operation that size lost $50,000 by year end." Plus, of course, open market prices weren't profitable for some weeks before that.

"If the previous owners are willing to quickly provide you with production records, that's an indication in itself that they were probably doing pretty well," says Hurt. "If they really don't want to show you the records, be suspicious."

In either case, scrutinize those records closely. A business that has been doing well with production is obviously worth more than one that hasn't.

7. Don't assume it's a bargain, just because the price seems low.

"As a buyer, there's something in our psyche that wants to believe that just because it's 30% or 50% off, it's a bargain," warns Hurt. "Don't buy into that. There are some hog operations that, if you were given them for free, they still wouldn't be a bargain."

Don't get caught up with the idea that if it is cheaper than it would be to build new, it will work and, therefore, I want it. Try this as a reality check - drive around and look at closed restaurants, gas stations, hotels and motels. In many cases, there's a good chance something was bad from the start. Even the best manager couldn't have made them work. The same thing can be true with some hog facilities. They won't work at any price or any level of management.

Bring that investment into a projected cash flow and a profit and loss statement and then ask: Would this be a profitable business?

8. Are you determined to be in the hog industry for the long run?

Hurt tells about a long-term producer with an 800-sow operation who feels there won't be a place for an independent producer of that size in the hog industry in the near future. So, he's getting out of breeding and farrowing and centering his future around the finishing part of the business.

This producer may not be correct about the number of sows it takes, but he makes the point that the size of an operation is going to be big enough that it takes a long-term commitment if you're going to be a major player in the business from here on.

9. Catch the cycle at the right time - and this may be that right time.

"If you believe there will be a continuing hog cycle - and I do - the cycle timing could be very good for buying good, used facilities at bargain prices now," says Hurt. "If we believe the USDA Hogs and Pigs Report, we should be seeing very good profitability of hogs by the spring and summer of 2000."

Hurt is looking for hog prices to average in the low $40s during the last quarter of 1999. Over the last three cycles, we have averaged from the lowest price on the cycle to the highest price on the cycle in 19 months, he notes. Assuming December 1998 was our low, that puts us out to mid- to late summer of 2000 as the projected highest prices on the next cycle.

When will it happen? Nobody knows how many producers will be wiped out - or simply choose to quit. Hurt and Hinman agree, there will be some fallout.

"What we are talking about is right around the corner," Hinman predicts. "I think it will start in March and continue into the spring as borrowers and lenders sit down and realize they have lost more money in hogs than they ever thought they could. They're going to find that the 'mortgage lifters' have become 'mortgage makers' in the last three to six months."

Hinman also sees some of the networks and sow coops being hit.

"The producers involved agreed to buy the feeder pigs at $28-30 for an early weaned pig," he explains. "It worked good when market price was $50-60, but now, as the weakest link in that system of owners sees his equity getting used up and is unable to buy those pigs, we are starting to see some real meltdown in some of those systems."

As those pigs have to go on the open market at a $20 or so loss, Hinman sees some of those facilities going on the market at 30-40 cents on the dollar.

"Producers are having a hard time paying the feed bills and all the other bills," Hinman adds. "When they have exhausted their resources and their ambitions, some are going to say: 'That's enough!' Some will call their lender and say, 'The hog farm is yours, be ready to do the chores tomorrow morning.'

"The reality is that anybody connected with hog production ownership has been butchered up mentally," Hinman adds. "When we get in a negative attitude, it's hard to see any opportunities. But they are there."

You might be dealing with a friend or neighbor's hogs, buildings and business. That can make the usual negotiations emotionally painful and even embarrassing.

People will ask, "What's fair?" says Purdue economist, Chris Hurt.

"A fair price is what two, at least reasonably informed, individuals can negotiate," he says. "You might run through the various methods of valuing the assets and determine that you could afford to pay 80% of replacement cost for nearly new facilities.

"But the reality is that, in most cases, there are not a lot of buyers for those facilities. If there are no other buyers within a reasonable distance, you may not have to pay anywhere near what it might be worth to you.

Is that fair?

"I would argue that it is fair," says Hurt. "I might, however, advise that seller - or the bank if it has to take possession of it - to wait it out three months, if possible, to see if we do get a return to $40 hogs because that building could increase in value substantially if the outlook and people's attitudes improve."

The same is true with sows. A gestating sow might be worth only $50. But looking at summer and fall futures markets, the pigs inside her could make $10-20/cwt. profit. Those gestating pigs are more valuable than the sow.

If you're the buyer, you'd prefer the $50-sow price. But if advising the seller, you'd suggest he sell on the futures market, not on today's market price, says Hurt. Then you negotiate toward "what's fair."

Pork producer Dave Hinman, admits it's a mind struggle anytime you deal to gain from an associate's misfortune. But, it's not the time for the faint hearted, he adds.

"If it is a long-time friend or associate, it is going to be hard. But if the guy is crying Uncle, you just have to cut the emotion out of it and be hard nosed because it's going to happen anyway," he says. "It's better if he has two bidders rather than one - even better to have one rather than none."

For more information, Chris Hurt can be reached by e-mail at hurt@agecon.purdue.edu.

FDA Proposes New Limits On Animal Antibiotics

A government plan to impose strict new rules on the use of antibiotics in farm animals has been proposed by the Food and Drug Administration's (FDA) Center For Veterinary Medicine.

The FDA group charges the action is needed to combat growing fears by consumers that animal medications are creating drug-resistant germs that wind up in the meat people eat.

The creation of resistant foodborne bacteria has led FDA to develop a plan to curb that problem.

In turn, the Animal Health Institute (AHI) says FDA's push to increase its regulatory power over the use of antibiotics in farm animals is unwarranted and will not benefit human health.

"The framework document being proposed is unworkable, unsupported by the scientific evidence and based on too many faulty assumptions," says Brendan Fox, president, Elanco Animal Health.

Basically the FDA plan proposes:

*Companies seeking new animal antibiotic approvals must prove that their products are not expected to cause significant antibiotic resistance;

* The government would test today's level of antibiotic resistance and then set limits on how much resistance could increase before animal antibiotics implicated would be restricted; and

* FDA would rank animal drugs, giving those closely linked to vital human antibiotics extra scrutiny. In some cases, animal pharmaceutical companies that make the products in question might be forced to conduct on-farm animal tests to assure FDA of antibiotic safety.

Animal Industry's Plan For its part, the animal health industry has formulated a workable and comprehensive approach to address the antibiotic resistance issue.

"We support a comprehensive program that will encourage the research and development of new antimicrobial drugs, allow the continued use of antibiotics already in use on the farm and - most important of all - protect human health," says Alexander Mathews, AHI president and CEO.

Veterinarians On Call

The importance of high health has long been recognized in all facets of pork production. The ongoing challenge is to eliminate specific pathogens from a herd whenever possible. The best strategies center on early weaning and multi-site production.

Actinobacillus pleuropneumonia, pseudorabies virus (PRV), transmissible gastroenteritis (TGE), Pasteurella multocida (type D) and swine dysentery are just some of the diseases that have been eliminated using various clean-up methods.

But two bacteria, Streptococcus suis and Haemophilus parasuis have survived the most aggressive approaches. These bacteria have found a way to hide comfortably within healthy, carrier pigs and, when given the opportunity, emerge and cause significant losses.

Strep suis and Haemophilus parasuis are tw o of the most common and most frustrating diseases present in nursery pigs. They show up following a stressful event or in early weaning situations where natural exposure does not occur until they are away from the sow. Establishing immunity within a herd and a group of pigs is difficult but important for control.

Case Study No. 1 This 600-head nursery receives 10- to 12-lb. pigs every nine weeks.

The source farm recently had an acute outbreak of swine influenza virus (SIV). This producer received pigs at the start of the outbreak. The pigs looked healthy and normal at weaning, but the day following arrival a widespread cough affected virtually all of the pigs. Except for the occasional pig that needed treatment because it was thumping, the pigs' activity level and appetite remained good. Death loss was low and the pigs recovered within 7-10 days.

It was our clinical impression that this nursery had experienced an SIV outbreak consistent with what was seen at the source farm during shipping.

About four weeks later, we were called back to examine pigs that were developing an acute lameness. The producer noted he had treated five pigs the day before. He had sorted off 10-12 pigs with swollen and warm joints. Some showed only a small amount of lameness but others would not put weight on the affected leg.

We sacrificed a pig and submitted it to the laboratory. We recommended injectable ampicillin to the affected pigs and the addition of amoxicillin to the water for three days.

The laboratory isolated a Strep suis (type 2) from one of the infected joints. Antibiotic sensitivities indicated that amoxicillin and ampicillin were two of the antibiotics of choice. We were successful in reducing new infections, but only about 20% of the pigs responded well enough to be put back with the other pigs. When this nursery eventually closed out, this producer reported 4% death loss with about 3% of it due to the acute Strep infection that was affecting the joints.

Case Study No. 2 Our second farm case was a 300-sow, farrow-to-finish operation. We were called to investigate an increase in nursery death loss. Death loss over the last turn was 7%, but the death loss and sick pigs were continuing into the next group. Affected pigs became very tender and sore and their hair coat became very rough. The pigs were scattered throughout the room and did not appear to be from any particular pen or area of the nursery.

We took two pigs to the laboratory for a work-up. Immediately on the post-mortem exam, there was a large amount of fluid in all of the body cavities with an abundance of fibrin. This had the classic appearance of Glasser's disease, which is caused by Haemophilus parasuis. The laboratory confirmed it.

Glasser's disease is a systemic infection affecting the surface of the organs and intestines as well as causing arthritis and meningitis. The laboratory report indicated that the bacteria were sensitive to Excenel. Our recommendations were to treat at the first signs of infection with the once-a-day treatment for three days. We had success with this treatment as long as we caught the infection early.

For future farrowings, we recommended vaccination of the sows before farrowing with a Haemophilus parasuis vaccine. We also felt vaccination of piglets at day 7-10, and again at weaning, was helpful for nursery control.

Our long-term goal is to increase the sow herd immunity enough to eliminate piglet vaccination. If the nursery is managed all-in, all-out and there is good environmental management, this program will likely be successful.

Case Study No. 3 This case is a 600-sow, farrow-to-finish farm that weans off site at 10-12 days of age. Overall herd health is excellent. Death loss in the nursery runs 1-2%. However, occasionally there will be a group where death loss will jump to 5-7%. Post-mortems consistently reveal Strep suis isolation.

The death loss happens quickly with most pigs dying within three days. We didn't want to medicate every group,due to the difficulty in predicting which group would be affected, but we were frustrated with the high death loss.

At the first sign of a typical Strep-caused death, we medicated the water with amoxicillin for three days. We also injected every pig in the room with 1 cc. of penicillin. There would be high death loss the first day but dramatically decreased loss the following days. Though this program was not 100% effective, it did reduce death loss with minimum cost.

10 Management Opportunities/Survival Tips

Chances are you are already pretty good at treading water. The tidal wave of low hog prices hit the pork industry hard. U.S. pork producers are survivors though, and many optimists have discovered an opportunity or two in the wake of the crisis. National Hog Farmer has been talking to some of the people who have been paddling along with you during these trying times. Following is a collection of views on management opportunities and survival tips to help you keep your head above water.

1. Closely Analyze Production Costs: Do a cost:benefit analysis of major production costs.

Maybe it's time for a sit-down session with your major consultants to justify the cost of some of your production practices. What are the herd health consequences of turning down ventilation, for example, or eliminating "critical" vaccinations? Which performance losses might make the most difference if key production inputs are removed?

North Carolina consulting engineer Bynum Driggers says it always pays to maintain good ventilation. If you cut corners and place your pigs in a poor environment, they are not going to perform as well, and as a consequence, medication costs can increase. Sometimes saving pennies will cost you dollars. If it creates a health problem, you may end up treating the whole herd. "We've seen situations like this where ventilation was lacking or not as good as it could have been, and as a consequence, medication costs were higher than they should have been," says Driggers.

There is a tendency to cut back on minimum ventilation rates during the winter. Remember, these minimum rates are set to remove moisture, odors, gases and provide oxygen for both pigs and people. Driggers urges producers to resist this strategy. "If you look at the cost of energy on a per-animal basis, this is a very small percentage of the total cost of producing a pound of pork."

Also, any time you trap moisture inside a building, you risk long-term damage to the structure and the insulation in your barns.

Of course, to improve ventilation efficiency, make sure fan blades and shutters are clean and operating correctly. Poorly maintained fans and inlets increase pressure, increasing the power requirements and the cost of ventilation. Review extension service bulletin checklists on steps to take in managing ventilation systems.

Management for Zack McCullen III, vice president of the swine division, Prestage Farms, Clinton, NC, means focusing on big-ticket items that can make a real difference.

"We are concentrating on farrowing rate and livability in the farrowing house," he notes. "We are constantly looking at feeding programs to make sure we are not over-feeding or under-feeding. It's really basic stuff and about all you can do. You can only cut so much before it starts to hurt."

Prestage is also closely evaluating employees to make sure they are making the most efficient use of their time.

Overall, you've got to get your costs down into the mid-$30s if you are going to survive long-term in this industry, says McCullen. He says Prestage Farms is working hard to get "everything clicking" to reach that cost level. Currently, their cost of production is about 38 cents/cwt.

To cut costs, Fred Cunningham, DVM, co-owner of a 4,200-sow, farrow-to-finish operation near Moyock, NC, increased weaning age from 14 to 18 days. It eliminated the first pelleted diet fed in the nursery, saving about 50-75 cents/pig.

"We haven't lost anything on the health side, but that's partly because we have a pretty stable health status," Cunningham says of the three-site production system.

And there has been a tremendous advantage on the quality side to the change in weaning age, he claims. The weaning weights are averaging about 11 lb. And, at the bottom-end, pigs weigh about 9 lb. instead of 7 lb. At the top end, they are weaning 16-lb. pigs.

"Research shows that the more you crossfoster pigs, the more uniform the pigs will be. But you also lower the entire average," says Cunningham. That is why he quit crossfostering at 24 hours after birth of a litter. The pigs stay healthier and it helps deal with any labor shortage, he says.

On health programs, he regards the hog price crisis as a golden opportunity for producers to seriously evaluate their medication programs. Have a diagnostic workup done. Find out what serious health problems you have so you can focus your herd health program. Re-examine this program every six months to make sure you're not treating something you don't have.

According to Tim Loula, DVM, and the veterinary group at the Swine Veterinary Center at St. Peter, MN, producers need to sit down with their veterinarian and review vaccinations and medications (feed grade and routine). Steps that many of the client farms have taken include:

* Cut prefarrowing shots like E. coli on low-risk (higher parity) sows. Emphasize feedback programs;

* Drop pseudorabies virus (PRV) vaccinations on higher parity sows in low-risk areas;

* If your herd is PRV positive, consider enrolling in the federal, accelerated eradication program;

* Challenge the decision to use any routine piglet vaccination and treatments;

* Review the use of high-cost vs. low-cost antibiotics;

* Check your on-farm inventory of drugs and supplies before reordering;

* Review biosecurity measures to ensure no new diseases are introduced. Don't cheat on isolation/acclimation.

2. Look Toward The Future: Consider out-month futures contracts.

Dennis Michael, Yankton, SD, sums up the attitude pork industry survivors must adopt, "You keep reading about cutting costs, but I think most of the guys who are in it for the long run are already doing everything they can on the production side to contain costs. We've done genetics, we've done feed cost. What we're looking at now is improving our marketing, and getting better at that."

The South Dakota Pork Producers and South Dakota Corn Growers are sponsoring marketing meetings to help producers, offering different meetings for different levels of marketing knowledge. They're also trying to set up some marketing clubs.

In a related effort, Michael is on the board of the North Central Pork Marketing Co-op, a group trying to develop a 1,000-head per day hog plant.

"We lost a packing plant in Huron, SD, last year and we're dependent on Smithfield-owned John Morrell in Sioux Falls and Sioux City. These aren't the most modern plants to begin with and the rumor now is that Smithfield has been buying a lot of sows over the last few months, so who knows how much chain space they'll have available in the future," says Michael.

"I think the producer has to analyze his own situation and look at buying at least catastrophic insurance so he doesn't go through again what he went through this last year," says Darrell Axtell, Securities Corp. of Iowa, Cedar Rapids.

He thinks buying "put options" on rallies, at a level to protect cost of production or as much of it as possible, is probably the easiest way to do this. If the producer wants to lower the cost of that insurance, Axtell says to consider selling "call options."

"Make sure that call you sell is something you can live with. This market is extremely volatile and you want to sell that call at a high enough price that you will be comfortable with," says Axtell.

John Lawrence, Iowa State University extension economist, advises producers to be especially wary of fourth quarter (1999) marketings. Lawrence feels the summer months could take care of themselves, but that the sow and gilt slaughter data indicate liquidation plans may have moderated since the startling recovery of prices in January. If that's the case, he thinks the December futures may be the contract month to look for hedging opportunities.

Kent Feeds has initiated a program offering to pay the brokerage costs for farmers interested in using an options strategy to protect feed or livestock prices. The program is open to producers moving more than 200 pigs in a group. Another benefit beside the paid brokerage fee is that Kent will not require a full contract group if you're marketing an odd lot over 200. Kent will pick up and try to match the odd lots.

3. Consider Advance Buying Feed Needs: Which crop and feed grain signals should you pay attention to?

Most analysts remain quite bearish on the outlook for corn and soybeans, advising producers to take a hand-to-mouth approach in buying corn and soybean meal. (A strategy that many producers can appreciate in times of tight cash flow.)

The La Ni---a weather pattern is the wild card. Darrell Axtell says a feed buyer may want to look at buying out-of-the money call options to provide protection from weather related rallies.

Mark Legan, Coatesville, IN, locked in 48% soybean meal for $144/ton last fall. He said the upside risk from that price level was much more important than gains on the downside. Axtell says producers have to be careful to lock in good prices when available, rather than swinging for the fences all the time. "You can pass up a lot of dollars, chasing that last nickel," says Axtell.

Brian Buhr, University of Minnesota agricultural economist, says cost of production is the No. 1 area producers need to focus on when using the futures market.

"Start by figuring out an acceptable profit margin," Buhr advises. "Then, when you look at futures prices, you can figure out what they actually mean to your bottom line. It's easier to recognize opportunities. Try to lock in a certain percentage over cost of production on a particular margin."

Buhr says if it seems the market is in a downward trend on feed grains, for example, but offers some profit opportunities, protect 5-10% of production. "Set a benchmark," he suggests. "For every $5-10 change in soybean meal prices, for example, you lock in another 5%. It becomes a built-in strategy so you are not trying to pick the low or the high. You are moving along with the market."

Buhr also evaluates the market's historical lows. "When I say historical lows, I am referring to prices for the last 15 years, relevant history," he says. "I look at price distributions before setting strategies." He says, looking at hog price distributions, $59 was the all-time high price.

He also looks at seasonal distributions. "In December, hogs averaged around $38. The all-time high (in December) was around $48. However, things can happen that can change history. Until this last year, for example, the low end of the distribution had been around $24 for hogs." Even taking the exceptions into account, using historical price distributions can still help producers make more informed, objective decisions.

4. Re-negotiate Genetic Supplier Contracts: Barter where you can in the areas of gilt replacements, semen sources, quantity discounts, delivery dates, delivery weights, etc.

The effort of Cotswold USA (which waived all current contracts with commercial customers and slashed prices of its genetics) is helping its customers get through these hard times by reducing their costs, explains Todd See, extension swine specialist, North Carolina State University. (See News Update, National Hog Farmer, Jan. 15, 1999, page 8.)

Producers should ask their genetic suppliers to consider adjusting the price structure for gilt replacements and semen supplies. Work for better rates, don't sell your operation short, says See. Keep using high-quality gilt replacements, boars and semen to maintain genetic progress and parity distribution. Avoid cutting back on gilt orders if you can't re-negotiate. Don't keep sows too long because you will end up with production shortfalls. Reduce culling rates from 40-50% to an average of 30%.

If you ordered breeding-age replacement gilts, don't accept them weighing 150 lb. and have to feed them out. Chances are, the price will be the same for both groups. "Be more particular about the quality and the stipulations in your contracts and agreements on what you are buying," suggests See.

If your supplier insists he only has lightweight breeding stock to sell to you, that definitely is a good time to re-negotiate your contract.

"Your supplier should be willing to accommodate you. Some may be willing to defer payments, but some just can't afford to," he explains.

As for boar semen, there is quite a wide range in product prices, so shop around. You might be able to save some money by going to a different grade or level of semen, or using pooled semen, while still maintaining genetic quality. You might also talk your supplier into negotiating a long-term contract and scheduling plan that can cut costs. Savings of several dollars per dose may be possible.

There can be some cost savings to producing your own replacement gilts, provided you use some sort of rotational breeding program. Don't just pull market gilts out of finishing.

Keeping your own gilts back can be a good idea short-term, says veterinarian Loula. To keep breeding costs down, the vet group also advises delaying boar purchases and buying semen in the interim, maximizing use of existing herd boars (6-7 services/week for all natural service boars), and consider delaying first service to reduce the number of inseminations.

It might also be beneficial to breeding efficiency to lower sow death loss, consider internal multiplication or join a user group for bringing in genetics.

5. Refine Sow Culling Strategies: Check non-productive sow days (NPD), average parity, feeding programs, crate-use efficiencies, etc. Compare maintenance/development costs and productivity levels for sows vs. gilts.

Don't cut corners when it comes to maintaining your breeding program, points out See. Evaluate carefully to see which ones are performing and paying off. "It is time for the sows with a lot of open, non-productive days to be removed from the system," he declares. Really check records to find out if we are feeding a lot of extra sows and/or boars that aren't producing pigs. "Let's take time out and really evaluate our records in the breeding herd and remove non-productive breeding animals," he stresses.

If producers do a good job of removing sows that aren't breeding back, heat and pregnancy detection and pig flow can be managed, and facilities filled optimally. Producers should be able to save by not having to over-breed and over-fill facilities, says See. "Plan ahead for that seasonal dip instead of over-reacting to it and over-breeding after the fact," he adds.

Large operations are quickly cutting dead-wood sow numbers. Veterinarian Cunningham says his staff focused on the inefficient units in the operation and ended up culling 800 sows that weren't cycling or ready to breed on time.

Carroll Foods of Warsaw, NC, cut about 10,000 sows from its system and plans to trim more in the first quarter of this year.

Murphy Family Farms plans to cancel contracts with about a dozen of its sow farms by mid-February, blaming the move on low hog prices and an oversupply of market-ready hogs.

6. Re-negotiate your front-end contracts/pig supplies.

Mark Legan, Coatesville, IN, willingly re-negotiated some of his Isowean contracts as the bottom fell out of the market. Legan, who entered the contracts after expanding his sow herd from 250 to 700, says the new contracts they worked out take more notice of the price for market hogs. Legan says they have lowered the floor from the original $30-35/weaned pig range. But in exchange, the ceiling on the early weaned pig price has also been raised.

Don Johnson, Farm Business Information Systems, Lake Crystal, MN, says he is seeing some people in the sow co-ops looking at refinancing debt on the sow unit, stretching repayment schedules in an attempt to lower the feeder pig costs coming out of the unit.

7. Maintain Good Lender Relations: Negotiate/communicate with lenders.

Mark Legan, Coatesville, IN, producer who runs about 700 sows, says that some of the producers in his area are looking at moving some of their short-term debt on the livestock side onto a longer term base on the crop side. Tom Ricke, Norwest Ag Credit, Des Moines, IA, says they have worked through some similar restructuring of debt in their office.

"We're looking for guys who are proactive, who have a marketing plan, who want to be survivors," says Ricke. He tells of one client who decided to forward price hogs with a packer for all of 1999, locking in a price near $35.

8. Review Relationships With Feed Suppliers: Seek quantity discounts, evaluate possible cost-saving solutions.

Palmer Holden, Iowa State University extension swine specialist, says many feed companies recognize the importance of keeping their customers in business. He heard about some major feed companies cutting prices by as much as 10%.

Some feed companies may be willing to step in and help finance a customer through these tough times. "We've seen some producers turning to their feed supplier, putting their feed account on a payment schedule, with a plan to pay it off over 3-5 years," explains Don Johnson, Farm Business Information Systems, Lake Crystal, MN.

"What they're doing is capturing current debt and moving it out to intermediate or long-term debt. It improves their working capital situation, which is what so many of the bankers are focusing on," he adds. With sows valued at $100 each, weaned pigs at $10 apiece and finishing pigs at $40 each, Johnson says keeping that working capital number up where the lender wants to see it is a formidable task.

Holden offers emergency recommendations to producers to help save some money in the short term. He says reduced-cost diets may allow producers to use more home-raised corn, thus minimizing the cash flow required to purchase feed ingredients.

Holden says producers could skip the vitamins and trace minerals in diets for pigs that weigh at least 120 lb. and heavier. "If pigs weigh 180 lb. or more, producers could skip the soybean meal, too; however, they still need to provide calcium, phosphorus and salt."

If producers use synthetic lysine along with home-raised corn to replace some soybean meal, cash flow could also be helped.

Holden cautions that the pigs on the deficient diets are going to take longer to get to market, but that may be a positive point too. "The odds are, if it takes a week or more longer than usual to get to market, it may help the producer gain a higher price," he speculates.

While feeding deficient diets won't decrease the cost of production (because of the inefficiencies that go along with the practice), the increased income from a higher market price could more than make up the difference.

"This is a plan for an emergency situation only," Holden stresses. "This is just a suggestion that could help keep producers solvent through the worst months."

But, don't use these temporary, deficient rations on replacement animals destined for the breeding herd, he warns.

If pig flow is such that marketing can't be delayed for a week to 10 days, Holden says producers might consider marketing pigs at a lighter weight.

"Your feed efficiency is going to be better," he says. "You still need to be able to meet the minimum weight required by your packer though. You can't afford to take a weight discount in addition to the low prices."

9. Review Labor Needs: Do you need all of your full-time employees?

There used to be 50 employees at the hog operation Cunningham co-owns. Since times turned tough, staff has been trimmed by about 10. "Folks who were willing to quit or who threatened to quit, we basically accepted their resignations," he explains.

How is the job getting done on this 4,200-sow, farrow-to-finish operation? "I think the main thing is we have rearranged some pig flow and people have sort of doubled up on some duties," says Cunningham. The downside is that building maintenance and sanitation are done only as needed, but the pigs are being well taken care of.

10. Consider Other Income Streams: Is niche marketing a possibility? Are you using your management talents efficiently?

Like many pork producers today, Jay Foushee of Roxboro, NC, is frustrated by low live hog prices and high retail prices. Couple that with low prices for his tobacco, corn, soybean and wheat, and the 100-sow, feeder pig producer is quite concerned about his survival in agriculture.

Foushee's wife, Kim, has had a fulltime, off-farm job for 10 years at North Carolina State University, and that has helped support the family.

But he is seriously looking into building a small, on-farm slaughter-processing-old country store business. His goal is to offer a quality product to local grills and restaurants and complement that with a mail-order business. Plans are to handle 10-15 hogs/day a few days a week to start.

"We are going to have to find ways to diversify more," says Foushee. "If I have to just count on raising hogs, I will be hurting," he admits.