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Pork Powerhouses 2017: Expansion Spells Trouble

Update: The PDF download now includes the top five Canadian Pork Powerhouses.

There are two kinds of producers in the hog industry today -- those who are expanding and those who wish others weren’t expanding.

Either way, the pig supply is growing big-time. The annual exclusive Pork Powerhouses 2017 ranking of the 40 largest U.S. producers shows there are 246,850 more sows among these companies than one year ago. For the first time ever, the top 40 own or manage more than 4 million sows. (There are about 6 million sows total in the U.S.) Almost two-thirds of the producers, 25 out of 40, have added sows. Only six companies reduced numbers.

The last time the Pork Powerhouses list grew by this much was in 2006. That growth led to a market collapse and cutbacks in sow numbers by 2008. Going further back, the biggest year ever for sow expansion among the Pork Powerhouses list was in 1998 when the largest producers added .5 million sows. Remember what happened late that year?

There is one big difference in the industry today vs. 10 and 20 years ago. Two new large packing plants opened in September, Clemens Food Group in Coldwater, Michigan, and Seaboard Triumph Foods in Sioux City, Iowa. A third, Prestage Foods of Iowa, and maybe even a fourth (to be announced soon) could be killing hogs in a year or three.

Never before in the pork industry has there been this kind of packing plant expansion, live production expansion, and absolute necessity of export expansion in the presence of cheap grain. Cheap grain often breaks more people than expensive grain, say industry experts, because it encourages expansion. Companies get bullish when grain is cheap.

Biggest movers

The largest sow growth by any one firm in the Pork Powerhouses list comes from the Pipestone System, Pipestone, Minnesota. This veterinarian-based management system added 55,000 sows since last year, some through acquisition and some by new growth. The system’s total of 240,000 sows jumps it to No. 3 on the ranking this year.

As far as building new sow farms, the most aggressive expansion is with Iowa Select Farms, No. 5 on the ranking. The Iowa company added 36,000 sows in the past year, for 207,000 total. These are the first new sow farms for Iowa Select in 12 years. The company has a 23-year relationship with JBS (formerly Swift), and with new plants coming online and the shifting of hogs to new plants, JBS needs help to fill the void.

“What’s really driving the expansion are the new slaughter plants coming online,” says Jeff Hansen, owner and founder. “If we didn’t have the new slaughter plants, there would be no opportunity. We have a long relationship with JBS, and we are filling in for some of the volume it’s going to lose to the new plants. We saw the opportunity and decided to add more sows.”

The largest growth by acquiring sows in the past year is by Seaboard Foods, Shawnee Mission, Kansas, which added 35,000 sows, all by buying farms already in production. The company needs pigs for the new Seaboard Triumph Foods plant, which processes 10,000 head of market hogs a day. The second shift of that plant will start killing next spring.

Smithfield Foods, the largest U.S. producer by a long shot with 910,000 sows, picked up 30,000 sows from Hormel Foods (the Farmer John business) since last year, but otherwise hasn’t added sows domestically. The company is depopulating and repopulating some farms, but has no plans to build new sow farms in the U.S., says Joe Szaloky, vice president of business development and planning for Smithfield.

Internationally it is another story. Smithfield added 15,000 sows in Mexico this year with more to come. “In Mexico, the plan is to keep growing,” says Szaloky. “We are happy with our businesses in Mexico and both companies are positioning themselves well to have profitable growth.” Poland and Romania combined added 10,000 sows for Smithfield this year. “Smithfield has a pretty good focus on that European business now,” he says.

Healthy herds

Not only are sow farms expanding, but each sow is more productive than 10 years ago, so the number of pigs produced goes up even more. Many people in the industry are amazed that producers have sustained this increase in output per sow for 10 years. It is phenomenal from an industry perspective, and the rate of improvement in production for the best companies is even greater.

Disease is low across the industry right now (fingers crossed), but almost nobody escaped PRRS last winter. “There has been a nasty PRRS blowing around between systems down here for a little over a year,” says Mike Brandherm, vice president and general manager of Hitch Pork Producers, which has 16,000 sows around Guymon, Oklahoma. “Our vet calls it the SouthWest 1-8-4. It’s pretty hard on growing pigs, and can cause abortions and sow/piglet mortality. The SW-1-8-4 hit us pretty hard in nursery and finishing last year and over the winter, but subsided this spring.”

Hitch converted sow farms to batch farrowing, going to a single source by site for nursery and finishing flows to improve disease control. “We also continue to explore other ways to improve herd health, such as PRRS/Myco elimination projects combined with filtering sow farms,” says Brandherm.

The deadly PED virus is still around, but not causing significant problems for U.S. producers lately. “We get an occasional PEDv flare-up that pops up very randomly,” says Szaloky. “PRRS has been, knock on wood, somewhat stabilized.”

Most producers say their animals are performing at extremely high production levels. Therein lies the problem, if you can call it that. “The pipelines are full, the animals are living well, they are growing well, they are converting well, and corn is cheap,” explains Szaloky. “It’s a bad combination.”

Labor issues

Producers almost across the board are concerned with a shortage of available workers. Many report that workers and/or their relatives are having trouble renewing work permits. “Our biggest problem is we are having trouble finding good on-farm people,” says Jimmy Pollock, production manager for J.C. Howard Farms, Deep Run, North Carolina (27,000 sows). “They are not coming back, and the influx of new workers has slowed. A lot of workers are unsure and don’t know what to do.”

The answer to labor issues is typically new technology, says Szaloky. “Labor becomes a bigger issue for all of us every single day. Our turnover rates are slightly higher, and it’s a tough situation. As your labor gets scarcer and scarcer, your quality of labor falls. Now you have a person who says, yes, I walked through the barns, yes, I looked at the animals, no, I have no observations. That’s the problem we will see in quality. I don’t have a good answer, but I think it is about automation and technology. There are things that are on the cusp of changing the world in that area. We’ve all seen new technology, but does it really work? If it does, that’s a game changer.”

Electronic sow feeding (ESF) is used by many of the largest producers who are converting farms from gestation stalls to pens. Pork Vision, a division of Standard Nutrition Company in Omaha, Nebraska, added 14,150 sows this year (6,000 were acquired) for 47,150 total. A new 5,200-sow farm near Pilger, Nebraska, will start farrowing later this year. It will feature the newest technology in feeding systems, says Connor Sharp, director of marketing. Sows will have chips in their ears so feeding stations can provide a different diet to each one, depending on stage of pregnancy and more.

Smithfield is going all-in on group housing for gestating sows. “All of our company facilities will be group housed by the end of this calendar year, with the one exception of the sows in Wyoming that came with the Farmer John acquisition,” says Szaloky. “We are also offering our growers extended contracts if they will make the conversion. We are bringing them along through positive influence instead of through a stick. We are seeing a very high acceptance rate on that.”

Vertical integration

How the new packing plants will affect the industry is unclear for now. Is this the year the pork industry turns into the chicken industry? Some say it is.

The new investment in packing is great for the industry, says Szaloky. “Nothing would please me more than for those new sows to be put to good use making meat that is sold to consumers all around the world. That’s good for our U.S. economy, and that’s good for our business. I hope that’s how it ultimately shakes out. We have got to keep the export markets going. People have to consume more pork. It’s really ultimately consumer consumption. We have to sell more meat to somebody.”

We need to keep trade open, says Daryl Olsen, senior partner for AMVC Management Services, Audubon, Iowa (117,500 sows in seven states). “We have to make sure our product is competitive in the world. As long as we produce a great product and it’s priced competitively, we are going to continue to have exports, and we need exports; it’s the key to our survival.”

This fall and winter could be a tough time for producers who are not integrated, predict many producers. “I don’t think the approach we have today is sustainable. Hog farmers cannot survive in the long run when they operate in long periods of losses,” says Szaloky.

There are only a small handful of independent producers who sell any hogs to the open market for transparency as far as bid prices. Holden Farms in Northfield, Minnesota, sells 5% to 10% to the open market each week. “The negotiated market is a big deal right now for our industry, and only a handful of people are doing anything about it,” says Nick Holden. “We worry about how many pigs are priced off of that mechanism.”

What’s ahead

The growth in pork production will continue, at least for the next six months, because many new sow farms have already broken ground. “We’ll likely see around 15,000 more sows in Michigan by the end of the year,” says Harley Sietsema, owner of Sietsema Farms (37,000 sows), Allendale, Michigan. He is one of the investors in the new Clemens Food Group plant in Coldwater, which started killing on September 5. It will be up to full shift by January.

Many producers on the Pork Powerhouses list say they aren’t building new sow farms but will be taking advantage of opportunities that come along when times get tough and some producers need to shed assets.

“If the rest of the industry struggles and there is an opportunity, we are going to be opportunistic,” says Ken Maschhoff, owner of The Maschhoffs, Carlyle, Illinois, the largest independent, nonintegrated, pork producer in the U.S. The Maschhoffs stayed steady at 218,000 sows this year, but the company doesn’t rule out selling some sow farms in the next year.

Some producers predict a market crash from way too much pork to export or consume domestically (except bacon) and the subsequent failure of any company with substantial debt within 18 months. Others are more optimistic.

“It is interesting times in the business,” reflects Szaloky. “Usually I’m a good prognosticator of what’s about to happen. Not this time. All I know is, at the end of the day, somebody has to eat the meat. To get more people eating more meat, you have to lower prices.”

Comments? Email betsy.freese@meredith.com

Download the 2017 Pork Powerhouses report.

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