Pork Powerhouses 2001: Making moves in Mexico
You need to travel across the border to find much excitement among the Pork Powerhouses this year. With only about 60,000 new sows added by the largest U.S. producers, our nation’s pig business is pretty darn boring. But, hey, with $40 to $50 hogs, nobody’s complaining. Click here to view the Pork Powerhouses list.
(Photo: New finishing barns in Veracruz are part of Smithfield's expanding pork production network in Mexico. These barns sit at 7,000 feet elevation.)
In Mexico, the wheels of the swine industry are grinding and creaking, but they are turning. The mood among large pork producers there is similar to that in the U.S. 10 years ago when our industry stood poised for massive expansion, integration, and consolidation. Mexico’s producers are counting on the country’s new president, Vicente Fox, to stabilize the economy and decrease corruption so they can expand their pork industry.
“We have tremendous hope that Fox can provide a more honest government and one that is more competitive in world markets,” says Victor Ochoa, general manager of Granjas Carroll de Mexico, a pork production company that is a joint venture between the Mexican company AMSA and U.S.-based Smithfield Foods.
Ochoa is overseeing expansion by his company near Perote, in the state of Veracruz. In a valley surrounded by extinct volcanoes, Smithfield is building swine units one after another. There are 14,500 sows on the ground now, with another 4,800 near completion, and plans to grow tot 56,000 within five years. A new feed mill is under construction to handle the expansion.
Jerry Godwin, who heads up all pig production for Smithfield Foods from his office in North Carolina, visited the Veracruz construction earlier this year. “It’s profitable, and we will grow there as long as the market stays up and grain costs are reasonable. It’s a good place to grow.”
Expanding in Sonora
The state of Veracruz is not free of hog cholera, so all pork produced there is eaten domestically. The state of Sonora, however, is hog cholera-free. Pork produced there as part of a joint venture by Smithfield Foods and the Mexican company Agroindustrial Del Noreste, called Norson, is exported to Japan. Expansion of the sow units at Norson is under way.
Although stymied by high feed and transportation costs, Mexico’s largest pork producers have production figures that put many U.S. operations to shame. In the state of Yucatan, where summer temperatures routinely reach 100°F., Mexico’s largest pork producer – Grupo Porcicola Mexicano (GPM) – averages 25 pigs weaned per mated sow per ear on 65,000 PIC sows.
How do they do it? “Good health, good genetics, good feed, and good managers,” says GPM production director Claudio Freixes.
The minimum wage in Mexico is less than $1 an hour, so labor is less than 10% of the cost to produce pork (feed is 75%). Therefore, farms often have one worker for every 100 sows. The second a baby pig squeals, an employee is there to check the situation. GPM farms average 11 pigs born alive and 10.75 weaned.
One of the biggest challenges for Mexico is hog cholera. To eradicate the disease, “we need money, management, vaccines, and more veterinarians,” says Freixes. Backyard production, where homeowners raise a few pigs for food, accounts for 30% of pork produced in Mexico. At GPM, all employees sign a form saying they have no pigs at home. The company does unannounced spot audits.
GPM is a completely integrated company, with two feed mills, three slaughter plants, and 70 retail stores. It is the larges pork distributor in Mexico, and exports 15% of its production to Japan.
Brazil and Poland
Besides Mexico, where else will we see pig expansion? Smithfield Foods sees potential for growth in Canada, Brazil, and Poland.
In Brazil, Smithfield is “getting our feet wet” with 6,500 sows, says Godwin. Poland offers more opportunity for growth, he says. Smithfield has 5,000 sows there and sees the country as “an ideal spot.”
“We are very keen on Poland. There is lots of land and lots of grain,” he says. With better markets and membership in the European Union, Poland will be the place to grow, says Godwin.
So far, Smithfield has had no luck establishing anything in Canada. The company made a failed attempt this year to buy a pork producer in Saskatchewan. “We were thinking if we were successful in acquiring it, we could embark on vertical integration that would allow us to raise our own genetic package there,” says Godwin.
No place to expand here
Back in the States, there doesn’t appear to be any place to grow.
“The environmentalists are protecting us from ourselves,” says Bob Ruth, who coordinates pork production for the Hatfield-Wenger-Purina network in Pennsylvania (29,000 sows). “It’s so hard to get a farm built anymore, even if you want to expand.”
Texas is one place U.S. producers have eyed for expansion, but even there it is not easy. The one hog packing plant in the region, Seaboard in Guymon, Oklahoma, is running at capacity. Seaboard itself has permits to place 25,000 new sows in Texas, but with no shacklespace available, the company has “no imminent plants to complete that farm,” says Mark Campbell, vice president of development for Seaboard.
Permits to build new hog farms in Texas are not as readily available as you might think, says one Texas producer. “Six years ago we began the permitting process,” says Don Clift of Texas Farm, near Perryton. “With regulatory changes, we have had to re-permit three times. The rules are science-based, but permitting requires a document about 200 pages thick.” Texas Farm has 29,000 sows and no immediate plans to expand, says Clift.
Premium Standard Farms added 10,000 sows in Texas this year, filling a unit built six years ago and sitting empty. The company has no plans to expand beyond that, says spokesperson Charlie Arnot. “Nothing is going on with anyone in the U.S.,” says Arnot. “1998 was tough, and it is still fresh in people’s minds. There are regulatory pressures and sitting challenges. There are easier ways to make money than in hogs. In the past with $50 hogs, this was a time when people expanded. Not now.”
Smithfield Foods expanded its Circle 4 operation in Utah to 55,000 sows, but Godwin says that is simply to “balance the system” out there. While the company’s growth in Utah, “will continue at a reasonable pace,” no other expansion is planned for Smithfield in the U.S., says Godwin. “We believe there are enough sows in the U.S. There is no reason to grow the business in the U.S.”
Most companies haven’t yet made up the money they lost in 1998, says Bob Ivey of Goldsboro Hog Farm in North Carolina. “We’ll take these good prices one day at a time and enjoy them. But kill capacity is not there to take more pigs. It would be reckless to expand.”
Next year will look a lot like this year from a price standpoint, predicts Jerry Leeper, vice president at Farmland Industries. Leeper says we will have 2% to 3% more hogs, but also 2% to 3% higher pork demand. “I think it’s going to be a pretty good year. Not great, but pretty good.”
Tyson Foods has no plans to expand its pork production division, even with its purchase of giant pork packer IBP, says president John Thomas.
“We are going to be very careful about expanding our business,” says Thomas. “The U.S. sow herd is still too large, with production gains, to be a sustainable industry over a long time.” Tyson is no longer looking for a buyer of its Pork Group. Instead it is reinvesting in its farms, replacing ventilation, flooring, crates, and genetics.
“We are excited about the future,” says Thomas. “The mood is wonderful at Tyson. We are combining IBP and Tyson to make a protein powerhouse.”
Optimism all around
In Mexico, pork producers and allied industries are ready to join the world protein party. Oklahoma native Russel Riecken moved to the Yucatan three years ago to oversee Cargill-Animal Nutrition’s expanding pig feed mill there. Cargill supplies feed for Mexico’s largest pork producer, GPM. All GPM pigs in the Yucatan and Bajio regions eat U.S. grain.
“You wouldn’t believe the growth right now,” says Riecken. “Mexico has a lot going for it. They are just at the start of the curve. If Fox can stabilize the economy, this country’s going to explode. They will challenge the U.S. some day.”
‘We have a lot to make up for’
Here are a few comments from the 2001 Pork Powerhouses:
- “It’s great as long as the money keeps coming. We have a lot to make up for from two years ago.”
- “You can plunk down a sow here or there, but nothing big, except maybe in Texas. Nobody has the appetite for expansion. We have a long memory.”
- “The packers try to intimidate us so we will accept whatever pitiful marketing contract they offer. We were told how bad this fall was going to be. Now it’s too late to do any expansion. We have six or seven good quarters ahead of us.”
- “We should thank the environmentalist for the good markets. We can’t keep up with demand.”
- “My advice to producers: If you can get out now, get out.”
- “Last year was a spectacular year; this year will be better.”
Disease still having an effect
In general, the Pork Powerhouses report low levels of disease this year. However, PRRS continues to be a lingering problem for some, while erysipelas plagued others during the hottest weeks of the summer. Erysipelas causes mortality in finishing hogs, as well as carcass condemnation and decreased daily gain.
Holden Farms, which has 28,000 sows near Northfield, Minnesota, experienced 10% death loss to erysipelas at some of its finishing sites in July.
“It’s hard enough to raise pigs in hot weather without having to deal with disease,” says owner Kent Holden. He tells of walking through a barn of healthy-looking finishing pigs, then coming back a few hours later and finding many of the pigs dead.
“It knocks them over just like that,” says Holden.
The disease is treated with penicillin and usually goes away with cool weather. Bad spells of erysipelas cycle in the swine industry every seven or eight years.