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Pork Powerhouses 2016: Glut of Pigs

Pigs are plentiful, shackle space is tight, and hog prices are crashing. Welcome to the fourth quarter of 2016. Or is it 1998 all over again?

The Successful Farming® exclusive 2016 Pork Powerhouses® ranking of the largest 35 producers in the U.S. shows an increase of 123,000 sows from one year ago. With 3.77 million sows, these companies control two thirds of the pig production in the U.S. The largest company, Smithfield Foods, actually cut back on U.S. sows this year, but 22 of the top 35 companies expanded.

Top 10 Takeaways from Pork Powerhouses 2016

1. New packing plants are driving expansion.

Seaboard Foods (290,000 sows) added 73,000 sows this year, mainly through acquisition, as it gears up to supply the new Seaboard Triumph Foods plant set to open next summer in Sioux City, Iowa. Seaboard bought 35,000 sows from Christensen Farms, a partner in Triumph Foods, and acquired Texas Farm, which had 25,000 sows and room to grow to 40,000.

“We are going to continue to build our sow base in the next six to 12 months,” says Stephen Summerlin, senior VP of operations for Seaboard. “We are looking at both growth and acquisition, but acquisition opportunities make more sense in the economic landscape.”

Farms in the eastern Corn Belt are expanding to supply the new Clemens Food Group packing plant opening in September 2017 in Michigan. Four companies in the Pork Powerhouses ranking are based in Ohio, and a few more in that state are expanding toward the 20,000 mark.

Independent producer Prestage Foods of Clinton, North Carolina (175,000 sows), is building a packing plant near Eagle Grove, Iowa, that will process 10,000 hogs a day starting in 2019. About 40% of the hogs will be purchased from independent producers, says Zack McCullen, vice president of swine production for Prestage.

“We are really excited to get it up and going. Iowa is a great place to build a plant with all the corn and pigs,” he says. “We can supply 60% of the plant with our own pigs and will buy 40% from local farmers. Producers are excited about the plant because it gives them another option to sell pigs.”

With two large plants coming on line in 2017 and another in 2019, will older plants shut down? Greenwood Packing in South Carolina closed its 3,000-head-per-day facility in May. None of the other packers is flinching – yet.

“Smithfield is laser-focused on achieving growth, not shrinking. We have no plans to close any of our plants,” says Gregg Schmidt, president of Smithfield Hog Production.

2. Sows are more productive.

Even though Smithfield dropped from 894,000 to 880,000 sows in the U.S. this year, pig numbers for the company are stable. “We have the same number of pigs with fewer farms,” says Schmidt. “In the next two to three years, we will hold where we are in sows and get more productive.” (Smithfield is adding sows in Mexico and Poland.)

Pigs per sow per year continue to climb, says Matt Culbertson, director of global product development at PIC, the world’s largest swine breeding stock company. The company has a composite dataset of customers that supplies information for benchmarking. “Five years ago, 30 pigs per sow per year seemed more like a dream or a stretch target to the majority of the industry,” says Culbertson. “Today, I’m aware of multiple systems achieving 30 pigs per sow per year over a 12-month period across all of their sow base.”

3. Packer margins are wide.

The feeling from independent producers can be summed up this way: I’ve got a big investment in my farms and someone else is making the money. There is no real fundamental market for hogs, no bidding process. I’m squeezed out of the market.

With more hogs than shackle space this winter, is it December 1998 again? “I’m asking myself that question,” says Harley Sietsema, owner of Sietsema Farms in Allendale, Michigan. “Do we lock in hogs at a small loss now rather than taking a big loss later?”

Sietsema remembers 1998 well. “We subsidized the business until the market got better. I see us having to do that this winter.” His three strategies to survive the downturn in hog prices are to sell futures, to buy inputs as cheaply as possible, and to tighten production parameters.

It’s going to be an interesting winter, agrees everyone on the Pork Powerhouses list. It may come down to who has the capital to hold out for nine months. How quickly will people pull the trigger and say they’ve got to get out of this business?

4. Feed is cheap, thank goodness.

Lower corn and soybean prices are good news for pork producers. However, cheap feed creates a knee-jerk reaction where more people think they need to feed the grain, so the hog industry expands even more. The downturn in the farm economy means some grain farmers are more reliant on hog barn contracts for their incomes. They may be more open to expansion, say producers.

5. China makes everyone nervous.

Chinese imports have kept the U.S. hog industry afloat for years, say producers. If China slows down, there’s no place else for us to go with all this meat. Everyone is hoping China doesn’t run out of money. The dollar is strong, and Europe’s pork is cheap relative to ours.

Shuanghui Development, Smithfield Foods’ sister company in China and that country’s largest meat company, opened a plant in China last year to turn pork sourced from Smithfield in the U.S. into packaged meat with the Smithfield label.

6. PRRS is still a problem.

The PRRS virus hit many of the largest producers from December through March, especially North Carolina, Ohio, Indiana, and Missouri. “Out here in the East, PRRS rolls through and causes pig supply problems for our plant,” says Schmidt. “If we eliminate PRRS, the industry has the capacity to produce a lot more pigs.”

The disease is inconsistent, says Jimmy Pollock of J.C. Howard Farms in Deep Run, North Carolina. “Some farms are devastated with higher sow and preweaning mortality; some aren’t as severely affected. PRRS started as a mystery disease and it still is.”

7. Management companies are growing.

Carthage System, based in Carthage, Illinois, is up to 145,000 sows managed, a growth of 25,000 sows from one year ago, and it’s mainly new construction. The growth of veterinarian-owned Carthage, as well as Pipestone System in Minnesota, which added 15,000 sows this year, shows that many farmers don’t want to manage sows; they would rather pay someone to manage them. On the Pork Powerhouses 2016 ranking, eight firms are management companies.

8. Barn designs are changing.

Almost every company on the Pork Powerhouses ranking is remodeling and converting farms. A few finishing barns are being converted to sow farms, stall gestation is being converted to pens, and some sow farms are switching to batch farrowing.

The transition to group sow housing happens when the opportunity presents itself with new construction or investment in new facilities.

New Fashion Pork, a member of Triumph Foods, has a new 1,400-sow farm near Thorp, Wisconsin, where gestating sows live in groups of 250 in large pens. There are 32 square feet of space per sow. Sows and gilts are held in stalls for a few hours to be bred and then released and allowed to move around within a breeding group pen. The farm also features turnaround-style farrowing stalls.

One new sow barn design is 280 feet wide. Rob Brenneman built a few of these superwide barns in Missouri and says, “We love them. We don’t have as many barns to maintain, so the cost per sow goes down.” The barns use filtered ventilation with fans cooling the rooms from the middle. “It wouldn’t work if they were cross-ventilated,” says Brenneman. “They are easier to manage.” His barns are built by Win-Win in Illinois.

9. Antibiotic regulations are driving change.

All producers are thinking about how they can raise healthy pigs using fewer antibiotics. Nurseries are becoming popular again. “As people look at reduced antibiotic use, they see potential benefits to using nurseries to get pigs started better and to going forward more consistently,” says Culbertson at PIC.

Reicks View Farms near Lawler, Iowa, designed and built a new 2,400-head nursery building that sends air through a cool cell system, using evaporation to give the pigs the ideal growing environment. A cool cell pad catches the dust exiting through the fans, reducing ammonia and odor emissions by 50%.

10. More change is coming.

Many sow farms are more than 25 years old and reaching their lifespans. Christensen Farms has a large project on two sow pods in Nebraska, where they are building new barns and stocking 14,000 sows later this year. The site held 10,000 sows before the rebuild.

“The next three to five years will see a lot of change in the industry,” says Glenn Stolt, CEO of Christensen Farms, based in Sleepy Eye, Minnesota. “It’s quite exciting; it feels like the mid-1990s.”

Everyone agrees. Getting better is more important than getting bigger.

Comments? Email betsy.freese@meredith.com.

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