Pork Commentary: Expansion Relatively Restrained

CANADA - This weeks North American Pork Commentary from Jim Long.

6 September 2006

4 minute read

North America

Carthage Veterinarian & Swine Conference

Every year for the last 16 the Carthage (Illinois) Veterinarian Clinic, which is lead by Dr. Joe Connor, has put on a one day seminar for the swine industry. Last week, we went to the conference for the first time. There were approximately 600 attendees, 57 exhibitors and about two dozen speakers. The speakers were good and the conference was well organized.

Some observations:

We had an opportunity at the conference to talk to several producers and industry people that we know.

Expansion – Some new sow building is going on but it is still relatively restrained. In conversations with builders and other genetic companies it appears that there are numerous quotes for new sow buildings, but little dirt has been pushed or cement poured. If construction of buildings has not started by mid October, many feel that they will not happen before spring. The next 6 weeks are key in assessing the relative speed of new sow barn construction.

The cost of new sow barn construction is pushing north of $1250 US per sow. Obviously, this is increasing breakevens and risk. One factor in the sow barn equation is the relative lack of technological advancements in barn design and construction. The new sow barns today at $1250 plus are little different than the sow barns built 10 years ago for $750 per sow. There have been no significant technological breakthroughs in gestation design, farrowing, ventilation, etc. relative to ten years ago.

Consequently new sow buildings do not have an inherent productivity edge to compensate for the $500 per sow increase in building and equipment cost relative to a ten year old barn. This lack of basic building and equipment technological advancement is a factor in restricting the growth of new sow barn construction as utilization of advancements in genetics, nutrition and health can all be captured in the existing infrastructure.

At the Carthage Vet Conference there was a presentation by Mark Pennigroth and John McNutt from the accounting firm Lotta, Harris, Hanor & Pennigroth LLP of Tipton Iowa. Their accounting practice includes 250 swine producing clients who are producing approximately 4 million hogs per year. They shared cost of production data with conference attendees. In 2005, cost of production farrow to finish for their producer group averaged 41.75 liveweight per lb. Their top 10% producers average cost was 36.96 per lb. Year to date in 2006, they characterized year to date costs as similar to 2005. The difference between a top 10 producer was 4.79 cents per lb which on a 260 lb marked hog is $12.45 per head.

Some of the key factors they see affecting profitability include:

Herd Health – highest cost producers have poor herd health. They see poor health leading to fewer pigs per sow per year, increased feed utilization and underused facilities.
Nutrition – High profit producers have better feed efficiency, make their own feed, feed only to need and do not overfeed nutritionally. If they purchase feed, they do it in a competitive fashion. They see up to $5.00 per head difference in cost depending on purchasing pattern.
High profit producers maximize facility utilization.
Sow Herd Productivity – Top 10% producers in their accounting group have 4 pigs more per sow per year than average producers. Top producers use top genetics. (For example Genesus)
Last but not least, top producers have strong management with motivated talented labour.

The following is some of the cost of production data presented at the conference for you to benchmark against your own operation. This from 250 swine producing farms producing 4 million hogs per year.