Looking backward for future hope

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Writing about the pork industry in times like these is no easy chore! Prices now sit at approximately $34/cwt (live basis), which is 25 percent less than it was two weeks ago and the lowest levels we have seen since 2002. The industry is still waiting for the long expected breeding herd reduction, which might translate into manageable slaughter levels. Pork plants are processing nearly 425,000 hogs per day which is a greater number than were slaughtered in the $8 hog debacle of 1998. With every mention of possible widespread vaccination for the H1N1 flu (notice I did not say swine!), pork demand is stymied, especially with our foreign customers. Feed prices, although reduced from year-ago levels, are still very high when one considers the price of the product being produced. Finally, prices received for hogs have been below break-even for 23 straight months. Hogs, the mortgage-lifters of the past, have become the mortgage-makers of the present!

How did the pork industry get to this point of massive insensitivity to its own economics? Sometimes (while not looking to point blame) it is helpful to examine the thought processes which predict an industry’s decisions. Two winters ago, I attended a meeting presented by the veterinarians who manage the sow farms from which we purchase our weaner pigs. Their presentation concentrated on production practices which enhanced the efficiency of housing, feeding and caring for pigs. These people are marvelous managers and utilize the latest technologies in order to improve feed efficiency, reduce death loss and lower the days to market. Through analysis of the many farms they manage, they made their points on how good one’s operation could become if their practices were adopted.

After nearly a couple of hours of good heavy listening, it occurred to me there had not been one mention of “dollars and cents” in their presentations. The economics of their ideas were not nearly as important as the ability to crank out fabulous numbers of efficiency. Never mind that the pigs were fed high-priced fat to enhance their rations or they were housed in spacious and ever more expensive buildings. The profit and/or loss of their ideas was secondary to the implementation of production technologies. This way of thinking is common in the implementation of today’s technology. In a tough economic environment, the fixed capital needed to adopt the newest technologies becomes unwieldy. There is a big difference between production efficiency and economic efficiency; they are not one and the same. Over the last decade, the trend has been to get bigger and adopt the latest technologies, regardless of the possible economic consequences. Thus, we have too many pigs produced at too high of price and 23 months of losses!

How then does an industry eventually reduce production when the psychology is full speed ahead? In the end, economics will favor the low-cost producer. Getting there has proven to be an agonizing process. Some of the most efficient operations are facing the most difficulty, simply because they are producing large numbers of hogs at a loss; their capital costs and subsequent debt load will dictate their future. The financial equity losses to the pork industry have been staggering; lenders ,as well as producers, are facing tough decisions. In the meantime, the industry needs to develop a true low cost approach to its business. That means aggressively feeding ethanol by-products (DDGS), rather than wishing the ethanol industry disappear. It means maximizing the value of manure on cropland. It also means the development of lower priced new housing or utilizing older used housing.

Sometime a smaller, leaner pork industry will emerge (hopefully soon). I often look to the past for hope for the future. A present generation of producers scoffs at the tools of the past. Driving and observing in the country, one can see woven wire, steel posts, cement feed floors, steel feeders and water tanks, grinder-mixers, lean-to additions on cribs and barns, pitch forks and scoop shovels, and small abandoned confinement buildings. This looks like a pretty rough bunch of stuff, but guess what? Hogs raised in these conditions were mortgage-lifters; they made money! Contrast ahead to the clusters of modern, beautiful hog edifices with the shiny bulk bins; the mortgage-makers of today! The pork industry will change to survive; it always has. A balance between production and economic efficiencies will be needed along with a low-cost philosophy of doing business. Fortunately, the pig is a species that is adaptable as its producer!

Robert Elliott is a Bureau County pork producer.