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Pork Powerhouses 1998: Only the Strong Will Survive

Sow numbers are up 14%, but the brakes are on – too late for some.

It’s going to be bloody. That’s the consensus of the 50 largest pork producers in the U.S. as they look toward the next few months. Expansion in livestock and poultry nationwide has led to an oversupply of meat and unprofitable market prices for producers. At risk is anyone with high debt or poor performance. A few large hog operations have already succumbed; others are in negotiations to be sold. The best producers are holding tight and eyeing acquisitions. The industry has too many pigs and no structure for quick liquidation. One thing’s for sure: only the strong will survive. Click here to view the Pork Powerhouses ranking list. 

What does a beer bottle have to do with U.S. sow expansion? The label on that bottle was probably slapped on by a Krones high-speed labeling machine, developed by the Kronseder family in Germany. This family became investing in pork production in 1994 and now owns 70,000 sows worldwide, 64,000 of them in the U.S. as The Hanor Company (12th on Pork Powerhouses).

A gilt multiplier for the world’s largest breeding stock company-PIC International Group – Hanor is widely regarded as having some of the best production in the country. Its management team, all former or present PIC employees, routinely cranks out 25 pigs/sow/year or more. These pigs then stock sow units for other expanding operations like Seaboard.

Top 50 market half of U.S. pigs

All this high production has led to oversupply and low market prices. Every one of the 50 Pork Powerhouses feels the pinch in one way or another, although a company like Hanor feels it less than some. (Hanor’s game plan, says vice president Myrl Mortenson, is to “finish what we’ve started and look for acquisition opportunities.”) Cheap feed is the only thing keeping some of the weaker operations afloat this fall.

With 2.6 million sows, the 50 largest producers now market or will market by 1999 half of the pigs in the U.S. – figuring their sows produce 20 pigs a year. Some farms do not produce at this level, and they may be the first to go out of business with the current market situation.

While 34 of the 50 largest producers expanded in the past year – to the tune of 14% total growth for those companies on the list both years – all but a few have stopped. The nation’s largest producer, Murphy Family Farms, is holding tight at 337,000 sows, with no immediate plans to do anything except build a few more finishing units and tighten costs.

“We are bracing ourself for two years,” says Randy Stoecker, president of Murphy’s Midwest division. “Cost of production is the only thing that matters. Anytime we can save half a cent per pound, we’ll start work on it today. We are not putting new sow farms down. With the oversupply of meat, that’s the sane thing to do.”

Carroll’s Foods, ranked number two with 183,600 sows in four states plus Mexico, is stinging from low prices for both turkeys and hogs, although “we are starting to see some daylight in turkeys,” says vice president Gregg Schmidt. “There have been volume reductions in turkeys, and we need this in pigs.

“We are trying to pull the reins in with our company. It used to be, every time we put a sow in we expected one or two sows to go out of the industry, but that’s not happening now,” says Schmidt.

Carroll’s Foods is looking outside the U.S. for expansion. It doubled its sows in Mexico during the past year and plans to place 5,000 sows in Brazil by next summer.

Merging two companies

Jumping to number three on the Pork Powerhouses ranking this year, with 162,000 sows, is Continental Grain Company. Continental already had 52,000 sows in Missouri and North Carolina when it bought controlling interest in Premium Standard Farms (PSF) last winter. PSF has 110,000 sows in Missouri and Texas, with more growth planned at some point for Texas, says CEO John Meyer.

“We are working to merge the two companies in a seamless manner; Continental had one culture and PSF had another,” says Meyer. “Together we are developing the culture of a food company. We made this deal because we believe the two companies are stronger and better together than they were separately.”

Bo Manly, PSF’s president, has survived three cycles of pork prices in the low $30s. “I am not seeing the same levels of margins in this cycle that packers saw in others,” says Manly, who was with Smithfield Foods before joining PSF. The reason for the difference, he says, is “more tonnage of protein for the same relative demand base.” Japan “was a lot healthier” the last time we suffered through these prices (1994), says Manly.

Smithfield Foods is holding tight on sow numbers, except in Utah where it plans to add a few more sows to Circle Four Farms. In June, Smithfield bought Murphy’s share of Circle Four Farms. In June, Smithfield bought Murphy’s share of Circle Four and now owns about 70% of the 40,000 sows there. Carroll’s owns 29% and Prestage Farms about 1%

Smithfield is not expecting growth at Brown’s of Carolina, where it owns 100,000 sows. “We have our hands full right now,” says Jeff Luckman, head of livestock procurement for Smithfield. “Sow production is not attractive at the moment, but we are always looking three years down the road.”

Seaboard still expanding

There is only one large producer still talking expansion of any significance. Seaboard Corporation (ranked fifth with 125,500 sows) socked a 12,500-sow unit in Oklahmoa this summer, and has three more of that size planned for the next year. “As fast as we can build, we will build,” says Mark Campbell, vice president of development. “We export all the pork we can produce. Our buyers can’t get enough and are clamoring for more.”

Seaboard has one pork processing plant in Guymon, Oklahoma, and plans another by 2001 at an undisclosed location. “The decision to build a processing plant is very complex, much like a chess game,” says Campbell. “Each move is strategic and must be well thought out before the next can be made.” He won’t discuss the exact location of the new plant due to past siting controversies.

Some expansion is planned by Texas Farm in Perryton, Texas in the coming months. The Japanese-owned company doubled from 10,000 to 20,000 sows since last fall and plans to be at 28,000 sows by early next year.

Expansion has certainly slowed elsewhere in the U.S. Hog Slat, a construction company that works with many of the largest producers, had several layoffs this summer and expects more.

White Oak is out

One Pork Powerhouse now out of the hog business is White Oak Mills of Elizabethtwon, Pennsylvania (12,000 sows in 1997). In August, Wenger’s Feed Mill in nearby Rheems bought White Oak’s swine business. Hosteter Management Company will manage the new production. “We’ll be depopulating and repopulating and remodeling – going back in with about 10,000 sows,” says Hostetter.

Another large farm that has changed hands this year is the 6,600-sow outdoor unit near Lamar, Colorado, formerly owned by Bell Farms of North Dakota and Garden City (Kansas) Coop. Consolidated Nutrition of Omaha, Nebraska, bought that unit and changed the name from Bell West to Out West. Bell is still active in Colorado, however, partnering with Minnesota-based Hormel Foods on a new 25,000-sow unit near Las Animas.

Withdrew sale of bonds

In Iowa, Heartland Pork (61,000 sows) withdrew a sale of bonds this summer after the bonds became to expensive given market volatility. The bonds would have been used to pay down debt. “We wanted a different capital structure, but will stay with what we have,” says Hearland’s chief operating officer Rod Hamann. “We just have to suck it up and batten down the hatches.”

Heartland’s new mill near Iowa Fall sis built and will produce its first batch this fall, he says. “Our investors are putting more money into the company and will continue to do so, if needed.”

Hurts both ways

In Oklahoma, Hitch (ranked 39th with 15,000 sows) is seeing poorer returns in both hogs and cattle. “I hurts both ways for use,” says manager Mike Brandherm. “Although we custom feed cattle, if our customers are being hurt and losing money, it’s not a good situation.” Hitch completed construction this spring on all its hog units, and is staying put for a while, says Brandherm. “Unless you’re an integrator, expansion at this time is not wise.”

The largest operation new to our ranking this year is Purina Mills, now owned by Koch Agriculture Company. Of the 75,000 sows listed, Purina owns 13,000 outright, and services the rest under its Swine Management Services division based in Nebraska.

What can we expect from the Pork Powerhouses in the next 12 moths? Mergers, acquisitions and consolidation. Hopefully some liquidation. And quite certainly a good amount of wailing and gnashing of teeth.

ADM poised for major moves in swine industry

For years, grain giants Cargill and Continental Grain have had a prominent place in pork production (Continental upped its position in 19998 by purchasing majority interest in Premium Standard Farms). Now another grain giant, Archer Daniels Midland, plans a larger presence in the industry.

ADM already owns half of Consolidated Nutrition in Omaha, Nebraska, which has 14,000 sows in production in Colorado, Minnesota and Wyoming. ADM also owns the feed company MoorMan’s, as well as ADM Animal Health and Nutrition, both now located in Quincy, Illinois. To top it off, DM owns 13.5% of the nation’s largest pork packer, IBP, and analysts predict that share will get larger.

Purchases young pigs

ADM is “a network facilitator in many pork systems that own sows,” says an ADM source who asked to remain anonymous. The company has agreements with several producers to purchase early weaned and feeder pigs, and arranges network producer purchases to disseminate the pigs.

For example, ADM guarantees a contractual price for the pigs from nearly 30,000 sows in Nebraska, Iowa, Illinois, Indiana and Ohio. The sows are all owned by independent producers, and ADM facilitates the placement of pigs on independent farms and does marketing arrangements on the back side.

Kansas citizens call to political arms; Seaboard is coming!

When Seaboard Corporation targeted Great Bend, Kansas, last spring for a new hog slaughtering plant; county commissioners congratulated themselves for landing the $110 million plant, which would employ 2,400 people. Then a handful of concerned citizens requested that the decision be put to a general vote in the upcoming election. The commissioners said, “No.”

Quickly, four of the citizens raised $6,000 for advertising and put themselves in the running for city council seats. Voter turnout was high, and the four-all write-in candidates-unseated the incumbents. The upshot: Seaboard could no longer count on using Great Bend’s water supply or sewage facility.

Water already short

“We’re especially concerned about water, because some farmers who irrigate have already been put on allotments,” says newly elected city council woman Leslie Barrett. The city now uses 3 million gallons a day. The new plant would require another 3 million gallons daily, plus 1 million gallons for new families coming to town, she says. The keep a plant of this size operation, 100 new hog facilities would be needed, also taking from the watersheds.

“Already no new water rights are available anywhere in the country, and even more water is set to be siphoned off upstream from the Arkansas River by another city,” says retired school principal Don Halbower. The bottom line, he says, is “this company would be bringing 9,000 people into our community of 15,000 people. Overnight Great Bent becomes a company town. Seaboard would be the dominant force.”

“Seaboard doesn’t want to be a part of Barton County,” agrees Mary Beth Bates, Hoisington Kansas. “It wants to be Barton County.”

Barrett says what really triggered public response was a barrage of local adds and commercials saying, “Barton County is hog-wild about Seaboard.” When asked who was paying for the media blitz, the ad agency refused to say. “We felt we should have some choice concerning something that would so affect the lives of everybody here,” says Barrett. “And, the people agreed.”

“Let the slaughterhouse be located 200 feet from your front door, then tell me how you’d feel,” says Lana Schatz-Brown. One possible site for the plant is just that far from her family’s farmhouse. “Putting something like this in your front yard wakes you up quickly.”

(According to Seaboard, the site of the new plant has not been chosen.)

 

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