The Rural Voice, 1999-01, Page 57PERTH )rtk
County Pork Producers NEWSLETTER
John Nyenhuis, President
519-393-6539
• The Rural Voice is provided to Perth
County Pork Producers by the PCPPA
Independent hog producers will survive
The following article was written by
John Fisher, chairman of United
Feeds, a U.S. feeder supplier. All
prices quoted at in U.S. dollars.
Where is the bright spot in this
hog price black cloud? How do we
survive? The only way that I can
finally go to sleep at night is to use
those pieces of information that have
always been there, but need to be
brought back to mind, and replace the
doubt and fear.
1. What is the cure for low prices?
The answer is low prices. No one can
make a profit selling hogs at the
current price level. When no one is
making money, it becomes a question
of who has the combination of least
cost of production and the highest
selling price, the greatest courage, the
most accurate information, and is
well enough capitalized to withstand
this onslaught.. We need to decrease
the number of hogs slaughtered by 10
to 15 per cent, not 100 per cent, to
return to a profitable level. This will
be done and will probably be
overdone!
2. The vast majority of independent
hog producers will survive. We know
this, because of our records and the
Agrimetrics records program (a
records company for the megas). Our
average customer, has a better cost of
production than the major contractors
by $5 to $10/cwt. We also know that
our top customers are selling their
hogs at a price equivalent to the
megas. This is powerful information.
3. Most of our customers are well
capitalized. This could be their
greatest single advantage, because it
gives them the ability to survive. Our
customers have assets and income
other than hogs. Remember that
contractors have only hogs. The
megas have a highly leveraged
position. If a producer is highly
leveraged, whether they are a
contractor or independent, they are in
the greatest danger with the current
market price. When we have a market
such as we have now, and we have
extreme losses, the loss of capital is
gigantic. As an example, and using
the North Carolina system as our
model, all buildings, labour, taxes,
electricity, repair are contracted for
about $28 to $32 per pig or $11.20 -
$12.80/cwt. There are other costs for
vet, genetics, transportation,
administration, and feed processing
that we estimate at $7 - $11/pig, or
$2.80 - $4.40%wt. The combination
of these is $14 - $17.20/cwt and we
have not put a feed cost/cwt. So let's
give them an excellent feed
efficiency of 3.0/Ib. of gain and a cost
$21/cwt and sell the pig at 250 lbs.
This then is $35 - $38.20/cwt on a
current corn and bean meal price and
remember we have already given
them an outstanding cost of
production. This does not allow for
PRRS or other health or
mismanagement problems.
per pig per cwt.
Contract fees $32.00 $12.80
Veg, genetics, etc. $11.00 $ 4.40
Feed $52.50 $21.00
Total $95.50 $38.20 or
$35.00
The $35/cwt would not be an
average and would be the best of the
best and probably not realistic.
At the current market of $16 plus a
premium of $3, they would be selling
their animals for $1.9/cwt or for a loss
of $19.20/cwt or $48/pig. Since they
only have an investment in the
animals, about $1,000 per sow, and
typically this would be 50 per cent
borrowed, they would have a capital
position of $500 per sow or $55.56
for every pig currently in their system
($500 divided by 9). At the current
loss, this would give them a little
over 30 weeks to reach zero capital ,
60 weeks if they are 100 per cent
capitalized. This market cannot last
long or we would wipe out the entire
hog industry in North Carolina.
Most of our customers have
greater staying power because of
their total assets. This is one of the
greatest factors in favour of the corn,
soybean, hog farmer.
4. We do have liquidation taking
place and have had for at least 11
weeks. There are individuals that
track the sales of market gilts, and
they are reporting an increased
percentage of gilts being sold for
slaughter. One of the most reliable
groups I know of is predicting the
sow inventory on the December 1 pig
crop report to be 94 per cent of 1997.
This is not enough of a reduction, but
the trend should continue beyond
December 1.
All one needs to do is talk to gilt
suppliers. Most of them have told me
that their sales are in the tank. We
will have fewer sows. The question is
not if we will have fewer sows, but
when will we have enough fewer
hogs? What is certain is profits will
return and they should return with an
explosion. We normally receive an
extremely high price following a very
low price. What is the best guess? We
should pop the price to -the low 30s
shortly after we reduce our kills
below the two million per week, and
this should occur sometime in
December or the first of January. I
would think that we should return to
good to excellent profits sometime in
mid -summer.
The lesson that we have learned is
that we need to be sure that we are
well capitalized to be involved in
such a volatile enterprise. We need to
have a program that is competitive,
where we have an excellent cost of
production as well as a selling price
that will match the very best. Our
records positively indicate that the
vast majority of our customers are in
the best position to ride out this
financial storm. We must use facts
and sound economic theory to be sure
we are on solid ground.0
PERTH COUNTY
PORK PRODUCERS'
ANNUAL MEETING
Thursday,
January 28, 1999
Mitchell Community Centre
JANUARY 1999 53
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