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Articles from 1999 In May

Test Offers Heritability Estimates On New Traits

Swine genetics research is about to take a step into the 21st Century. Traditional measurements of the economically important traits have been redefined in recent years. Traits such as individual feed efficiency and lean growth efficiency have gained prominence as data from the National Genetic Evaluation Program and the Quality Lean Growth Modeling Project have added to the industry knowledge base.

Mounting research has provided efficiency improvements in pig health, facility designs, building design and nutrition programs. Until recently, genetic progress has relied on indirect measurements (backfat, daily gain) on groups of pigs. This indirect method doesn't consider meat quality. The method also reduces rate of genetic progress when sire tests are used and reduces selection accuracy when group measures are assigned to each pig. Heritability estimates for daily feed intake have been based on individually fed pigs but the social interaction of pen groups has made those estimates less useful. Experimental equipment to record individual pig daily feed intake in group pen situations makes direct measurement possible today.

Therefore, as individual feed efficiency and lean growth efficiency are defined and better understood, the desire to determine the heritability levels of these new traits gains urgency. Much as the heritabilities for backfat, loineye area, growth rate and maternal traits were established over the years, researchers are now turning to estimate genetic parameters (heritabilities and genetic correlations) for the new traits - lean growth, carcass composition, fresh loin quality, and loin eating quality.

With this goal in mind, a unique research project has been funded by the National Pork Board in conjunction with the National Pork Producers Council (NPPC) and National Swine Registry to take swine genetics research to the next level. The Genetics of Quality Lean Efficiency Project is designed to help seedstock producers discover more about the animals they are raising and how to most economically make selection decisions to produce more efficient breeding stock in the future.

"These new parameters are tools for scientifically based breeders to use in building better seedstock for commercial producers," states Rodney Goodwin, director of research programs at NPPC.

In the test, a sample half of the carcasses will be separated into lean, fat and bone. Quality and weight measures will be taken on primal and subprimal cuts during carcass separation to increase knowledge of valuing pork carcasses. Genetic parameters of muscle weights will be estimated.

Finally, this project will provide an opportunity to gather genetic material to establish a DNA molecular library linked to measures of economic importance, an investment which could prove invaluable in the future. Many genetic markers are discovered each year but usually only a general idea of their effect is known. Pigs tested in this project will have many measurements of economically important traits.

Testing Protocol The test will involve 1,200 animals, divided between the Duroc and Yorkshire breeds and it will cover two seasons.

In all recent, large-scale genetic evaluations, the Duroc-sired pigs recorded large appetites and grew significantly faster than other genetic breeds or lines. Therefore, Durocs became the logical candidate to research feed intake and growth. The Yorkshire breed, used worldwide, provides a contrast, since they are considered medium-appetite pigs. Both of these breeds have a relatively large genetic pool, enabling the use of many sires in the one-year test period.

Pigs will be delivered to a segregated early weaning (SEW) site at 9 to 20 days of age, thus reducing many health concerns and pretest management differences. Pigs will be identified by electronic eartag and penned in groups of 15. Pens have partially slotted floors. Pigs will begin the test at about 80 lb.

The Feed Intake Recording Equipment (FIRE) system at the Minnesota Swine Testing Station near New Ulm, MN, will be used to record individual feed intakes and allow individual feed and lean efficiency parameters to be calculated. As each pig enters the FIRE feeder, the amount of feed consumed is recorded on a computer.

Test pigs will be entered in sire progeny groups that consist of at least three litters with a maximum of one barrow and one gilt per litter. Participating herds may divide sire progeny groups across testing seasons. There is no restriction on genetic relationships among sires. About 100 sires of each breed could be represented, giving good estimates of genetic parameters for use by all industry breeders. If genetic parameters differ greatly between breeds, the seedstock industry will be alerted to how much additional research funding may be needed to get specific breed/line estimates to make optimum genetic progress.

There will be two testing seasons with two SEW entry dates per season. The first test will start in July 1999. The second testing period will start in early January 2000. Data analysis should provide the industry with results in early 2001.

DNA Reference Points Ancestral documentation and blood samples from all sires and dams will be collected for all test pigs and stored for future DNA analysis. The test pigs will be tested for the halothane (HAL) gene, plus blood and tissue DNA samples will be stored for future research.

Total investment in the project will approach $500,000 with the carcass separation accounting for a major share of the cost. Most of the funding will be provided by checkoff monies allocated by the National Pork Board. Additional funding will be provided by the National Swine Registry.

Co-ops Feel Backlash

The sparks are flying in Alan Hoefling's farrowing barn. Between groups of farrowing sows, Hoefling is making repairs on some crate supports. Alone in his barn, with the mask down and the welder glowing, Hoefling has plenty of time to think about the sparks that were flying at his local cooperative the previous night.

The previous night, the Marcus, IA, producer introduced a petition at a local update meeting of the First Cooperative Association. The petition asked that the cooperative set up policies prohibiting it from being involved in production agriculture.

Working with Land O'Lakes Inc., First Cooperative ended up contract feeding 24,000 hogs last year, losing about $700,000 through January.

"I think the co-op has gone beyond their original mission to supply low-cost inputs and add value to our products through marketing," says Hoefling.

"Right now it's only contracting hogs, but where's the next step? Contracting farmers to milk co-op owned cows? Renting land so they can get enough high-oil corn for their feed mill?" asks Hoefling.

The hog market debacle has brought the anti-co-op sentiments bubbling to the surface. At the Iowa Pork Producers Association annual meeting in January, delegates passed a resolution supporting legislation that would allow co-op members to withdraw their capital from a co-op that engages in, or invests in, production of hogs. In a move to strike out at Farmland Industries Inc., the resolution also included an amendment to repeal the exemption given to co-ops from the Iowa law that prohibits packers from feeding hogs.

A similar resolution was passed during the Four-State Farm Price Crisis Forum, a meeting organized to try and coordinate legislative efforts in Minnesota, South Dakota, Iowa and Nebraska. The anger with co-ops among some producers throughout Iowa and Minnesota is so strong that one regional co-op feed salesman says he considers removing his jacket bearing the co-op's logo before entering some rural cafes.

The Iowa resolution that passed was similar to one first introduced in 1995, explains Linus Solberg, president of the Palo Alto County Pork Producers. "It was defeated by an 80 - 20 margin," he says. "This year it probably passed by 80-20, if not 90-10."

Solberg is in the heart of Farmland-backed hog expansion. He's been fighting the trends of large, integrated farms throughout the last decade.

"We can't compete against a co-op that has a favorable tax status, access to Bank of Cooperatives' government guaranteed money, plus my equity," says Solberg. "They say that their members are demanding it. There may be some (that are), but there's also all kinds of members demanding they get out."

It's a tough situation for the local cooperatives and the two regional co-ops, says Larry Kallem, director of the Iowa Institute for Cooperatives. He points out the overlying dilemma. There are farmers in the local co-op trade areas who want to contract finish hogs. And, there are plenty of integrators (Cargill, Murphy Family Farms, Iowa Select) looking for contract growers. Co-op managers have to ask, "If the farmer contracts with someone besides the local co-op, will the feed business stay local?"

There are also farmers looking for single-source feeder pigs in large groups. Plenty of competing feed companies are willing to supply those groups and, again, the feed.

And, there is a need for the local co-op elevator to try and add value to member grain farmers' corn. Hog production is the most proven value-added market for corn in that area.

Member Driven Needs Farmland and Land O'Lakes both say they only responded to these member-driven needs in setting up their pork producing networks, noting that even now the demand for single-source, high-health, quality feeder pigs in large groups from producers and member co-ops far outstrips their supply. And, they explain, this shortage exists despite Farmland's interest in close to 50,000 sows through a network of contracted production with individual producers and Alliance Farms. Alliance Farms is a separate cooperative Farmland and producer investors formed to produce feeder pigs.

"We are looking for ways to help the farm families who are members of Farmland to continue to participate and compete in this industry," states Wayne Snyder, Farmland vice president of pork production. "Recognize, though, that their needs are pretty varied. A program that fits very nicely for one group or one segment of our membership may not fit for another. The alternatives that our production sector has to their co-ops gives an answer to those who might disagree with some of those programs we have built.

"When an individual says, 'I feel my co-op, by its behavior, is not serving my interest,' he is also saying 'my co-op has chosen to serve another of my members in a way I would choose they not do.' It's not an environment for pleasant decisions to be made but the commitment to the well-being of our members has never changed," he asserts.

Snyder says Farmland stopped expansion last July and has merely stayed with its existing commitments. "No new commitments were allowed after July to deal with this over capacity issue," says Snyder.

Land O'Lakes has interests in over 70,000 sows and new construction will put that total at 90,000 by the end of the year. Land O'Lakes owns the sow and nursery farms and then sells feeder pigs to producer members through local cooperatives. The Aligned System was put on pause last August, according to Terry Nagel, Land O'Lakes corporate communications director. "We're completing the projects we had underway, fulfilling the requests and demands from existing members for feeder pigs," says Nagel.

The Aligned System has nine units complete and operating with seven more in various stages of development, according to Nagel. Units are generally 2,600 sows but some are larger.

Losses in the pork production division at Land O'Lakes for 1998 were in excess of $26 million, and they anticipate similar losses again in '99, says Nagel.

In the midst of this controversy, Land O'Lakes President and CEO Jack Gherty recently reaffirmed the co-ops commitment to building a producer-owned alternative to large-scale integrators. At Land O'Lakes' annual meeting, Gherty asserted that the Aligned System is vital to the future of family farm hog operations and the feed assets and business of its local cooperative members. He maintains that over the long term, Land O'Lakes will leverage system volume in hogs into marketing alliances that will enable them to add further value to member production.

Nagel acknowledges concern from producers who say, "We really don't like what you're doing in the business. We think what you're doing is inappropriate and we're not going to do business with you as a result of this." But he classifies the number of producers with that view as a handful and says, in terms of dollars or real impact, "they're truly negligible."

No Consensus Built One of the most vocal critic of the role Land O'Lakes, Farmland and local co-ops have assumed in the pork industry has arguably been David Kruse, Spencer, IA. Kruse has become something of a lightning rod in the upper Midwest for the highly charged backlash against co-ops involved in hog production. Kruse, a commodity trading adviser, is president of CommStock Investments, a commodity brokerage business. His newsletter, the CommStock Report and exposure on radio, DTN and the Internet, serve as a platform for him to hear producer comments and voice his views.

In February, Kruse recounts, he took a trip from his farm to the Land O'Lakes swine division office in Fort Dodge, IA. The trip brought back memories for Kruse and the three independent producers and members of the Everly, IA, co-op he traveled with.

"The last time we were at Land O'Lakes Fort Dodge facility was 20 years or so ago to learn about co-ops at their young farmer meetings when we were starting in the hog business," says Kruse.

But this trip was to meet with Land O'Lakes officials, to air their views on the co-op's swine production involvement.

For his part, Kruse thinks Land O'Lakes made a grave mistake by not building a consensus among its broad membership before entering the production side of agriculture. "If they had tried to do so, this hog operation would not exist. Members would have told them to get out of production agriculture and get into packing or processing. They undersell the LOL brand, this whole move towards vertical integration is being built on brand names and Land O'Lakes has a foot in the door."

Land O' Lakes officials maintain that market research indicates the brand name would not transfer well into the meat case.

Poor Litter Size Still The Bugbear

I just returned from a trip to the Far East, where they are having awful problems with low litter size. They've purchased genetically improved females with a potential for 12-14 pigs, yet struggle to get eight. Of course, heat and appetite are their primary stumbling blocks, but after a subsequent tour here in the U.S., I found several farms struggling to breast 10. And in winter, too.

Because the management factors influencing litter size are so many (about 50) and are diverse and interlinked, I carry a checklist on to the farm. Basically, it boils down to five primary areas which you must check out if you are to get things better quickly.

Checking The Records What is the extent of the problem? The records can reveal poor management, stockmanship, maybe even disease, as well as spotlighting individual weaknesses all of which need to be confirmed (or not) by your eyes when the premises are toured.

Let the dog see the rabbit. Allow the adviser or vet uninterrupted time to read the records, before you, in your enthusiasm or anxiety, whisk him off to see the pigs.

What Affects Ovulation Here are the main errors: poor or no gilt flushing; too short acclimation; growing gilts too fast between entry and service; and mating too soon. Modern gilts look mature but often they have an immature sexual make-up. You've got to allow her hormones to catch up with her physical attributes.

Adequate lighting - as bright as your strip-lit kitchen for 16-18 hours/day - is important. Adequate variation of "parade" boars. Does the gilt "feel good?"

Check Fertilization Here are the main errors. Stress, not stimulation. Weaning too soon without following precautions; with your 16-18 day weaning you must be alert to what they are.

Among those precautions: have very "female" females; never let them nose-dive in lactation; check that the lighting pattern is correct; stimulate, don't stress, a sow after weaning; special lactation diet for first litter sow; don't be too keen to drop the daily intake too far between weaning and service; feed all lactating sows wet; recognize that the estrus will be one and a half days later, weaker and one day shorter.

Don't over use favorite boars. No AI back-up. Poor AI technique. Dirty, uncleaned rear ends; failure to sanitize boar's sheath. And, so often found, poor timing among the less experienced breeding herd managers, often because of too much to do.

Breeding is about spending time with the animals, not chasing your tail on repairs.

Poor Implantation The vital area is rest and quiet. Gosh, you Americans are so adrift on this one. You have those great gestation barns but right in the middle, among all the noise of feeding and movement, is your breeding section. Where, among other things, the pheromones are blown to kingdom come by your (excellent) ventilation. And, that's where your recently served sows remain.

Look - her hormone system has been subjected to the switchback stress of farrowing after a restful gestation, the excitement of suckling (and the bodily demands thereof), the mental trauma of the disappeared litter, the hormonal switchback into rebreeding mode then the excitement of sex.

Goodness gracious, all the old girl wants after all this is peace and quiet! Then she'll implant strongly, evenly and well. Stress her and she'll rebel reproductively and I don't blame her.

I'm sure the breeding section needs to be away from the gestation area. We are finding with our enforced group housing of sows here in England - with all its drawbacks - that it does encourage us to put those newly bred sows into a "rest house" area away from the brothel atmosphere to recuperate for a while.

Think about it, American building designers. You can go too far in cutting costs and labor-convenience; and you have, in my mind. You need to design part of your buildings for the 20-28days of implantation, so discuss this with your excellent pig vets. A good, sound-proofed division with separate ventilation will do, I guess.

Less Losses, Vigorous Pigs Attend farrowings; using prostaglandins properly and as an adjunct, oxytocin, this latter with veterinary guidance/training. Adequate food through pregnancy with an eye (and finger) on condition. So condition score as routine. It costs nothing. A gradual, gentle diet increase is better, I find, than a sudden boost of food energy pre-farrowing.

Keep things cleaner around farrowing. Water lactating sows in generous 2-gal. bowls, not those silly little bite-drinkers often set at an impossible angle. The sow hurts after parturition so she doesn't want the discomfort of too much getting up and down. She needs to suck in water like an elephant after eating, then subside gratefully.

Listen to them sigh in satisfaction when you "bowl" them. Effect is to drink more, eat more, milk more, rear more. There is a wonderful minimum-spill, self-filling/regulating trough on the European market. Gosh, what a difference! Very popular here in Europe.

Lender Offers Tough Words

Lee Fuchs, AgriBank's (FCB) senior lending officer, has a few tough words for some pork producers who want to be part of the industry's future.

If you are a pork producer, you definitely need to have your act together. "You can't lose money very long in this business and (expect to) stay in business.

"That's what's happening to most producers nearly across the board. The losses in the pork industry are very significant and very real. The profit margins in pork production are declining, which is a long-term trend that is being accelerated by these low prices," remarks Fuchs.

Most modern producers tend to be cost competitive. "But if you don't know your costs, or your costs are not in line with industry norms, you will not be part of the industry of tomorrow," asserts Fuchs.

In most industries, if you don't meet those criteria, you will be eliminated, says Fuchs. "Bank regulators wouldn't let a bank stay in business very long if it couldn't report its costs," he notes.

Fuchs went on to say that the Farm Credit system will not loan money to producers who don't know their cost of production.

To secure their place as a future member of the pork industry, producers must know their costs, have their costs in line and produce a quality product for the packer.

In most industries, it is important to know your customer well. For the pork industry, that customer is the packer. "If you are consistently producing the carcass quality characteristics in your hogs that the packer needs, then you will more likely be part of the industry of tomorrow," stresses Fuchs.

Don't Bank On Big Exodus If producers think they can just wait until the "big boys" go broke and then supplies will drop and the problem of oversupply of hogs will be solved - think again, says Fuchs. If some do go out of the business, there will be others to take their place. The bottom line is - that scenario will not produce a reduction in the hog supply.

It's already started to happen in southern Minnesota on a smaller scale, says Don Farm Jr., vice president of commercial lending, AgStar Farm Credit, Mankato, MN. "We've had four or five producers who have been in a position to buy up some operations. These are operations that we at AgStar don't finance ourselves, in the 2,500- to 3,000-sow range. Most of these-sized units are staying in business, just under different ownership," explains Farm.

Overall, as margins have tightened, banks have been very lenient, have stayed with producers and are not fixing the problem of oversupply, says Fuchs.

"So producers need to make their own decisions and, in some cases, get out before they lose everything." By waiting, some producers will lose everything and simply be forced out of business by their banks at a later date, he says.

There's no doubt that some pork producers lost more equity in the last 12 months than they made on hogs in the past 10 years, affirms Fuchs. A key is not to let your operation get below an 50% equity rating, because it is too hard to get back and severely dilutes ability to obtain a loan.

Saving The Farm Producer Brian Ruebush, 33, had lived his whole life in Blandinsville, IL, and didn't want to see the equity in his farm washed away by low prices.

In his case, he managed a gilt nucleus multiplier herd for Premiere Swine Breeders for a decade. He says it was an excellent setup, selling replacements to commercial customers.

But last fall, the bottom fell out. "I was doing all right until about last October. I had been selling gilts to four other herds and all of those guys cancelled all of their gilt orders. So I went from being sold out one month to next month everything had to go to town," he recalls. Those producers were getting squeezed by their bankers and were forced to develop their own replacements to save money, he says.

In turn, Ruebush, a 300-sow supplier, felt the pinch from lost sales. "A business can only stand to lose $50,000-60,000 a month for so long. I did it for four months," he says.

Then he made a business decision to voluntarily quit. He hopes it will enable him to save the home farm. His production facilities are currently being used as contract nurseries and finishers.

To support his wife and two children, Ruebush took a job on a hog farm in Pittsfield, IL.

Hog Glut More producers need to take action, like Ruebush did, to avoid financial ruin, stresses Fuchs, either by temporarily or permanently exiting the hog business. He expects that reduction of the nation's oversupply of pork will have to come mostly from small- to medium-sized producers who exit the business. Production from the mega-sized producers (as mentioned above) will continue in one form or another.

Fuchs emphasizes the ONLY way the industry is going to fix the hog market is to solve oversupply. Producers seem to think that if they hang in there long enough, profitable prices will eventually return, he observes.

"Profitable prices will not come back until the supply of hogs goes down. The demand for pork is already strong. It is doing its job. It is not going to save us.

"Exports are doing good and prices still have not rebounded enough," says Fuchs.

In this volatile price climate, most producers need some kind of risk-share packer agreement to survive. "You can't invest in 20-year hog buildings and sell on the open market," he explains. "You need a packer contract."

Up To One-Third May Bail Out Of Pork Production

On average, the pork industry loses from 10,000 to 12,000 hog farms annually. But this year is predicted to be different. The exodus over the next 12-18 months will likely produce one of the largest shifts in hog farm numbers the pork industry has ever seen, says an agricultural economist.

"We expect to lose a third of the hog producers as a result of the crash in hog prices," declares Ron Plain, ag economist, University of Missouri. "But it will probably take a little more than a year to wash them all out."

The big drop in hog farm numbers won't show up until the December 1999 and December 2000 USDA Hogs & Pigs Reports, he projects. By the time it is all sorted out, 75,000-80,000 hog farms are expected to remain, says Plain.

Currently there are 114,380 hog farms, based on USDA data (see Figure 1). That figure was down by 7,780 farms in 1998, a 7% drop in farm numbers from 1997.

"The 7,780 farms we lost was actually a fairly small decline and the year before, 1997, was a fairly good year, so we didn't get many people deciding to bail out of the hog business in 1998," Plain notes. Because of those huge losses in '98, producers are starting to exit the business. But it will take until the end of the year before those declines really start to show up, he says.

Purdue University agricultural economist, Chris Hurt, says what happened in '97 and '98 isn't unusual. He says the cyclical pattern of out-migration (Figure 1) shows that the most producers leave the business in high-profit years ('82, '86, '90, '96 and '97). The fewest leave in low-profit years ('83, '88, '92 and '98). Out-migration during 1980-1998 ranged from just 2% in 1992 to 21.8% in 1997.

In fact, out-migration is important in creating the hog cycle; prices rebound as producers leave the industry, he notes.

Long Liquidation Cycle That producer exodus could turn into one of the longest liquidation cycles in modern times of the hog industry, if Plain's assumptions prove true. The last four hog liquidation cycles between 1980 and 1996 lasted anywhere from four quarters to 14 quarters. (Cycles are based on quarters because the Hogs & Pigs Report is issued quarterly.) As Figure 1 vividly depicts, 1980 was the last year that there were more hog farms than the year before. And the number of hog operations has declined every year since, points out Plain.

Plain believes the current liquidation will be somewhat different than most that have claimed smaller producers. This one will claim smaller producers but it will also take with it "an unusually large share of middle-sized, older hog farmers."

John Lawrence, agricultural economist, Iowa State University, sees two liquidation scenarios. The first scenario says there will be a long liquidation cycle because of the huge loss in equity across the board, small and large producers alike who will not be able to expand as rapidly as in the past.

"So if they just hold their operations at status quo as other producers continue to get out of the hog business, we will see liquidation continue longer and, maybe, a longer period of profit to follow," he says .

"The flip side of that argument is, if you go back and look at the start of this liquidation phase, a large part of it has come from increased gilt slaughter, not increased sow slaughter," he says. Part of the reason that producers didn't send sows to town was because they were worth more on the balance sheet than they were at the packing plant.

So fewer gilts were retained, producing a drop in breeding herd numbers. Doing that, producers may be able to cut back from 105% to110% of capacity to 90-95% of capacity.

Then, as prices begin to climb, producers simply add gilts and crank up production. "We actually end up with a shorter hog cycle because we don't have to wait for new building permits or completion of construction to expand. We simply go back to pushing our existing facilities harder," says Lawrence.

Banker Backing? According to Plain, many producers who are facing financial hardships are seeing their bankers about their loans. From the Missouri producers he has talked with, the consensus is lenders plan to stick with the solid producers but don't plan on extending any new hog loans.

"I am very concerned that bankers are going to learn a lesson from this downturn in the cycle - that loaning to hog farmers is too risky," observes Plain.

Producers are periodically going to need to borrow money to remodel or put up a new building. And if they find there isn't local money available to do so, they will phase out their hog operations because they know they can still borrow money on their cattle and their crops.

Hurt also sees some danger signs from the banking community. Publicly they have said they will back producers. But privately they are not sounding as supportive, he says.

"What we saw was a historical event that we could not even have imagined, let alone predicted," he says of the hog prices in 1998. "It almost writes a new standard for what people define as what is really bad in the hog business. Bankers are starting to say the last quarter of '98 is the new standard and that is a mistake.

"To make producers plan for those kinds of low prices, is going to produce a very conservative stance amongst pork producers, especially our traditional, family-type producer," suggests Hurt. Those producers won't make any major changes in their operations until they can be sure that what we saw at the end of 1998 was an aberration. Those producers will probably wait two to three years before they make any moves to expand their operations. It will likely take that long to return to the equity position they held before the hog price bust of '98.

He comments, "The industry must learn that it cannot expand, expand, expand. It has to be done in a slow manner. This industry can only grow at a rate of 1-2%. It cannot grow at a rate of 5-10% per year and have the market absorb that production." (Production was up 9-10% last year.)

Hurt says unless corporate hog producers simply ignore economic signs of the downturn, he believes prices will rebound favorably.

Provided there is further liquidation throughout this year, hog prices should return nicely into the black in 2000. For the first year of the 21st century, he forecasts summer cash hog highs of $50-55/cwt. and a $45-50/cwt. average.

Visit The Pork Producers' Business District

The Pork Producers' Business District will be a high-priority stop for those attending the 1999 World Pork Expo. The proprietors of the main street storefronts will be on hand to discuss key business management issues, strategic planning principles, study your financial needs, review recordkeeping options, check current hog and grain markets, or simply update your pork production reference library. Private, one-on-one discussions can take place in the two-room conference center set aside for Business Partners' staffs. Or, take a break in the District's new Central Park.

Look for the Business District in Block 2820 of the Cattle Barn on the Iowa State Fairgrounds. These Business Partners will be available to help set a course for your pork business success:

National Hog Farmer The business magazine of the pork industry for over 40 years, National Hog Farmer invites you to stop by our storefront to pick up copies of the NEW "World Pork Expo Product Showcase," the May "State of the Pork Industry" issue and the Spring Blueprint - "Quality Assured Pork." Stop by to visit with the staff or sign up for a free subscription.

The National Pork Producers Council The National Pork Producers Council will showcase the National Swine Database, the centerpiece of the Pork Information Center. The database will house a collection of standardized production and financial data contributed by producers using the new NPPC production and financial standards. Witness how data is entered into the database, utilized to perform benchmarking as well as other production and cost analysis. The database will enable pork producers to address new tools NPPC will develop to help producers create profits in the times ahead.

The Chicago Mercantile Exchange The Chicago Mercantile Exchange storefront will be staffed by seasoned veterans of the futures market available to discuss any phase of the Lean Hog futures or options market.

And, these references will be available: "The Futures Are In Lean Hogs," a brochure that tells about the new CME Lean Hog futures and options contracts; plus a brochure, "A Self-Study Guide to Forward Pricing Livestock Futures & Options."

Options are fast becoming a producer favorite, risk-management tool. This booklet will help you learn how to effectively use Lean Hog options.

A DTN machine will be on hand so producers can keep tabs on the hog and grain markets and, of course, the weather back home.

PigCHAMP The overwhelming choice by pork producers for swine recordkeeping software for more than 15 years, PigCHAMP invites Pork Expo attendees to stop by our store front.

Featured at the PigCHAMP booth for producers:

* Free copies of the "1999 PigCHAMP DataSHARE Farms Summary;"

* Special Cash & Carry prices for software purchased and picked up at the World Pork Expo;

* PigCHAMP developers and technicians are available for software discussion and data analysis;

* PigCHAMP DataSHARE "Top Performing Farms" award winners; and

* New "Computer-Based Interactive" PigCHAMP training on CD ROM.

In addition, other events will coincide with the World Pork Expo activities including PigCHAMP education classes and Top Performing Farm award banquet. Call (612) 624-7425 for details.

AgriSolutions AgriSolutions will feature financial education programs, accounting, tax services, software and consulting services. All are specifically designed to improve financial management, performance and profitability of your hog operation.

AgriSolutions works closely with agricultural lenders, commodity groups and other pork industry alliances.

Farm Credit Services Experienced professionals from Farm Credit Services will be available to discuss financial needs with producers. Personnel will be available to evaluate your operation against industry trends, standards and other benchmarks. It is essential that producers maintain key strategic alliances that can facilitate improved industry positioning and financial performance. Farm Credit Services understands the value of this and will be available to discuss these issues on a confidential basis. Farm Credit personnel will also discuss:

* Assessing marketing contracts;

* Using a "systems" approach;

* Comparing to industry benchmarks;

* Risk management concepts; and

* Industry trends, forecasts.

Down, But Not Out

Despite fighting Porcine Reproductive and Respiratory Syndrome (PRRS), breeding sows in outside lots in manure sometimes up to his knees and a family who has grown tired of sinking money into a losing enterprise, Don Struthers still wants to raise hogs.

"I love my sows and I want to keep them," says Struthers, 55, who has raised hogs all his life at Collins, IA, northeast of Des Moines.

Repositioning Backfires About a year and a half ago, Struthers started to look at repositioning his farrow-to-finish operation. Iowa State University specialists advised Struthers and his family to expand the operation to make better use of farrowing crates and improve building throughput. He needed to move to farrowing 38 sows/week, which meant expanding from 675 to 700 sows to nearly 1,000 sows.

He started the project last October, converting some finishing barns to additional gestation housing. The project continued toward its goal of reaching 1,000 sows by December 1999, until it was recently halted due to financial pressures.

Last October, the expansion project seemed like a wise move - buying replacement females and expanding when the market is low. Like many producers, Struthers figured prices wouldn't sink below $20/cwt. He anticipated that prices would rebound in early 1999 when he would start to recover part of his investment.

"I always used the idea that borrowing money is like anything else. It's just an input and if I borrow at 10% and it makes me 11% or more, it is a good investment," says Struthers. Problem is, borrowing money last year turned out to be a bad investment because there have been no positive returns to be gained from it.

In fact, the assumption that prices would take care of the cost of expansion has backfired for a number of the nation's pork producers who are now in financial jeopardy. Prices have wallowed in the $20s and low $30s through winter and well into spring.

Struthers tried to wait out the low prices by slowing down gains, feeding lower protein rations and feeding to heavier weights, in anticipation of higher prices. But prices stagnated well below profitable levels.

Meanwhile, expansion plans called for adding 250 sows. Struthers explains that every time you add one sow, it costs about $1,000 in cash flow by the time you figure in the cost of a replacement gilt ($150) and raising that gilt to be a productive mother ($100). Then if she farrows eight pigs, it takes about $100 each ($800 total) to take those pigs to market. That brings the investment to roughly $1,000/sow ($1,000 x 250 sows = $250,000).

For his part, Struthers had to switch from his small, local bank to a larger "chain bank" a year and a half ago that could continue handling his debt and to finance the $250,000 expansion.

As it happens, an 80-acre tract of land adjacent to the hog operation became available at the same time, ideally suited to handle the additional hog manure from the herd expansion. Don borrowed on the land to make that purchase, too.

Hog Bail-Out Falls Short Struthers knew he was adding to debt in a depressed market. But he assumed the hogs would bail him out like they always had. "I believe in cycles and I believed that we had hit the cycle lows in October, and then all heck broke lose in December," he remembers. Still, he averaged $34/cwt. for 1998, close to the average of the producer group on the Iowa State Swine Enterprise Records Program.

That wasn't enough to turn a profit. The Struthers' family farm corporation sold about 10,000 hogs last year. "Economists suggest with last year's prices, most producers averaged a loss of about $20/head (based on covering overall expenses). For us, that's a loss of $200,000. Add that to the $250,000 we borrowed for expansion and the $300,000 that I spent buying additional land, it has really put us in a bind.

"There are no ifs, ands or buts about it, I owe $750,000," declares Struthers. "But I am still a millionaire asset-wise." He estimates he lost $250,000 in equity last year alone.

Trying To Save The Farm The challenge is what to do next. He told the banker he couldn't make his first farm payment (under the new loan). The banker said to just make the interest payment. Struthers told him that wouldn't be possible either.

The bank then added $50,000 to his loan to tide him over using a so-called "second mortgage security agreement" on his land assets. That day, recalls Struthers, the whole family sat in the farmhouse in tears and discouragement. The children said "Dad, maybe we better sell the sows. We are getting tired of them beating us around." That same day, Struthers cancelled a boar semen order and sold off that week's weaned sows.

In the wake of the financial development with the bank, Struthers is just trying to hold things together at 800 sows, just trying to make ends meet, just trying to somehow come up with the cash to feed his hogs and his family.

Selling cull breeding stock hasn't helped much. It makes him sick to sell mature breeding stock for slaughter for less than $100/head. During the depths of the '98 price crisis in December, Struthers sold one load of market hogs for $14/cwt. He turned down a buying price of $12/cwt. He recalls somewhat wistfully on Memorial Day last year he sold hogs for $47/cwt.

In the past, Struthers has pulled equity from land to make ends meet. Struthers, his wife, Sharon and his two sons, David, 31, and Dan, 26, farm 800 acres. The two sons, a daughter and two daughters-in-law say they will continue to help Struthers with the hog operation. But they also tell him they could get good off-farm jobs, and maybe, it's time for Struthers to consider pulling the plug on the hogs. They urge him to stop pulling equity off land to subsidize the hogs.

At least, says Struthers, the farm isn't saddled with a lot of existing building debt. There are 13 newer hoop buildings, ranging in age from 7 months to 3 years old. The rest are older facilities that the family has remodeled themselves to save money.

One prominent sign that things are bad is the added debt incurred last year added $5/cwt. to the farm's breakeven to raise hogs.

All in all, these are troubling times for Struthers and family. Struthers chokes up with emotion and shame - for something he didn't cause and for prices which no one came close to predicting and which now jeopardizes the viability of his hog operation.

He remembers the mid-'80s and how bad they were for agriculture. The latest losses probably set his equity position back to the levels of those times. "I am worth more than I was back then. But what am I going to do with all this old hog and farm equipment if I don't use it? It's not worth much to sell off for cash."

Pride, Determination Despite being allergic to hog dust, stressed out (which has resulted in high blood pressure problems for which he takes medicine), persistently tired from lack of sleep and depressed from lack of profits to pay the bills, Struthers carries on.

He is a proud hogman and still wants to be the main provider for the family. He keeps working the long hours, trying to find new ways to chip away at the 36-37 cents out-of-pocket breakeven costs. He takes the extra hour to repair feeders and gates that need to be replaced - but for which there is no money.

Despite all the headaches, Struthers doesn't want to give up. In his view, central Iowa is one of the best places in the world to raise hogs. The ground is fertile and there are seven packing plants within 100 miles or so in every direction. And, he believes, the family makes a perfect working team.

But without profits, working at the hog farm is fast becoming a bittersweet experience for Struthers and his family.

Checking The Options Also, Struthers has investigated lots of options: getting production/financial help from a feed company; custom feeding for a large integrated company; cutting back sow numbers (bumping sow culling rates from 3-5% to 25% and not adding any replacement females to the herd is actually being done); just raising early weaned pigs, and even letting the hog buildings sit empty. Struthers figures you'd lose less money with empty barns but you'd still have to spend some for upkeep and insurance and you'd miss any potential profit peaks.

Holding Onto A Dream Many a sleepless night hasn't resulted in a solution. But he says the Lord has given him strength, and he believes that whomever controls the sows, controls the industry.

"I am doing what I love and I don't want to give it up, and I don't have to yet.

"And, I don't want to force my dream on my family - but decisions are becoming harder when you aren't making any money."

Will the banker finally just pull the plug on Struthers? Struthers says there is currently a renewed effort between him and the banker to try to work things out. Both realize his borrowing power is "maxed out."

Struthers may be down but he is not out yet. His banker has talked to him about presenting the bank with a new plan for survival and possible restructuring of the hog loan.

"We have to show the banker the level of risk we can stand so we can restructure the loan," says Struthers with renewed hope in his voice.

USDA Says Excel Underpaid Producers

USDA's Packers and Stockyards Administration has filed a complaint against Excel, Cargill's meat packing division. The complaint alleges that the packer failed to disclose a change it made in the formula it uses to calculate the "percent lean" of hogs. USDA maintains that as a result of the undisclosed formula change, about 1,250 producers selling on a carcass merit system received lower prices.

During a period from late October '97 through May '98, producers were underpaid about $1.84 million or about 91 cents per hog, according to USDA.

Excel intends to obtain information from USDA on the lots of hogs for which there were alleged underpayments with the intent to pay producers the full amount identified in the complaint. But, USDA has refused to accept that action as a settlement and may request an administrative judge to impose a fine above and beyond the contested amount.

Excel says it will vigorously contest the complaint. Excel concedes that in early 1997, it began testing various technologies used to measure the amount of lean meat in individual hog carcasses. Excel uses a Fat-O-Meater, a fiber optic probe, to collect carcass readings. The data is then plugged into an equation to give an estimate of percent lean.

Excel says they found that a calibration equation, developed by Purdue University in 1990 for the National Pork Producers Council, gave a more accurate estimate of percent lean than the manufacturer's equation it was using.

"We can take the readings, then go back and take the lean meat off the hog and see how the estimates compared with the actuality," says Excel's Mark Klein.

Klein says the old Fat-O-Meater formula was about 70% accurate and the new formula a little more than 90% accurate. "We looked at six weeks of hogs and compared the two-formula effect on price," says Klein. On average, the price wasn't changed. He says some prices ended up lower, some higher, some unchanged. "We knew what it would get rid of was the extremes; the hogs that really weren't as lean as the old equation was suggesting and probably hogs that weren't as fat as the old equation was suggesting," says Klein.

The complaint from USDA puts $1.04 million of the underpayments at the Excel plant in Beardstown, IL; $780,000 at the Ottumwa, IA, plant; and $16,000 at the Marshall, MO, plant. The change in the formula was not put in at Marshall until late April, six months after the other two plants.

USDA says only two parties were notified of the change. Hog Inc., a producer marketing co-op headquartered in Greenfield, IL, was told of the change in February. Tyson Foods, the former owner of the Marshall, MO, plant was told before the change was made.

Allan Schinckel, Purdue University, who worked on the equation Excel adopted, says that the best way of measuring if one prediction equation is better than another is "out of sample" statistics, which Excel obviously has access to.

"There probably will be no contesting the issue that it did use a more accurate equation," says Schinckel. "The issue is what kind of warning do you give producers that you're changing."

Schinckel says the incident reinforces the importance that producers need to know how percent lean is calculated so they can fine tune what genetics to use and what weights to sell at.

Your Operation Throught The Eyes Of A Business Consultant

Marla Conley has every intention of keeping pace with her peers in the hog business when comparing her records to theirs. As good as others give her credit for being in terms of analyzing records to spot problems, she's not willing to risk doing it alone. She uses business and management consultants as extra eyes to see what she might miss.

Conley's operation is farrow-to-finish with more than 900 sows near Cherokee, IA. It was a 150-sow business when she bought it from her parents, Jerry and Micky, in 1988.

She uses both Iowa Farm Business Association (IFBA) and PigChamp records.

"PigChamp gives us the daily production information we need," she explains. "The Iowa Farm Business Association and Iowa State University (ISU) Swine Enterprise Analysis records are what I depend on for the financial and long-term production records."

She depends on Tom Thaden, IFBA consultant, Sheldon, IA, for much of the analysis and problem-solving. He works with hog producers ranging in size from about 50 to 1,600 sows.

But there are approximately six other "business consultants" and a peer group she says she depends on in addition to Thaden.

"My veterinarian, Steve Sonka, is one of them," says Conley. "He knows the whole pork operation on production as well as health.

"Plus, he gets his clients who have similar operations and all use PigChamp together periodically," she adds. "Doc distributes everybody's records without names and tells what he thinks the different producers are doing right and what needs improvement.

"Then we start talking and asking questions like, 'How did you do that?' and 'How can I do that?' " Conley adds. "With that process, I have to consider those guys as part of my team of business and management consultants.

"I have to be pretty hard on myself if I want to keep up with those guys," she adds. "They are excellent producers."

You can get the idea from Conley that part of the reason her business thrives is because she thrives on that competition.

Outside Eyes "I think it is extremely valuable to have an outside set of eyes come in to scrutinize your business," says Mike Duffy, an ISU economist. "We have a tendency to see what we want to see and believe what we want to believe," he explains. "If I believe, for example, that I am a really top farrower, I may rationalize away that my farrowing numbers are more average than where they should be.

"A consultant worth his pay isn't going to pull any punches," Duffy adds.

"The consultant is not emotionally involved like the producer is. That often makes it easier for him to see what is good and what isn't."

Conley relied on consultants to keep her on track as she expanded. "Doubling from 150 to 300 sows was the first little step that required labor and raised the question of whether or not I could manage people rather than just pigs," she says. "Then, as I continued to grow in numbers, the question was if I was sacrificing quality for quantity."

Having somebody else to help watch those things can build your comfort level on a steep learning curve as you expand.

Compare To Peers One of the tools Thaden finds to be extremely valuable is that the IFBA records from their clients are summarized by the IFBA state office and the results are put in categories of the top, middle, bottom and the average of all. Their data is only available to their members.

Iowa State University does publish a Swine Enterprise Records Summary compiled from records of more than 100 producers.

Producers get to see their results side-by-side with those averages. Understand that the IFBA and the ISU Swine Enterprise Records summaries are two separate things. The IFBA has consultants who are hired by farmers and are not a part of ISU. Conley has the advantage of being a member of the IFBA and uses both those records and the ISU records for comparisons.

"I like to do a comparison of my records to the averages because I know those producers are keeping the records like I do and, therefore, it's an accurate comparison," says Conley.

"The best use of those kind of records is to look at your own results and see how you compare with the top 10% area by area," says Duffy.

"Then look where you're not in that top 10% and concentrate on the ones that are going to give you the most improvement from the time and/or money spent."

Areas where you're weak may be ones where you have less interest. They may be harder for you to spot. That's where that more detached, outside set of eyes, the consultant, may be your best bet.

"Another advantage a consultant can bring to a business is that he or she has the opportunity to see a lot of other operations that are similar to yours," says Duffy. "Talking to a lot of different producers is going to give that consultant insight to how you might make changes that will improve performance in your business."

Through The Consultant's Eyes Tom Thaden's first look at an operation is to study the dollars and cents that business is producing on an accrual basis, adjusted for inventory changes. That gives him "true" profit or loss as compared to a cash flow or income tax return view.

"That has to be the starting point," says Thaden. "Then you can go into the details to see where the problems are."

Thaden gives examples of problems and the process he uses.

1. We might see that accrual dollars produced per cwt. number being too low. Here are areas we would look for answers:

* Perhaps high-priced, purchased breeding stock is not giving a good return.

* Are death losses too high?

* Is selling price of sows or butchers low compared to other producers?

* Has inventory valuation changed?

2. Are feed costs too high?

* Look at finishing weights. Are you feeding the kind of hogs that can stay efficient to that weight?

* Look at quality of hogs. Leaner hogs are more feed efficient.

* Consider litters/sow/year.

* Thaden looks at average sow selling weight because he can often correlate that to poor herd feed efficiency. High sow weights also cost you because you get poor production out of those sows.

* Is there feed waste that's caused by poor quality feeders or poor feeder management?

Thaden says he goes down the list to see what costs are out of line as compared to both peers and/or past performance.

Duane Bennink, state coordinator of the IFBA and its consultants, says there's no way to accurately measure the results of having a production and business consultant. Fees that farmers pay IFBA consultants will range from $300 to $1,200 in most cases and can be more for those who want more service.

"We like to think we can give everybody a return of at least double the money they spend," says Bennink. Where consultants have uncovered some serious problems, whether with crops or livestock, the payoff has, of course, been many times that.

"Many of our producers say it is worth the cost just to have an unbiased person who isn't selling anything to bounce around ideas," says Bennink. "Sometimes the consultant simply helps keep them from making a wrong decision. How can you measure the value of that?"

For Conley's consultants, and herself, the pressure to find answers starts from her goal to consistently stay above 22 pigs weaned/sow/year.

"I consider it so important because it affects so many things such as return per hour of labor, feed efficiency and reducing fixed costs per head," she explains. "A lot of it is how hard you push the (farrowing) crates and that depends on how early you can wean them and still get good performance in the nursery.

"You can wean at 12 or 13 days and really push those crates. But then the sows may not breed back. You need to have your head into the big picture where you know how many pigs the finishers will hold and you back into the number of sows to breed so you keep the pig flow schedule going to fully utilize the facilities but not overcrowd," she explains.

But you don't reach goals by pushing that hard without some consultants to advise you along the way, she adds.

"I don't like to try to put a dollar figure on return from using consultants, but I'm sure there are businesses out there that, with some changes, could make $10,000 to $40,000 or more difference in their net income," Thaden says.

Conley measures it this way: "The finetuning we had done in previous years made last year (1998) less painful."

She went into the down cycle with production performance high and costs low, compared to a lot of producers. While that did not keep some red ink from flowing, it didn't cut as deep as it did for producers who went into the cycle in the middle or bottom one-third in production performance.

"As a member of my peer group said to me: Stay focused; keep the main thing the main thing," she adds.

Copies of the Iowa State University Swine Enterprise Records Summary are available by writing to:

Swine Extension 109 Kildee Hall Iowa State University Ames, Iowa 50011

The 1998 summary is available. You can also ask for summaries from previous years.