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175609

Pork Powerhouses 2006: Here Comes Expansion

After three years of solid profit in the pig business, you would expect more sow expansion than there is. This exclusive Pork Powerhouses® data shows 323,665 more sows in production today than one year ago for the largest 20 U.S. producers. However, most of those sows were acquired, including 221,000 bought by Smithfield Foods when it purchased Premium Standard Farms on September 18. That purchase, which includes two packing plants, brings Smithfield’s worldwide sow count to 1.2 million. Click here to see the Pork Powerhouses list.  

(Photo: The demand for finishing space in the Midwest continues. Near Osage, Iowa, Rod Hiinz (right) is adding a fourth wean-to-finish barn with the help of Randy Crosser of Murphy-Brown LLC, otherwise known as Smithfield Foods.)

But acquisitions – even at that magnitude–do not mean additional pigs flooding the market. You need new sows to do that, and they are being bred. Sow barns are under construction in Illinois, Indiana, Utah, Wyoming, Minnesota, and elsewhere. Many will start farrowing by January.

WHY THE CAUTION? 

At least five factors have kept expansion under control in the past year, and lack of cash isn’t one of them. The industry is full of black ink. It’s also full of concerns:

  1. Construction costs. Concrete is twice as high as it was 10 years ago. 
  2. Circovirus. The companies in North Carolina were busy battling this bugger all spring. 
  3. Ethanol. Nobody knows what this booming fuel source may do to corn prices down the road.
  4. Regulations. The required paperwork gets thicker and thicker. 
  5. High fuel costs. Everything gets hauled in this business – from feed to pigs to manure.

Speaking of manure, that’s one factor pushing expansion. The high cost of commercial fertilizer has corn farmers scrambling for manure.

“There is a huge demand from people wanting to put up barns,” says Randy Crosser, environmental specialist for Murphy-Brown LLC (a division of Smithfield Foods). “With the exploding cost of commercial fertilizer, everyone wants their own little fertilizer plant on the farm.” 

Rod Hinz, Osage, Iowa, is one row- crop farmer who has benefited. He has three finishing barns with Murphy- Brown and is adding a fourth this fall. “The value of manure is a big plus today,” says Hinz, who farms 2,000 acres with his son. “It is dramatic. It’s my fertilizer program.” 

IMPACT OF ETHANOL 

Hinz is not concerned about the impact of the growing ethanol industry – he is an investor in an ethanol plant, as well as two soy diesel plants. “I’m hoping ethanol production can be good for both of us – my farm and Smithfield.” The pork industry needs to figure out a way to get more feed value out of ethanol by-products, says Howard Hill, Iowa Select Farms. “We are not anti-ethanol; we think we can make it work. But this will be the last year we harvest corn at $1.50 a bushel. We’d like to see a stable market – not $1.50 and not $4. We can survive on $2 corn. We just don’t want a big fluctuation.” 

Hill’s concern is the industry’s reliance on exports to sell 15% of the pork produced in the U.S. “Any foreign animal disease problem would be disastrous for the market. We couldn’t eat 15% more pork,” he says. 

Disease was a problem this year – in the form of circovirus – especially in North Carolina. Prestage Farms had sites last spring that lost as many as 40% of the pigs 6 to 8 weeks old. The overall mortality for all hogs at Prestage increased 5% last spring. 

At GIS Perfect Pig, circovirus hit hard and fast at one farm and lasted for six weeks. “We had significant mortality on finishing floors, with pigs falling over backwards,” says Alan Herring, owner. “Pigs were either fine or they were dead. The ones that were not affected did fine.” 

TOO MANY THINGS TO GO WRONG 

Overall, producers are still cautious. “There are a lot of challenges in the pig business,” says Steve Langhorst, owner of Wakefield Pork. “Building costs are up, ethanol is a fear, and disease is a challenge. That's curbing a little bit of the desire to expand.” 

People are interested, just not quite ready to pull the trigger, says Kent Holden, owner of Holden Farms. “All sorts of people are calling us wanting to invest in sows. But when they start evaluating the construction costs, it changes their attitude.” 

In Canada, expansion has slowed to a crawl. The Canadian dollar is trading around 90¢ U.S. compared to 70¢ a couple years ago. “As a result, many of our costs have risen in relation to you,” says Florian Possberg, Big Sky Farms, Saskatchewan. “Producers and slaughterhouses are struggling.” 

Yet, some companies see this as an opportune time to put stakes in the ground. Maxwell Foods is building in Indiana, a state that has half the hogs it did before the market crash of 1998, says Bob Ivey, manager. “We are stabilizing the attrition in the hog population.” Maxwell has 15,000 new sows planned for next year. “We are moving forward,” says Ivey. 

Who’s Growing

Smithfield Foods added 221,000 sows and two packing plants by purchasing Premium Standard Farms on September 18. Smithfield also has a 5,000-sow farm under construction in Utah and hopes to build three more in the next three years. Internationally, the company plans to grow from 60,000 to 125,000 sows in Poland and from 39,000 to 100,000 in Romania. It is also expanding in Mexico by about 10,000 sows a year. 

  • Triumph Foods grew by 48,450 sows during the past year, 75% by acquisition, and 25% by internal growth. The largest Triumph owner, Minnesota-based Christensen Farms, grew by 25,000 sows, mainly by acquiring another Minnesota operation. Hanor and New Fashion Pork, also Triumph owners, grew by about 5,000 sows each. Expect modest growth by the Triumph owners as they plan a second packing plant. 
  • The Pipestone System grew by 20,000 sows over the last year, but less than 5,000 of that is new construction. Expect more of the same.
  • Maxwell Foods, Inc. has plans for growth in Indiana, where it bought a feed mill and needs a sow base to support it. Permits are in hand for three 5,000-sow farms. 
  • AMVC Management (Natural Pork Production ll) bought a sow farm in Indiana and has several others under construction. These will be in production after the first of the year. 
  • Hormel Foods is adding 10,000 sows in Wyoming by retrofitting farms.
  • Hatfield Quality Meats is expanding in Pennsylvania and Indiana with pigs expected to farrow in late 2007 and early 2008.
  • Carthage Veterinary Services, Carthage, Illinois (a system similar to Pipestone), has about 20,000 sows today with immediate plans for more. Two new 5,800-sow units will start farrowing by early next year. 

A Few More:

Falling just below the Top 20 in the Pork Powerhouses® ranking are these large producers: 

  • M2P2 (IA): 28,500
  • Coastal Plains (NC): 27,000 
  • Schwartz Farms (MN): 25,000 
  • Garland Farm Supply (NC): 24,000 
  • GIS Perfect Pig (NC): 23,350
  • Hog Slat (NC): 23,000
  • Swine Graphics (IA): 21,900
  • L.L. Murphrey (NC): 20,500 
  • Carthage Vet Services (IL): 20,000 
  • J.C. Howard (NC): 18,000
  • Hitch Pork (OK): 16,000 

Total sows for these producers’ equals 247,250 (that is 1,900 more sows than one year ago). 

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