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Pork Powerhouses 1994: Slowdown Coming to North Carolina
It would be hard to exaggerate what is in the Pork Powerhouses ranking table. Quite simply, one-fourth of the pigs marketed in the U.S. in 1995 will come from these producers. The largest operation, Murphy Family Farms in Rose Hill, North Carolina, produces more pigs than South Dakota or Ohio or Michigan or Wisconsin or Kansas. Perhaps the only thing more astonishing than the size of these operations, all owning 10,000 or more sows, is the growth rate. Number 2 Carroll’s Foods has 20 times as many sows as it did 10 years ago. Number 3 Premium Standard Farms, of Princeton, Missouri, went from zero to 96,800 sows in five years. Click here to see the Pork Powerhouse rankings.
(Photo: Premium Standard Farms, the nation's third largest pork producer, has filled 37,000 acres in northern Missouri with 80,000 sows and 1.5 million pigs. Another 16,800 sows are in Texas. All growth has been since 1989.)
Half of the operations on our list are vertically integrated in some form or another. Seven own meatpacking plants. Eight are feed suppliers.
Not surprisingly, half of the operations have at least a portion of their sows in North Carolina. Yet 12 firms list the Midwest as their main production base, three of those operating solely in Iowa.
How we got the numbers
Phone calls were made to every producer on the list, as well as two-dozen others. Except for two companies, Cargill and Farmland Industries, all sow numbers were supplied or confirmed by the owners or managers of the operations. For the two exceptions that would not release numbers, outside experts were consulted. We are confident this is the most accurate ranking in the industry today of the largest pork producers.
The operations are ranked on a specific criteria; number of sows owned in full production (farrowed at least one litter) on October 1, 1994. We had to be this specific because of rapid expansion. Here’s one example of how rapid expansion can affect numbers. Prestage Farms (number 6 on our list), of Clinton, North Carolina, has 52,350 sows through one cycle (their pigs headed to market), another 21,650 sow farrowing pigs now, and another 20,026 sows being bred or gestating. We used the middle number, 74,000 sows, to rank Prestage Farms on our list, even though it will have 98,026 sows in full production by 1995.
We choose to rank on sow numbers rather than pigs marketed. This eliminates firms in the fluctuating feeder pig finishing business. Sow numbers are also the most typical way these firms compare each other. If you want to calculate pigs marketed in a year, you can multiply the number of sows by 19 or 20.
Because we went with sow numbers for the ranking, we had to include the swine seedstock business. This was one of the trickier areas to track numbers. For example, Roy Poage reports that DeKalb Swine Breeders owns 64,973 sows. Yet Pig Improvement Company (PIC), a similar-sized firm, reports only 13,000 sows owned. Why? While PIC sells gilts for private multiplication, DeKalb leases most of its breeding stock. Therefore, of DeKalb’s 64,973 sows, only about 25,000 are in DeKalb facilities.
We also had to be specific on the ownership of sows due to several joint ventures. For example, while Carroll’s Foods manages all 40,000 sows in the Smithfield-Carroll’s joint venture in Virginia, Carroll’s only owns half. We tried hard not to double up sow numbers. Finally, you many notice there are actually 31 producers listed in our table due to a three-way tie at the bottom with farms owning 10,000 sows.
How easy was it?
While a few firms, mainly in the Midwest, were shy about releasing sow numbers, most were surprisingly candid. In North Carolina the secretaries answering the phones often volunteered sow numbers. In the Midwest it usually took a couple calls to the owner before any information was released. Companies such as Continental Grain and Louis Dreyfus Corporation (both ranked 12th with 20,000 sows) would only confirm or deny sow numbers, not supply them.
Two Midwestern farms insisted we limit any mention of them by name to the table. “We’ve had discussions lately about whether we should change our philosophy about being quiet,” says the owner of one of the farms. “We’ve been lucky so far to avoid negative feedback.”
Here are a few producers with sizable operations that did not make our “30 Largest” list, but could in future years. Callaway Farms, Rayle, GA (6,000 sows); Clover M Farms, Rocky Mount, NC (6,000 sows); GID, Burlington, IN (7,000 sows owned; 7,000 managed); Hershey Ag, Marietta, PA; Hog Slat, Newton Grove, NC; Holden Farms, Northfield, MN (6,000 s0ws); Newsham Hybrids, Colorado Springs, CO (7,500 sows); Smith Farm Center, Gerland NC (8,000 sows).
Slowdown coming in NC
The tremendous growth in North Carolina may begin to slow soon. The state will be “maxed out in 18 months” for pigs unless more slaughter capacity is added, says one large producer. The future lies in states such as Mississippi (Prestage Farms is expanding there), Oklahoma, Colorado and Utah.
In Utah, the three largest North Carolina producers, Murphy, Carroll’s and Prestage, have joined with meat packer Smithfield Foods to form Circle Four near Milford. The farm, which houses 6,000 sows farrow-to-finish, was stocked with young gilts in June, and will produce market hogs next fall.
“The long-term goal is to produce pork for the West Coast market,” explains Jim Stocker, president of Murphy Family Farms. If the venture is profitable, the farm could be expanded and a Smithfield packing plant eventually built.
Carroll’s to Mexico and Iowa
Beside the Utah expansion, Carroll’s Foods has moved into Mexico, with 4,800 sows in Perote, Veracruz. Hogs will be ready for market there by next fall. And Carroll’s plans to move sows into Iowa as well. Details are not being released yet, but the sows will arrive somewhere in the state next spring. By this time next year, the company expects to have 30,000 more sows.
But size isn’t everything, says Sonny Faison, Carroll’s Foods president. “Size is only an advantage if you are a least-cost producer,” he explains. “The guy with 10,000 sows and a $38 breakeven is better off than the guy with 100,000 sows and a $45 breakeven. Least cost is the name of the game. (He says Carroll’s breakeven is around $40. Average producers on the Iowa Swine Enterprise Records program have a $41 breakeven.)
“You have to have economies of scale,” says Faison. How big do you need to be to get these economies? Minimum of 60,000 sows, he says. “Then you can have your own feed mill, transportation system and veterinarian.”
One disadvantage of size is publicity, he says. “Large growers catch a lot more attention than the small farmer. We’re in the spotlight more. There is still a negative view of the corporate farmer.”
Low prices may slow growth
Will poor hog prices affect Carroll’s expansion plans? “If the price drops much below $40 for a long time, or if costs get out of hand, we might have to slow down,” says Faison. “But we have reserve funds. And we work on long-range plans. We wouldn’t quit building just because the market is down today.
“We want to continue the compound growth of 40% we’ve had over the last 10 years,” he continues. “Ten years ago we had 6,000 sows, and were one of the largest hog farms in the U.S. Our expectation then was to grow to 10,000 sows. Now e know we can get up to 200,000 in two years and 400,000 in five years. We are putting more sows in one month than we used to in a year.”
Vertical integration in pork industry is goal of Smithfield Foods
The ’93-’94 annual report for Smithfield Foods ($1.45 billion in sales, 65,000 sows owned) spells out the company’s goal of vertical integration. Here are excerpts from the letter to stockholders from president and CEO Joseph W. Luter, III, dated June 22, 1994.
“By any standard, fiscal 1994 was a turnaround year for Smithfield Foods. We began a number of initiatives that will help us capture more of the value inherent in our strategy of vertical integration …
“Smithfield is on the right side of the major industry and consumer trends. Vertical integration is the most significant of these. Clearly, the drive to improve the quality, consistency and value of agricultural products requires collaborative relationships between producers, processors and marketers. That’s why we have formed long-term contractual relationships with three major North Carolina hog producers, Carroll’s Foods, Murphy Farms and Prestage Farms. It’s also why we now produce our own hogs through Brown’s of Carolina and the Smithfield-Carroll’s joint hog-production arrangement.
“One result of these high-capacity, quality-oriented relationships is that North Carolina, in the last year, has become the No. 2-ranked hog producing state (after Iowa), up from No. 7 as recently as 1983. We purchased 95% of the 7.4 million hogs that we processed in fiscal 1994 from North Carolina and southeastern suppliers.
“As important, we shifted to a buying program that emphasizes quality. We not pay premiums for the best carcasses. By working with top farms and paying more for lean and well-muscled animals, we secure the best raw material … Our system works, but it takes years, capital and patience to create and develop it. Studies show that despite the tremendous improvement in pork quality generally, just 23% of consumers say they are completely satisfied with the meat. Our industry knows that vertical integration is the best way to improve pork quality. Yet research indicates that less than 10% of the pork industry is vertically integrated today. In contrast, vertical integration is the cornerstone of our business. No one has gone as far with it as we have. And so we know that the potential for gain is tremendous. I am pleased by our profits, of course, but I consider the progress that we’ve made with this overriding strategy to be our greatest accomplishment of 1994 …
“The theme of this annual report is ‘Engineered for Success.’ We selected this theme because we believe our vertical integration process is every bit as engineered as the finest luxury automobile or most powerful computer. Because of this process, I believe Smithfield Foods’ sales will exceed $2 billion within the next three years. Ten years ago, we weren’t ranked among the 10 largest hog processors; today we are No. 3 and expanding rapidly …
“I believe this is only the beginning of what will certainly be Smithfield’s greatest period of growth. The Company’s capital investment over the last our years has been an unusually large $219 million. I believe the payoff from this spending will be spectacular. I look forward to the future with tremendous anticipation.
One man’s fight against the big boys
(By John Walter)
The corporate citizens of North Carolina’s booming hog industry don’t make good country neighbors, according to Don Webb, founder of the grassroots organization, Alliance for a Responsible Swine Industry.
Webb, a former farmer who once farrowed 300 sows, complains that powerful agribusinesses have been allowed to expand hog production in North Carolina without facing up to odor control and pollution issues.
“I have no problem with the hog industry growing hogs, but I want them to be responsible. I don’t believe that one American ahs the right to force the odor of feces and urine down another American’s nose. And I don’t think they have the right to threaten the water supply. We’re not talking about farmers here. We’re talking about an industry. We’re talking about an industry that can put people into bondage because oft heir power with the government, their power with money. These big operations come in and they stink beyond comprehension.”
A tour of Webb’s neighborhood of Wilson County in eastern North Carolina shows how persuasive the pork industry has become in the state. He’ll take you down to the ponds and creek on his own land that he believes are threatened by pollution from neighboring pork operations. He drives by a farrowing setup he says has an odor problem so bad it has forced nearby farmers to live inside their homes at times.
Webb has travelled to the Midwest to consult with organizations that advocate family farming causes. And he has become an outspoken activist in North Carolina. But Webb says his story is simply that of a “good ol’ country boy using common sense.”
“I’m no expert,” he says. “But I don’t need to have a scientist tell me that odor is harmful to a person’s health, that if you smell stinking feces long enough, it’s going to make you sick.”
State environmental laws have been manipulated by Wendell Murphy (CEO of Murphy Family Farms and former state congressman) and other agribusiness interests, Webb claims. “I once asked Senator Murphy, “What about the small hog farmers?’ And he said, ‘They had a chance to get big just like I did.’ That was his answer. Sure, one man may be more fortunate tan another, but the day in time when America starts turning its back on its poor and undedicated and its middle class people, we’re in a lot of trouble.”