Swine Summit Information and Updates

What the Heck is Going On?

Mark Greenwood, AgStar Financial Services

The pork industry—and agriculture as a whole—has experienced volatility never before seen. Mark Greenwood with AgStar Financial Services said understanding this volatility is key to success in today’s markets.

“You have to wrap your head around what’s happening in the marketplace,” Greenwood said at the Vita Plus Swine Summit in Morton, Minn. April 2.

The U.S. dollar is strengthening. Although this has some economists optimistic, it also has a negative on exports. As the U.S. dollar increases in value relative to other countries, their ability to purchase U.S. goods decreases.

As global economies falter, household net worth is also rapidly declining. Greenwood cited that in the last year, world net worth has dropped by $50 trillion. This means people can’t spend as much on food.

Greenwood said that as producers look to survive in these volatile markets, risk management will be even more critical for 2009. He said producers have to manage their feed costs and revenue risk and understand the strategies for increasing margins. In addition, the industry needs to pull together to limit supply and drive up cost. He said he estimates the U.S. needs to decrease swine numbers by 2.5 million to return to profits.

“The poultry industry has cut back and is making money,” Greenwood said. “The pork industry needs to do the same.”

Greenwood, who works with a variety of swine producers, said the profile of a successful producer is someone who has greater than 40 percent owner equity, understands cost of production, raises his own feed, continues to improve production efficiency and has a solid marketing plan and financial accounting system.

“Run your business like a business,” Greenwood said. “You are a manufacturing company, plain and simple.”

US Pork in the Global Marketplace

Brett Stuart, MBA, Global AgriTrends

Changing world demographics will have a significant impact on meat markets. This was the message shared by Brett Stuart with Global AgriTrends at the Vita Plus Swine Summit in Morton, Minn. April 2.

Naturally, as world population increases so too will meat consumption. However, per capita income also affects meat consumption. As people become increasingly wealthy, their protein sources evolve from beans to poultry, pork and beef.

India, China and Japan – countries increasing in population and per capita income – are demanding more meat. In fact, Japan already imports 41 percent of its pork and 40-50 percent of its total energy. However, poor world economies have limited the meat imports in these countries.

China is producing a lot of pork. However, because most of the animals are still only produced in “herds” of one or two animals in people’s backyards, little is actually known about the impact of Chinese markets on world pork production.

“Almost half of the hogs in the world live in China,” Stuart said. “The problem with that is that they are very nontransparent. Data doesn’t exist.”

Many factors make China a difficult-to-predict market for U.S. exports. Disease decreased Chinese production by eight percent in 2007 and hog prices more than doubled. As a result, imports exploded. Still, many Chinese live with no refrigerators, making it very difficult to store meat. Live hogs must instead be shipped around the country. As Chinese population and wealth increases, the country’s pork industry will also evolve.

“The Chinese don’t want 70 percent of their hog production to be backyard. They want to go commercial,” said Stuart.

After last year’s summer Olympics, a lot of focused has been placed on China. However, Stuart cautioned producers to not focus on that country alone.

“Seventy-five percent of the profit from exporting comes from Japan,” he said. “We can’t underestimate what Japan means to us.”

Intentional Production: Improving Profits When Market Prices are Challenging

Dennis DiPietre, Knowledge Ventures, LLC

From average daily gains to market weights, pork producers focus on averages to monitor the efficiency and productivity of their operations. However, according to Dennis DiPietre of Knowledge Ventures, LLC, producers should be looking at the differences between their animals.

“The opportunity is in the variance,” he said to pork producers attending the Vita Plus Swine Summit in Morton, Minn. April 2.

DiPietre said that producers need to start looking at their operation’s statistics as distributions instead of points. Averages don’t give an accurate picture of your operation.

“You can have your head in the freezer and your rear in the oven and still be at an average temperature,” he said. “Averages don’t really tell you what’s going on. If you understand the distributions, you can make better decisions.”

This is where DiPietre’s concept of intentional production comes into play. He said the ideal endpoint—the intention—is that every pig on an operation is sold at its profit-maximizing weight at no discount for quality and at the least total cost.

DiPietre suggested that producers must first understand the profit-maximizing weight for a pig. This is the weight at which adding or subtracting one pound would result in lower profits.

Traditionally, producers assign one average target weight for the entire herd, but seldom does a pig actually meet the average goal weight. Rather, almost all of the pigs are above or below the target weights. This variance is due to a multitude of factors, including genetics, environment and management practices. This, in turn, means most of the pigs do not meet their profit-maximizing weights.

Because the profit-maximizing weight is a function of the cost of adding an additional pound, pigs above this benchmark cost the producer more in feed. Thus, DiPietre suggested that producers instead target a lower weight to reduce costs. Although they won’t bring in as much revenue, they won’t pay as much in costs and will realize a larger profit margin.

DiPietre asked, “Do you want cash to come in and go out the door or do you want it to drop on your desk?”

As producers work to increase efficiency on their operation, DiPietre said they should focus on minimizing the variation between weights of their hogs. This means they can gradually increase the target weights without increasing costs.

“The narrower the distributions of weight you send to market over time, the higher your average weight should be,” he said.

Hog Handling: Strategies to Reduce Losses When Marketing Pigs

Matt Ritter, Elanco Animal Health

In a tough pork market, swine producers can increase profits without investing anymore money into their operations. Matt Ritter of Elanco Animal Health has been leading research on improving hog handling while marketing pigs to reduce animal losses. Ritter presented his research findings at the Vita Plus Swine Summit in Morton, Minn. April 2.

According to Ritter, producers should look at the incidence of non-ambulatory pigs arriving at market. Hogs often become non-ambulatory for one of two reasons: injury or fatigue.

“The vast majority of non-ambulatory pigs is due to fatigue, which is stress-related,” said Ritter.

Fatigued Pig Syndrome is a growing concern facing the pork industry. Acute stress is characterized by open-mouth breathing, skin discoloration, abnormal vocalizations such as barking and muscle tremors. This can also lead to high blood lactate, low blood pH and high body temperature.

“A majority of these animals will recover in two to three hours,” said Ritter. “You usually just have to remove the stressors and allow them to rest.”

According to Ritter, most producers expect one hog per trailer to die or become non-ambulatory during transport. Past research has focused on aggressive handling with electric prods, porcine stress syndrome, crowding of pigs during transport and extreme weather conditions. However, relatively little was known about the effects of facility design and group size during loading.

The first of Ritter’s studies addressed facility design. Researchers divided hogs into two groups. Traditionally, pigs are housed in small pens and sorted during loading. In the study, groups of 32 pigs were housed in small pens, with each animal receiving 7.21 square feet of room. In the second group, pigs were given the same amount of room. However, they were housed in large pens with 192 animals per pen and manually pre-sorted before being shipping.

Ritter’s results showed that pigs in the small pens became non-ambulatory at a rate of 0.66 percent, contrasted to 0.29 percent for those in large pens. The large pens and manual pre-sorting reduced physical signs of stress during loading and unloading. Furthermore, small pens correlated with a death rate of 0.23 percent versus a 0.01 death rate for large pens.

“You may see effects on growth performance with large pens early on,” said Ritter, “but we estimate this will be compensated for in the end.”

Ritter also emphasized his study did not show whether the improved statistics were influenced more by pre-sorting or by pen size as both variables were tested at the same time. His current research is working to clarify these effects.

Ritter also investigated the effects of moving pigs in small groups when loading them onto a trailer. Some pigs were moved in groups of eight animals while others were moved in groups of four. Sorting boards and electric prods were used if needed.

His results showed that only 0.05 percent of the hogs moved in small groups became non-ambulatory and only 0.19 percent died. This is contrasted to a non-ambulatory rate of 0.27 percent and a death rate of 0.56 percent for large groups. Moreover, loading time decreased by an average of 4.6 minutes when hogs were moved in small groups.

“These are all easy things you can do on your operation,” Ritter said. “It doesn’t cost you anything, but it saves you a lot.”

Are You Prepared for an Activist Group?

Cindy Cunningham, National Pork Board

Since the recent airing of the HBO documentary “Death on a Factory Farm,” many pork producers across the country are concerned about what they would do if animal rights activist groups target their operations.

During her presentations at the Vita Plus Swine Summit in Morton, Minn. April 2, Cindy Cunningham with the National Pork Board addressed this issue and helped producers create an action plan should that nightmare ever come to life.

Cunningham pointed out that facing activists is very difficult because of the overwhelming support the organizations have gained in comparison to animal agriculture. For example, the Pork Check-Off is budgeted for $40 million annually to cover every function of the organization – from research to promotions – and only $2 million goes toward crisis management and preparedness. Contrast that to the $130 million the Humane Society of the United States (HSUS) and the $28.9 million People for the Ethical Treatment of Animals (PETA) put toward their efforts, and it’s easy to see why pork producers are fighting an uphill battle.

“I can tell you those groups are very well funded and very strategic,” said Cunningham.

Activists’ programs have evolved drastically in recent years; a trend Cunningham is sure will only continue.

“Their tactics have increased from throwing a pie in the face of the pork queen to today airing a 90 minute documentary on HBO,” she said. “As passionate as you are about raising pigs, they’re equally as passionate about ‘caring’ for the pigs.

Cunningham explained that the recent HBO documentary, led by the efforts of the Humane Farming Association (HFA), targeted a swine operation in Ohio. HFA members entered the farm undercover and obtained behind-the-scenes footage of what they deemed mistreatment of animals. The farm was then charged with animal cruelty.

As Cunningham spoke to the Swine Summit producers, she highlighted the steps to prevent similar situations from happening to them. She also advised the producers to focus on managing the best operation instead of always looking for who may attack them next.

“In the industry, what we would really like to do is talk about doing the right thing instead of looking for the camera,” she said.Cunningham’s first recommendation was to be meticulous in your hiring and management practices and be 100 percent sure each employee will treat the animals well. This includes careful attention to hiring, training, day-to-day production practices, on-farm personnel issues and employee attitudes toward animals.

“Think about who you’re hiring,” she said. “It’s really not just about filling boots—are these the best people you can have on your operation?”

Cunningham said that anytime a visitor steps foot on your operation, you should be able to pass the “wow test.” In other words, every aspect of your operation—euthanasia, castration, teeth clipping and tail docking, weaning, housing and transport—should demonstrate top-notch animal care. For pork producers, this goal is two-fold. First, producers must be able to assure that daily production practices are done right on the farm level. Then, as an industry, producers must work together to address any of those practices that may be questioned.

Cunningham emphasized that prevention is key to facing activist groups. However, a producer should also have an action plan developed and in place in the event that an activist group or demonstrators would show up on his doorstep someday.

First, identify who the leader on your operation will be. Who will be the person in contact with the activist group and/or media? What responsibilities does that person have? Then create a system for informing everyone involved in your operation about the situation and what their roles include.

Producers should also develop a list of resources they can call on in the event of a crisis and have the contact information for those resources readily available. This may include the National Pork Board, the state pork association, extension agents and even law enforcement and legal council.

If you are contacted by an animal rights group, first confirm that the contact they give you is legitimate. Before you take any action, be sure you have all of your facts straight and work with your resources to develop a quick but effective strategy for managing the crisis.

Cunningham said that in addition to family, employees and animals, your action plan must protect your reputation as a swine producer.

“At first it’s just a moment of pride, but then you realize your packer may not accept your pigs anymore,” she said. “Then it’s your reputation on the line.”

Cunningham recommended producers work to create strong public relations within their communities. Be sure you have the support of local media, law enforcement and other community members who will stand up for you and your operation. Lastly, she advised that producers should never feel as though an activist group is holding them hostage or dictating their practices.

We’re not doing the right thing because activists groups tell us to,” she said. “We’re doing the right thing because we care about our pigs.”

Business Management Roundtable

Brett Stuart, Dennis DiPietre and Mark Greenwood

A panel of three agricultural economists offered a financial outlook for a group of 50 swine producers as part of a swine business management roundtable discussion at the Vita Plus Swine Summit on April 2. Panelists included Dennis DiPietre, Knowledge Ventures, LLC, Mark Greenwood, AgStar Financial Services, and Brett Stuart, Global AgriTrends. The panelists highlighted several global trends and monetary policies that will likely have a significant effect on swine production.

To increase hog prices, we need to lower production. But, when we talk with our lenders, they bring someone onto our farm to help us improve. Doesn’t this mean we’ll end up increasing production levels?

Greenwood: “The top 30 pork producers account for 65 percent of the U.S. production. At the end of the day, it’s really up to these individual producers to cut back and increase prices for the industry. I will be honest with you and say that a lender is likely going to make cuts at finishing sites and at sow units with fewer than 2,500 sows.”

As a U.S. pork producer, I often think it’s best to sit back and wait for other countries to cut back on production to raise prices. Is that the wrong train of thought?

Greenwood: “The U.S. and European Union account for 70 percent of the excess pork on the market. In other words, 70 percent of the pork not consumed domestically comes from the U.S. or Europe. Europe has cut back. Now, if our domestic consumption doesn’t meet our production and we can’t export it, we’re not going to lower prices.”

Is there any hope for free trade agreements?

Stuart: “Our constrain on exports isn’t exchange rate. It’s access. For example, if we had fair and balanced trade with Japan, we would bury them in our pork. Unfortunately, the U.S. is saying it won’t go after new agreements. We’re adding 80 million people per year to this planet. Our potential is massively outside our country. Our industry is huge and we have the competitive advantage, but we’re not going after it. I really think some farm groups want to control free trade because they think we can’t compete in global markets. We have no reason to fear that we can’t compete globally.”

DiPietre: “Why would somebody be opposed to free trade agreements? What is everyone afraid of if we have more free trade? We’re worried about what other countries are going to send us. If they start flooding our country with cheap goods, it’s going to stop manufacturing here. But think of the problems with that idea. Just think of coffee, tea and all the other things we can’t produce except at very high cost in the U.S. just because of climate or other uncontrollable factors. That’s why I am certainly for all the free trade possible.”

A weak U.S. dollar has meant an increase in exports. Is the weak dollar sustainable?

DiPietre: “Keep in mind that there are winners and losers for a weak dollar. If you’re exporting dollars from the U.S., a weak dollar is wonderful because it makes other countries want more and more of what you’ve got. But it’s horrible for importers – affecting everything from foreign cars to coffee. It’s not just all bad or all good. There are tradeoffs.”

What are you seeing in your top clients as far as information they seek and what they do with it?

Greenwood: “Every strong operation has a week-by-week plan for what their breakeven costs are. Even if you’re a small producer, you have to have good financial information to make good decisions. I think a lot of people have a mentality that if they have good production and sell their hogs, they’ll be okay. That just doesn’t work anymore. You have to be a good business.”

DiPietre: “I recommend you do two things. First, estimate your standard deviation in market weights. For a crude estimate, look at about a three- or four-month set of marketings and find the largest pig you sold and the smallest pig you sold. Figure out the range between those two weights. Now divide that by four and you have the standard deviation. If it’s 23-25, you probably have an opportunity to gain $3-5 in this economy and even more in a good economy.

“The second thing I recommend is to get the individual carcass data instead of just kill sheets. If you can get the individual carcass data from your packer, which is sometimes difficult, make a simple scatter plot of the data by lean percent and weight. Print that chart out and draw a square that depicts the area where there’s no sort loss or lean penalty and look for patterns in the pigs outside of that box. That starts to give you an action plan. You can start identifying things like chronic disease or management issues. Remember, the early fixes yield the most benefits.”

What can I do to address all of these issues we’re facing?

Greenwood: “I challenge everyone in this room to act as lobbyists. You have to be educating your neighbors. You have no choice. It is so imperative that you continue to educate the people around you. You’ve got to be active.”

Animal Agriculture is from Mars; Animal Rights is from Venus

Wes Jamison, University of Florida

Increased public interest in animal activism had swine producers at the Vita Plus Swine Summit in Morton, Minn. worried about effects on their industry. According to Wes Jamison, communications professor at the University of Florida, addressing this concern isn’t as easy as educating the public about the origins of their food.

“There is a canyon that divides the animal production and animal consumption in our consumer society,” said Jamison, “and animal rights groups are trying to exploit that canyon.”

On one side, swine producers are focused on industrial agriculture. They recognize the economics of swine production and focus on producing low-cost, high-quality meat for consumers.

On the other side, Jamison said animals welfare groups look at livestock production from a very different perspective.

“Animal rights and animal welfare has nothing to do with science and nothing to do with economics,” Jamison said.

Rather, Jamison suggested animal welfare interest is rooted in four factors. First, we are living in an increasingly urban society, disconnecting more and more people from animal agriculture.

“In urban culture, people still have contact with animals, but it’s as pets,” Jamison said, “and they think of pets as friends or members of the family.”

The second factor is a phenomenon known as anthropomorphis – the projection of human qualities on animals. Jamison said pop culture – from children’s movies to popular books – make us think of animals in the same frame as humans, complete with emotions.

According to Jamison, an increased emphasis on evolution tells people they are indeed animals and not any different from the meat they consume. Lastly, Western cultures place great emphasis on equality – an ideal that now applies to animals as well as humans.

Jamison explained that these four factors combine to create differing perceptions of meat production between producers and consumers. In fact, Jamison cited a survey conducted at the Ohio State University which revealed that 81 percent of consumers feel that farm animal wellbeing is equally as important as pet wellbeing.

“Agriculturists treat animals as commodities and want to raise them efficiently to create low-cost, quality proteins for consumers,” Jamison said. “On the other side, activists want to treat them as humans. We have two very different views colliding.”

So what does that mean for the pork industry? According to Jamison, the first step is understanding the message animal activists are sharing with the public. He said messages aren’t aimed at meat consumption, but meat production instead.

“People aren’t going to give up meat because they really like it,” Jamison said. “As a result, the activists groups have learned not to challenge meat consumption, but to challenge production practices instead.”

Jamison said he believes activist groups’ ultimate goal is to move livestock production offshore, following the “out of sight, out of mind” thought process.

Producers asked Jamison what they could do to address the negative messages shared by activists in the media. Jamison first advised the audience to not run from the reality of their industry and not feel guilty about producing meat to feed the world. He also encouraged them to focus on the positives of their operation. It’s also essential that producers work to understand the factors that interest consumers.

“If we can speak about being proud of what we do and learn the language of consumers, we can win this debate,” he said.

Jamison ended his presentation with a final challenge to swine producers.

“Never forget that you do the right thing in the right way for the right reasons,” he said. “Be proud of it.”

mentor Update

Dean Koehler

As technology evolves, swine producers will have more efficient tools to monitor and manage their operations. According to Dean Koehler, Vita Plus swine specialist, new features on the Vita Plus feed budgeting program mentor will streamline feed ordering.

Vita Plus will soon add a feed order module (FOM) to the online feed budgeting program.

“This will allow users to order feed and manage group feed budgets without visiting each individual budget,” said Koehler.

The new module will also generate a feed order summary file that can easily be sent to feed mills. After submitting the order, producers can date the transaction and mark “complete” to have a constant track of their feed orders.

After April 19 mentor users will have the feed order module, an inventory adjustment screen and a feed additive selection pop-up. Producers will also need to work with their Vita Plus consultants to re-map their farms.

Kohler said Vita Plus will continue to make improvements to the technology to best serve customers. Future enhancements will include mentor interfaces with other software, including web-based programs for production, financial and feed bin monitoring.

Breakfast with Mike Brumm and Tim Loula

Breakfast with Brumm and Loula

Swine Economic Outlook

Steve Meyer, Paragon Economics, Inc.

2008 was a tough year for the swine industry with losses reported at nearly $22 per hundredweight, and 2009 is also looking to be challenging in the marketplace. However, Steve Meyer with Paragon Economics, Inc. is optimistic that conditions will improve for American pork producers.

While addressing a group of pork producers at the Vita Plus Swine Summit in Morton, Minn. April 3, Meyer reviewed the current downturn in the U.S. economy and its effects on the pork industry.

“The biggest risk we face this year is still demand,” said Meyer. “With the current economy and export situations, demand is a huge risk.”

This is because Americans are becoming very conservative in their expenditures during tough economic times. December numbers showed record low performance for U.S. restaurants.

“There’s not just the income impact, there’s the expenditure impact,” Meyer said. “Everyone is holding back.”

Meyer said that 2008 was horrible for all meat industries, but especially bad for the beef and broiler sectors. He expects beef will continue to catch the brunt of the economic downturn. However, he also said he believes that higher chicken prices will eventually lead all meats upward at retail.

As the U.S. dollar strengthens in the global marketplace, Meyer estimates it will negatively impact meat exports. Fewer foreign countries will buy U.S. goods because of the high costs relative to their weak currencies.

“I think we are going to get hit by a higher U.S. dollar,” he said.

As Meyer looks to 2009, he predicts that restaurants—and the meat markets— will continue to struggle. Beef and chicken will be most affected, but Meyer believes that “pork will be okay.” This is because pork has a lower exposure to lunch and dinner. Pork is consumed most often at breakfast, which consumers often view as low-cost meals.

Convenience products were formerly very popular at U.S. grocery stores. However, these value-added products are also more expensive. In a difficult economy, consumers are now looking to make more homemade meals to curtail costs.

“Consumers are now realizing they have more time than money,” Meyer said.

Meyer also predicts that ethanol will continue to increase costs for swine producers. Currently 193 U.S. ethanol plants account for a capacity of 12.4 billion gallons. In addition, an expected 23 new or expanding plants will increase capacity by 2.1 billion gallons. This will put projected corn prices between $3.50 and $5 per bushel, resulting in a breakeven point of $68 per hundredweight for swine producers.

Meyer said he is unsure what effects Country of Origin Labeling (COOL) will have on pork production. He said the current federal legislation provides “loads of flexibility” for producers. The major factor will be how consumers react to multi-country labels.

“My expectation is that consumers will not discriminate against a ‘U.S. and Canada’ label,” Meyer said.

Meyer said his biggest fear with COOL is its effect on purchasing feeders and weaners from Canada. As packers refuse to accept hogs born in Canada, the U.S. may close off relations with Canada. Then, Meyer predicts, multi-country labeling won’t be an issue, but the Canadian supply will no longer be there due to a shrinking Canadian herd.

So what does all this mean for pork producers? Meyer said he forecasts a loss of $3.87 per hundredweight because of higher feed costs. He challenged producers to best manage their risks and limit their loss margins. He also said retail meat prices will reach record highs.

“We’re going to see high meat prices and you’re going to get blamed for it,” Meyer said. “Realistically, it’s just a matter of needing to cover higher costs.”

All in all, Meyer said he remains optimistic for an upturn in pork markets. Decreased costs in comparison to last year coupled with restricted supply will increase prices—and profits—for producers.

“I think this year’s going to be better,” he said. “I think we’ll continue to have a viable hog market in the U.S.”

Breakfast with Brumm and Loula
Mike Brumm and Tim Loula

Increased public interest in animal welfare will likely have significant effects on the way pork producers manage their operations. Tim Loula, DVM with Swine Vet Center, and Mike Brumm, Swine Consultancy, Inc., outlined a few of these changes during their presentation at the Vita Plus Swine Summit on April 3.

One of the premier emerging practices is pen gestation. Instead of housing sows in crates, Loula and Brumm anticipate many operations will convert to pen gestation. These pens include electronic sow feeders and free access in and out of crates. This practice is already very popular in Europe; 65 percent of Germany’s and 80 percent of Denmark’s operations use pen gestation systems.

Humane castration is also gaining in popularity in Europe. Piglets are either castrated under anesthesia or through immunocastration, which involves injecting a young boar with a vaccine that suppresses testicle growth. Loula and Brumm agreed that humane castration will soon be the best practice in the U.S. Tail docking, euthanasia and shipping practices are also likely to change.

“Change is coming,” Brumm noted. “All we can say is ‘get ahead of it.’”

Swine Economic Outlook
Steve Meyer, Paragon Economics, Inc.