Last week, we attended the Iowa Pork Congress held in Des Moines, Iowa.

Our Report:

• Appeared to be lots of people and exhibitors. The show was well organized as usual. Our exhibit was across from the Lynch Barbecue serving area. At lunchtime the first day, there must have been 300 people lined up. A sure sign of the Lynch Barbecue’s popularity is the fact that they ran out of food.
  
• One of the major topics of conversation at the Congress was the price of corn. One company executive told us that the current cost of production of an early wean pig is $36 – 37 in a new facility. There were several discussions about the amount of acres shifting from soybeans to corn. The higher corn prices go up more corn acres that will get planted. Some producers that we talked to said that they usually planted about 50/50 corn soybeans. This year 100% corn.
  
• Mark Greenwood with Agstar (part of Farm Credit system) gave a presentation projecting an increase of up to 70,000 more breeding animals in the US by the end of 2007. That would be expansion in the face of record feed prices.
  
• One feed company executive told us that their survey of customers indicates 2-3% reduction in the breeding herd. Mainly producers over 50 years of age with land, corn and old buildings. Sows are hard work, labour is tight and they have good equity and it’s a good time for them to get out.
  
• One sow flooring company told us that they have no orders at this time for any new sow buildings. All renovations and a few adding crates to increase weaning age.
  
• Some optimism that the circo-vaccines are working, but still a lot of problems and a lot of dead pigs.
  
• A major construction and equipment group told us that they expect few new sow barns being built in 2007 compared to 2006. They also said that there are fewer quotes being made year over year.
  
• Still appears to be significant construction of new finishing barns. Almost all new construction is being designed to be wean to finish. In the Midwest, fewer if any nurseries are being constructed. Wean to finish is taking over the industry.

Gestation Stall Elimination

Last week Smithfield Foods, the world’s largest hog producer (one million sows), announced a ten year phase out of gestation stalls in their swine production system. Implications and comments:

• Smithfield has been hammered by a hysterical damning unsubstantiated article in Rolling Stone Magazine which was a vicious attack not only on Smithfield, but the whole pork industry. The article which questioned environmental and animal handling practices did not enhance the Smithfield brand.
  
• There have been two state (Florida-Arizona) votes on the use of gestation stalls. Both times, gestation stalls lost the vote. It was only a matter of time, when all other states would be targeted. In our opinion a picture of 1,000 sow stalls was a guarantee for a loss in any state. Visuals is what drives perceptions. Right or wrong, we are fighting a losing battle. We do not believe even a vote in Iowa could be won to keep gestation stalls.
  
• Joe Luter, the chairman and driver of Smithfield Foods for decades is the smartest and most successful pork businessman in the world. He got there by being ahead of the curve, setting the agenda – not following. We would surmise that he and his group looked at the Rolling Stone article, the lost votes in Arizona and Florida and saw the writing on the wall. Gestation stalls are going to be gone.
  
• Smithfield announced their ten year phase out of gestation stalls. The picked the time. The set the agenda. They got the animal-friendly publicity bump. Smart move for them, as they react to the Rolling Stone article. Take an issue away from the Animal Rightists, but set the rules.
  
• Smithfield has experience in sow pen housing with over 100,000 sows in Europe (Poland and Romania) where gestation stalls are already banned. This experience will be utilized in America. The Europeans are seeing the same production in stalls as with their pen setups.
  
• Most of Smithfield’s production in the US is in barns that would need new gestation stalls within the next ten years. Current equipment costs have gestation sow feeding stations costing less than gestation stalls. On the flipside, some of Smithfield’s major packer competitors have newer farms and the cost of taking out newer gestation stalls would have greater implications.
  
• We expect that in the very near future most, if not all retailers and foodservice operators will initiate like programs, confirming a ten year phase out of gestation stalls. Right or wrong, it will be a reality. No new sow barns will be designed with gestation stalls. The momentum in the marketplace will push all packers to follow suit. The good thing is ten years is a long time. Last Thursday was a memorable day in the history of the North American pork industry.

Summary

The Iowa Pork Congress was a good event. We do not believe that the US breeding herd is expanding. We expect fewer sows a year from now, not more. $4.00 corn will never make more pigs or pork. Slaughter weights are running almost 2.5 lbs lower than a year ago. Cost of production continues to increase, which will make fewer hogs. Smithfield’s announcement will slow building further, as new sow housing designs will have to put in place. When we look at the Canada-US, we see production levels relative to world demand a year and a half from now setting up a scenario for the highest hog prices in history (summer 2008). Buckle up and hang on. If you’ve got your own feed it will be an interesting ride.