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Pork Producers: Only the Sharp Survive

by 5m Editor
13 August 2008, at 1:18pm

US - Dr David Meisinger, executive director of the US Pork Center of Excellence, gives his take on the causes of the current extremely tight margins in pork production in the US and elsewhere.

Globalization has never been more apparent in the pork industry than it is right now, writes Dr Meisinger on Farms.com.

The price of corn, fueled by its demand for ethanol production and by the Chinese appetite, has had a major impact on feed prices. The global market for all energy sources has been impacted as acres or hectares are used for production of different commodities. The prices for all energy sources have taken a free ride along with corn on world markets. Land prices are also following suit.

This is the first time in my memory that we have seen tight margins, not so much due to falling prices for pigs but because of rapidly escalating production costs.

Fortunately, in spite of record kills by day, week and month, we have not tested the shackle space limit yet so hog prices have not totally wrecked as they did in ’98. And also fortunately (although many in other businesses would not agree) we have a weak dollar, which has bolstered prices through record exports.

Other pork-producing countries that have lived with high feed prices are even worse off than we are. Many of them pay exorbitantly high transportation costs to procure feedstuffs from other places. This has resulted in greater losses and tighter margins, causing producers in these countries to liquidate and/or reduce production and their exports. Pork is the meat of choice in many regions of the world including much of Europe and Asia. Reductions in their own production or their inability to import pork at a reasonable price have pushed many of them right to our door.

While some estimates are that we have lost over two billion dollars in equity in our industry, which could be considered catastrophic, just think about how much worse it could have been if we had a stronger dollar and exports were not as evident; if these negative margins were more localized to our producers; if we were also experiencing a shortage of shackle space; or if we had some national outbreak of a foreign animal disease that shut down our borders. I am not trying to sugar coat a situation that has brought the ruin of many hog operations today, but I am saying that we should count our blessings once in a while.

In previous times with tight margins, pork producers have had to be very diligent in their businesses to capture every cent they could from their operations. Now, with extremely high input costs mostly in terms of feed, energy and transportation costs, producers need to constantly evaluate their businesses and all their business decisions. They need to be especially vigilant.

Tim Belstra of Belstra Milling in Indiana told a group of extension educators last week, that he has had to carefully watch every aspect of the company’s feed and pig production business, because only a couple of wrong decisions can send the operation over the edge. He claimed they were doing well, but only because of an excellent staff and some very good decisions along the way that have kept them sustainable.

These are tough times – sharp decisions by shrewd pork producers are more important than ever.

5m Editor