Over the past 30 years, U.S. producers have outpaced all others, becoming the most competitive pork production system on the globe. The improvements we have made, driven by producer innovation, consumer demand, economic forces and other factors, have evolved the industry and made it more competitive on a global scheme. At the end of the day, what drives the industry also drives the competition in the U.S., leaving some production methods and some producers in the wake of change. Evaluating what makes our production system globally competitive can also be important to the individual farm and future success. Here are some thoughts about how we got here and how we move forward to continue improvement in the years to come.
1. High Productivity
The U.S. has improved at a rate higher than the rest of the world and the rest of the world has improved as well. Our productivity improvement over the past three decades has averaged nearly 3% annually. In addition to adding 0.25 pigs marketed per sow annually each year, the U.S. increased carcass weight on each animal an average of 0.97 lb. each year. I believe we can continue to improve productivity at this rate in terms of raw numbers, equating to 1.74% annual improvement over today’s production.
How does your farm stack up? The U.S. average is probably about 23.5 PSY (pigs per sow per year) weaned and 20 PSY marketed today. Compeer has a large number of clients that would be 27.5 to 30 PSY weaned and are marketing over 93% (25 to 28 pigs) of those to their primary market. The U.S. production sector will continue to be more competitive going forward. Producers who are able to attain these numbers will continue to grow and use the same core skills on a higher percentage of their production.
2. Efficient Use of Natural Resources
We hear a lot about sustainability, carbon footprint and resource use. Globally, higher production in the ag sector generally means more efficient use of resources, as more is produced from the resources used. We have a good model in the U.S. and abundant resources today. The food industries that use those resources more efficiently will use them to produce more of the food consumed. The swine industry has a great track record of continuous improvement in this area. Take a minute to review our progress.
To improve, we need to have every farm focused on improvement. What is your personal farm plan to improve sustainability?
3. Low Cost of Production
Cost of production in the U.S. is competitive with anywhere in the world. We are especially competitive with our major export competitor, the European Union. Barring any massive changes in the dollar value relative to the euro, it should remain this way.
The bigger concern is where you fit relative to domestic competitors. A range in cost of production in 2017 between $60 and $68 per carcass cwt should encompass 80% to 90% of operations. That’s a huge range with lots of opportunity for those at the higher end to improve costs. I always look at production numbers first as it is difficult to drive costs lower if sales volume relative to fixed costs isn’t attained. Costs would appear to be $3 to $4 per cwt higher in 2018 due to higher feed costs.
4. Strong Management
What has led us to the improvement in productivity, reduction in costs and better use of resources is stronger management that gets better every year. The dedication to doing the right thing and driving better pig performance through people comes down to strong management teams running a large share of production in the U.S. The ability of owners and managers to instill a vision within the farm team of doing the right thing for the pigs, their co-workers and the communities in which they live is inspiring.
Today’s managers understand production, financial management, nutrition and risk-management far better than their predecessors. This results in continually improving our competitive position, not only within the pork sector, but in comparison to beef and poultry as well.
The pork sector is well capitalized today. Following a significant period of losses in the industry (August 2012 to May 2013), the financial position of the industry as a whole is strong. It’s as good as ever, but that doesn’t tell the whole story. There remains a huge variation in capital position just as there is a wide range when you look at cost of production. Couple that with a wide range in revenue and timing of capital spending and growth, and there will be some pain as soon as we start seeing red ink for a quarter or two. Working capital (current assets less current liabilities) is key, and a large percentage of our portfolio would have over $1000 per sow in working capital. My advice is if working capital is an issue (less than $600 per sow), you should be keeping capital spending to a minimum and make risk management a top priority.
6. Great Environmental Record
The pork industry has a great environmental record as a whole. Yes, we occasionally have problems such as an unusual weather event, some malfunction, or—as we have seen in recently—legal issues brought by neighbors with the means and ability to get a judge to rule in their favor. Most of our producers continue to be excellent stewards of the environment and strive to continually improve their systems. The strides we’ve made in the past several decades should be the story. Unfortunately, that’s not the case.
7. Improved Risk Management
Managing risk and exposure to market changes has clearly evolved in the past 20 years. As farms have grown and volatility has increased, so has the need to manage that price risk. Hedging strategies should be reviewed regularly to balance the operation’s financial position and exposure to volatility in the market. We came through a strong market outlook early this year and have backed off significantly from that period, but we should have had at least some risk laid off through that period.
8. Safest Product in the World
Our product is safe and viewed as such around the world. Food safety is never taken for granted and our quality has opened doors globally. Thanks to great leadership on the farm and execution of the “We Care” principles, we have a great story to tell. There is so much misinformation out there that it will take everyone involved in the industry to continue to educate the consumer.
9. Efficient, Low-Cost Packing Sector
One of the advantages U.S. pork has, relative to the rest of the globe, is modern, low-cost and efficient packers. U.S. packers, with their scale and efficiency, allow the pork you produce to reach the consumer efficiently, at a low cost. This is critical to our success as we compete with poultry and beef here in the states and overseas.
The pork industry has been supported well by the National Pork Board, the National Pork Producers Council and the state and local pork organizations. Your dollars also support the U.S. Meat Export Federation and the Animal Agriculture Alliance, all of which promote your product in the U.S., open markets in foreign countries, fight for your right to farm and raise pigs, and promote the ideals of the industry to the public.
All these points make this the best place in the world to produce pork. They are critical points to consider when looking at your industry and when reviewing your farm and where you should be focusing your leadership efforts as you work toward consistent improvement. For many, that starts with a focus on production efficiency to improve productivity, costs and sustainability.