Brumm Speaks Out

At the World Pork Expo last week, I had the opportunity to visit with many of the readers of this blog. The most common questions asked of me were:
1) when will expansion begin
2) what new item caught my eye at the trade show.

Let’s start with the expansion question. I think little expansion will occur this year. Producers are too busy healing from the past 2 years. In addition, the tougher lending rules imposed by FDIC and federal regulators on the banking industry will make it tougher to ‘speculate’ in pigs than it has been in the past. I got a sense that next summer we will see some building of wean-finish facilities but it won’t be the ‘boom’ of the 2004-2007 era.

One of the keys to new construction will be pig sourcing – where will the pigs come from if a new wean-finish facility is built? The construction of new sow facilities will be slower because of the bigger investment (and much bigger down-payment), the complications associated with siting, staffing and sourcing genetics for a 2500 or 5000 sow site, and the general question of will it only be larger systems that expand with sow units of this size?

This leads to the question – where does the ‘little’ guy fit? In the past, the little guy was 50-100 sows. Then it became 500 sows. Now, a little guy is someone with only 1200 sows. Weaning 500 pigs per week, it is tough to fill newer facilities sized for 2400 head. If you are filling older facilities with this flow, are they in good shape or do they need replacement? If replacement is needed, how do you construct smaller facilities at a cost that is competitive with larger units?

I heard a lot of discussion also about packing capacity. Right now we have sufficient capacity, even with John Morrell’s closed in Sioux City. The Triumph group is seeking funding to begin construction next summer of a new plant in the Moline, Illinois area. Assuming they proceed with construction and open a 15-17,000 per day plant, what plant(s) will be the next to close. Like any other industry, the packing industry is under great pressure to be ‘right sized’. Excess slaughter capacity comes with a big price tag.

What new item caught my eye? Not much other than I noticed that if anyone had a product that might be a replacement for fishmeal in pig starter diets, they had a booth. If you haven’t heard, fishmeal is becoming scarce due to a variety of world supply issues. By this fall, most expect it to be too expensive to use in pig starter diets. The major nutrition suppliers have been busy sourcing alternatives with several of the most likely products fully booked by these suppliers.

I have been tracking the Iowa-Southern Minnesota live weight at slaughter (http://www.ams.usda.gov/mnreports/NW_LS270.txt) for several years. This report gives me some insight on producer’s thoughts and possible production plans.

The average weekly live weight since 2004 has been:
2004 264.3 lb
2005 266.4 lb
2006 267.1 lb
2007 266.8 lb
2008 265.1 lb
2009 268.5 lb

Historically, prior to 2006, live weight increased 1-2 lb/yr. The impact of the rise in corn price due to the explosion in ethanol production becomes evident in 2006 as the rate of increase first slowed in 2006, and then even declined in 2007 and 2008. The increase in weight in 2009 was mostly due to the very cool weather in the region during the traditionally warm months of July, August and September. As readers will recall, pig performance last summer was exceptional with minimal challenges to growth from extended periods of heat.

With the return of profits, data for the first 5 months of 2009 suggest that we have returned to our pattern of increasing live weights at slaughter. This year, the 2 weeks with the heaviest average sale weights have been the last 2 weeks of May, when sale weights have averaged 270.8 lb. The average for the 4 full weeks of May was 270.5 lb, the heaviest May sale weights ever recorded.

In discussions with producers the past few weeks, these large sale weights come as no surprise. The current goal of many producers is to sell the pigs as heavy as possible. With fewer pigs in grow-finish inventories, there is more barn space becoming available, often as a reduced price compared to what was being paid even last year. As long as the marginal cost of gain is lower than the added revenue, it makes sense to take pigs to heavier weights.

While the cash market is down some from the highs of a few weeks ago, many producers took advantage of the very good price offerings in the futures market. Delivering live hogs to a packer with an $87 June hedge makes pork production a fun business again.

I spent part of today reviewing a paper submitted for publication to a refereed journal that looked at drinkers for pigs. As I reviewed the paper, I was once again reminded how little we really know about the pigs drinking behavior or even its preferences for type and location of drinkers.

In the past, most recommendations for drinking water were simple – have it present at all times and it should be ‘potable’, which means fit for human consumption. This really doesn’t detail the many decisions that must be made about water systems for today’s housing systems.

The questions I most often get from producers are:
1) What type of drinker is best for wean-finish pigs?
2) How many drinkers do I need per pen?
3) Where should I locate the drinkers in the pen?
4) What pressure should I use for the water line?

If you’ve attended a presentation where I’ve talked about drinkers, you know the answer to all of the above questions is ‘It depends’. While it would be nice to reply to each of these questions with a well researched answer, in many cases the industry is learning about water needs by trial and error. I’ve been on a lot of sites where the error part of the learning experience was in place.

It turns out that it is difficult to do well replicated research on drinkers and water needs. If water disappearance is part of the research, leaking nipple drinkers due to broken drinker springs, seals, etc. will drive the researchers crazy. How does one sort out the issue of location of drinkers from the issue of number of drinkers as to impact on pig performance and preference? Season of the year will impact how the pig perceives and utilizes drinkers.

While we’ve come a long way in defining the water needs of the growing pig, we’re still learning by trial and error how to apply this knowledge to the real world of the pig pen.

This past week I spent some time reviewing the literature regarding the impact of weaning age on pig growth to slaughter weight. With profits returning to the swine industry, many producers are debating whether to invest in additional farrowing capacity so they can wean older pigs into their production flows.
The debate on the appropriate weaning age is not simple, as weaning age not only impacts the pigs that are weaned, but also impacts the subsequent performance of the females that weaned pigs.

The potential impact on female productivity has big implications for farrowing sites as it impacts the number of females needed to fill a given number of farrowing crates and the overall number of pigs weaned. In general, as weaning age declines (goes from 21 days to 17 days as an example), the subsequent litter size is reduced by 0.1 pigs per day of age decline. In addition, as the return to estrus tends to lengthen and there is some evidence of a reduction in conception rates.

On the weaned pig side of the wean age equation, the data is more confusing. In looking at performance results for 8 studies that followed the weaned pigs to slaughter weight, there was no consistent decrease in the days to final weight. In some of the trials, when pigs were weaned at an older age, they grew faster. In other trials, pigs reached a constant final weight in the same number of days from birth, regardless of wean age. Weaning an older pig does not automatically mean a younger pig at a constant slaughter weight.

What has confused a lot of people in looking at the wean age data is that pigs in the trials are most often weighed on the same day post-weaning, and performance has been reported as performance since weaning. In every instance, the older pigs have grown faster and attained a given final weight sooner than the younger pigs. This makes it appear that older pigs at weaning have a performance advantage over younger pigs, when in fact this isn’t always the case.

One of the questions that must be considered by a production system is where do you want to house pigs – on the sow in farrowing rooms or in wean-finish production facilities. If it takes the same number of days to attain a 270 pound sale weight, the question of weaning age then becomes, what age makes the most sense given the options for where I can house pigs, and what is the impact on sow productivity?

As a person who has been involved in starting weaned pigs for over 30 years, older pigs arriving at a production facility are always an advantage, in my opinion. A truck load of 22 day old pigs vs a load of 17 day old pigs means a lot fewer 5 to 7 pound pigs to deal with.

Every Friday afternoon the USDA releases its weekly National Feeder Pig price report (http://www.ams.usda/gov/NW_LS255.txt). I’ve been tracking this report for many years now.

In today’s report, the composite formula base delivered price for weaned pigs was $39.60 per pig (up $1.12/pig from the previous week) while the composite spot market price quote was $49.35 per pig (down $6.24 per pig). For 40 pound feeder pigs the composite formula price was $72.34 (down $3.30) while the composite spot price was $76.54 (down $2.79).

The sharp down turn in the cash price for weaned pigs (it peaked at $52.97 2 weeks ago) and feeder pigs (it peaked at $81.88 2 weeks ago also) suggests that spot market buyers of pigs destined for sale this fall are carefully watching the futures market for their price signals. They apparently believe the futures market has seen a relative top and is headed towards a seasonal decline.

The formula prices don’t react as fast, and hence continue to be very favorable for sellers of weaned and feeder pigs. It is interesting to note that the reported formula price received for weaned pigs since January 1 has remained between $38.06 (week ending April 2) and $39.93 (week ending February 19) and averaged $39.05.

At the same time, the spot composite cash price has ranged from $44.17 (week ending February 26) to $52.97 (week ending April 30) with an average price of $47.25. The last time cash prices for weaned pigs were this high was the week ending December 16, 2005 when the composite cash price was $61.57 per pig.

For those selling weaned pigs on the spot market, it’s been a tough 4.5 years.

On Sunday morning at 5 am the outside temperature at my house was 28F and the ground was white with frost. This followed over 0.5 inches of rain on Friday. While everyone has been waiting for the one-last frost of the season, the rain was more welcome. The weather outside today is windy and cold with a current temperature of 56F. Sure feels more like early April than mid-May

For pork producers, so far the spring increase in prices has been more like a Christmas present. While most expected an increase in prices due to the reduction in the sow herd both in the US and Canada, few expected it to rise so fast and so far. In a few months we went from losing money on every pig sold to making over $20 per pig sold. On my side of the fence, it is sure nice to talk with producers who remain in the business of pork production – a smile has returned to their faces and they have some optimism.

How much optimism – I have heard reports of at least 3 empty sow facilities being repopulated with females. However, there are only a few reports of summer building projects, suggesting bankers are keeping a tight rein on credit until the industry rebuilds the equity it lost the past 2 years. At the same time, I am getting requests from contacts not in the swine industry asking about the availability of small to mid-sized systems for sale. With the return to profits and the continued worries on Wall Street and elsewhere, outside investors are once again looking to invest capital in agriculture. So far, I’ve not heard of any recent investments by these outside sources.

A concern many have is the very large dependency our industry now has on the export market. We now export around 20% of all the pork we produce. As documented by the ag economists at the University of Missouri, the export market contributes greatly to the profitability of our industry. However, our reliance on exports means we must also become extremely sensitive to the world forces that impact our foreign buyers.

When 95% of all the pork we produced was consumed in the US, we didn’t need to worry too much about the strength of the US dollar, or whether the economic crisis in Greece would impact our EU-27 trading partners. Suddenly, we now follow this news, as well as the daily price of crude oil and the progress of Free Trade Agreements in Congress.

Whoever succeeds in the future will not only have production and financial skills, but will also have an understanding of the impact of world trade issues so that the appropriate risk management strategies can be implemented.

Have you ever considered the level of detail that goes into a research project, whether it involves 24 pigs or 2400 pigs? In reality, the number of pigs doesn’t impact the detail, just that with more pigs, the complexity of the detail can sometimes be almost overwhelming.

I mention this today since I spent considerable time in the past month designing a large wean-finish trial involving over 2000 pigs. Pigs were ear tagged at the sow farms and individually weighed prior to weaning. With the ear tag, we recorded the birth mother, along with other information. Yesterday, our research site received 50% of these pigs, with the remaining pigs coming Monday morning.

I know many readers of this blog would think that for many wean-finish trials, it should be sufficient to just gate-cut 27 pigs into every test pen and then randomly assign treatments and begin the experiment. However, in reality that doesn’t work.

At SVC Research, every pig that enters our facility is ear tagged and individually weighed. We then allocate pigs such that every pen of pigs has the same variation in weight (all experimental units are the same), rather than relying on the chance that every pen is the same. In some trials, we have other criteria that must be controlled for.

This means that yesterday, every one of the 1200 newly weaned pigs that arrived was hand carried to their pen based on their ear tag number. There were approximately 600 barrows and 600 gilts delivered, meaning we placed pigs into 22 pens in each room. While the pens are on each side of the central aisle and at one end of the barn, many pigs had to be carried over 110 ft to their pen. Do this 27 times for each pen and you begin to see the magnitude of the labor effort.

The reason for individually tagging pigs is not only for assignment to pens, but pigs are individually weighed at 2 points later during their growth to slaughter. By having an ear tag in the pig, we can track how the experimental treatments impact variation in weight gain, etc. Tagging pigs also means we can identify whether a pig is in the right pen throughout the experiment.

I mention this effort to highlight the effort involved in starting a research trial on a commercial scale. Having large populations of pigs involved in an experiment has the advantage of increasing the statistical power of an experiment (odds of learning whether a difference between treatments really exists, even at a small difference level). It has the disadvantage of complexity when it comes time to actually put the pigs on-test. Mistakes get made when you carry that many pigs and it often takes many more hours of effort to sort out these errors.

Beginning today, the Chicago Futures will trade a contract for dried distillers grains with solubles (DDGS). Since the majority of swine producers now include this ingredient in their grow-finish diets the addition of this contract is welcome.

Last Thursday and Friday as I worked with a power washing wand in my hand, I got to thinking about this new futures contract. My thinking started first with the ‘old’ hog:corn ratio. Prior to the use of such a large amount of the US corn crop for ethanol, the majority of the corn grown in the US went into livestock feed. An obvious point of interest for industry decision makers was the relative value of corn compared to various livestock commodities that would consume the grain.

In the case of pigs the hog:corn ratio was an often quoted term. It reflected the fact that approximately 80% of the feed ingredients consumed by pigs was corn (or it’s equivalent in the case of milo). When the ratio increased beyond some number (often thought to be 15:1) pigs tended to be profitable. If the ratio predicted profitability for several months, or even more than 1 year, producers tended to expand production. If the ratio was less declining, producers cut back on production. In this way, the ratio looked at the relationship of price received to the cost of the major expense in raising the pigs.

Beginning in 2006, the ratio became less meaningful. The price of corn is now often closely associated with the price of crude oil and has only a weak relationship with livestock feed demand. In response to higher corn prices, and the relatively location of ethanol plants in traditional hog growing areas, the use of DDGS in pig diets has expanded.

As a by-product of ethanol production, the price of DDGS is influenced both by the price of corn and by the livestock demand for use of the product. Almost all of the DDGS produced by US ethanol plants is consumed by livestock, either in the domestic or overseas market. Thus, the value of the product is directly related to livestock demand, and livestock demand is based on a relationship with corn and other ingredients (including synthetic amino acids, phosphorus sources, etc).

This leads me to speculate – will a hog:DDGS ratio be more meaning full to those of us involved in pork production?

In the past few weeks I’ve been involved in a series of discussions with producers and allied industry about production unit sizes. A common thread in the discussions was the idea of what size of production unit a producer should target. I think many of you have thought about this already as you have invested in production facilities, presented testimony at township and county zoning hearings, etc.

Lately I’ve read and heard it said in discussions that the 1200 sow farrowing unit doesn’t fit with the future direction of the US industry. The argument behind this thought is that today’s wean-finish facilities are most often sized for 2400 or 2450 hd of pigs during the grow-finish period. For several states in the Midwest, this size is just under the size at which more rigorous manure reporting requirements begin.

Another consideration in sizing of the production facility is the all-in/all-out consideration. With 1200 pigs in a room, it is relatively easy to pull out semi loads of pigs for sale (generally 186 head) with minimal packer sort loss. With smaller production rooms, either the loads have more variation in pig wt, or the loads must come from more than one unit which is often a violation of a production system biosecurity standard.

The challenge for producers who wish to remain as independent producers by assuming pig ownership risks and rewards is that sourcing large flows of pigs is a challenge. Many producers have overcome this challenge by investing in a pig production unit and receiving pigs on some type of schedule. In order to have a flow of 2400 pigs per week (keeping pig age relatively tight) is that it takes about 5000+ sows to generate the flow.

The complexity of pig flow gets even greater if the wean-finish facility is double-stocked at weaning with 50% of the pigs moved off-site 5-7 weeks after weaning to other facilities. Suddenly you need to have 4800 weaned pigs delivered, and if the delivery interval between first and last pig is large, management of diets becomes an issue.

A 1200 sow unit, farrowing weekly, will produce around 500 pigs/week. If this sow unit is supposed to fill a 2400 head wean-finish, it takes 4-5 weeks of weanings, an unacceptable long time. One option some units have done is to return to batch farrowing, even with 1200 sows. Now, instead of 500 pigs every week, they wean 2000+ pigs once every 4 weeks. There are some inefficiencies at the sow unit in terms of open females not fitting production schedules, etc, but the pig flows fit many existing facilities.

Another option being considered is to construct wean-finish facilities with smaller rooms. Each of the rooms is all-in/all-out, but the overall facility is never empty. The advantage of this system (often with 16 rooms) is that pig sales can occur from multiple rooms, so you can always put the heaviest pigs on a load to slaughter. You can clean and fill a room (often by double stocking) while you are still selling from other rooms, meaning facility utilization goes up. If you receive weaned pigs every 4 weeks, vs 2x per year in a typical wean-finish facility, market risk management is easier as you have pigs for sale in all months of the year.

With a weaned pig flow need of 500 head at a time, a person with 350 sows that batch farrows can keep the facility full.

The biggest criticism of this production option is the lack of all-in/all-out by facility. Both the farrowing site and the wean-finish producer must be committed to a strategy that minimizes the PRRS risk.

Lately I’ve been with several producers who have invested in smaller flow facilities, or are gearing up to sell into smaller flow facilities. This suggests that there is no one optimum size fits all model for production systems. There still is a place for a variety of sizes of enterprises, but it will take innovation to be successful.

Probably the biggest reason I love being involved in agriculture is the optimism that both crop and livestock producers bring to their careers. You have to be optimistic to plant corn without knowing how much rain you’ll get or to breed sows to have pigs to sell 10 months in the future.

This past week I was reminded of this optimism in 2 ways. On Friday, I saw a grain producer located just to the southeast of Austin, MN planting corn. With an average frost-free date in early May for this area, this is optimism to the extreme.

After 2 years of financial pain, pork producer’s optimism that things would get better has paid off. If they were able to survive the severe erosion in equity the past 2 years, the opportunities for profits in the coming years looks to be very good.

As a consultant, producers curtailed use of my services in the past 2 years. Many producers and veterinarians told me they knew that my services in troubleshooting ventilation and housing problems and educating growers on management issues were valuable. However, they were forced into prioritizing cash expenses and my services were on the list of items to reduce.

In the past few weeks this has changed. I’ve had several calls from producers who want to invest in changes to their facilities. They feel their cash flow is going to be such that they can swing an investment in repairs and/or remodeling to make their work easier, to save long term on propane expense, etc.

In talking with gilt suppliers, producers have begun the process of turning over their aging sow inventories. Some suppliers have told me that they are completely sold out in the short term.

While there are only a few new facilities planned for this summer, the equipment suppliers are telling me that spending on replacement and repair items is picking up a sign that producers are reinvesting in their production facilities.

Yes, the spring of 2010 is bringing needed profits to the pork industry. Producer’s are looking forward to being able to reinvest in their production facilities.