Sunday, September 27, 2009

I'm missing something here...

I was pretty surprised by the Hogs and Pigs Report.  Given all the anguish in the industry I thought a 2% drop was way too small a reaction by producers losing money with every snout.  But that's what it looks like.
The good news: The U.S. hog industry is contracting. The bad news: Because of extreme efficiency (higher pigs per litter), the rate of contraction won't likely be as strong as what the base numbers would suggest. The higher pigs per litter figure for June through August means there will be more hogs longer-term than what was expected. While we can't complain about high efficiency, there is still a greater need for contraction because producers continue to get more pigs per litter. [More]

OK, I am certainly not qualified to opine on what this number means to the market, although it does raise my hope a teensy bit for feed usage from my corn grower perspective.  But this "efficiency paradox" really began to puzzle me when I read this quote:
Red ink is flowing, cash is hard to get, and cuts are being made. Prestage Farms, Clinton, North Carolina, will cull 10 percent of its sows across all farms by December, bringing the company's total to 125,000 sows, says owner Bill Prestage. "When we cull we won't replace. This is worse than 1998 because it's lasted longer. The big thing that killed us is ethanol. H1N1 hasn't helped, either."
Many of the largest producers report that sow cuts don't translate to market hog numbers dropping. In fact, small cuts may actually do the opposite. "If you cut 4 percent or less you go up in pigs produced," says Bob Christensen of Christensen Farms in Sleepy Eye, Minn., part of the Triumph Foods system. "You're not crowding the system and people are able to do their jobs better. You have to cut 6.5 percent of your sows to see a real decrease in pigs produced."
Sow productivity is at an all-time high for most of the largest companies, with many farms averaging 24-26 pigs weaned per sow each year. "That's world-class performance," says industry consultant Randy Stoecker. "People are weaning more than 11 pigs per sow and seeing less than 3 percent mortality from wean to finish. They cut back sows, but the output of pigs does not go down. We are strangling ourselves with production." [More][My emphasis]

Now it just possible this is one of those things you say to encourage/prod competitors to scale back as you do, instead of being there with sows to take early advantage of any recovery in prices. But assuming it is really true that you get MORE pigs with fewer sows because  - just guessing  here - it is standard practice to operate push numbers the optimal return point, the question is begged:

Why not always operate at this lower sow population?

If you know there is an inflection point in your profit curve, why drive numbers over to the other side?

Maybe it one of those statistics you only can determine by exceeding it, but if it is general knowledge, doesn't it suggest a persistent management failure in pushing people and resources too hard?  Maybe the same thing happens with grain farmers and acres and it's only obvious in retrospect, but I've always considered the Big Pork operators to have better real-time data than farms like mine.

Any help out there?


Anonymous said...

John, let me see if I can help. We operate a large dairy operation and have always heard from industry people not to over-crowd. Our pens are "over-crowded" by 12-25% depending on milk production and reproductive status of the cow.

If we can (used to make...!) $250/cow/year, then having those extra 45 cows in each pen gets me $11,250 of added income over the year for each pen. However, if I reduce cow numbers to "ideal" nobody can tell me what my milk production will this case I would need to get another 2-3 lbs of milk per cow left in the pen to make up for the 45 fewer cows. I know what I have with the 45 extra cows, but you can't promise me the milk. My system will support 75lbs of milk on the cows I'm milking, but nobody can guarantee me that I will get more milk with fewer I just keep going with the extra cows. One in the hand is better than 2 in the bush I guess.

It is also the challenge of getting your people and your systems to support the higher level of production with the extra animals. It's easier to get more with fewer, but harder to get more with more!! I like the challenge. The chicken people saw the same thing as the swine guys when they had to increase cage space. I would bet that once prices rebound, they'll be back to a head in every hole...they just want to rationalize why people won't cut back further.

We've got the same thing in the nation's dairy herd. Yeah we're removing cows from the nation's herd, but replacements (...thanks to sexed semen...) are more than compensating and will make a recovery in dairy painfully slooowww. Not sure this helps, but it's how I think about it...

John Phipps said...


Great comment. I think I have a vague understanding.

It reminds me of the concept of throttling back to operate a tractor at the optimum efficiency.

Yeah - right.

It all gets back to theoretical benefits versus obvious ones.