ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Pork Commentary - Record Slaughter but Prices Do Not Collapse

by 5m Editor
17 October 2007, at 4:35pm

CANADA - When we think of recent history in the hog markets 1998, 1999, 2002, 2003 when there was a collapse of prices in the face of huge marketings, it appears we have established new price plateaus, the ones established in commodities every thirty years, writes Jim Long.

Last week, in the face of the largest weekly slaughter in US history, 2.348 million (up 8.7% from last year), the Iowa-Minnesota price increased to 59.01 (week before 55.71). Some kind of miracle.

Where we go from here, US pork exports in August were up 10% over a year ago. A real low US dollar is making US pork quite competitive in many markets. This will enhance exports. Of note, Hong Kong was up 462% in August. We were told in June that Hong Kong would be the destination of choice for China’s imports, so China would have cover on importations. Looks like a source was correct.

We believe exports will remain strong. We have some hope that the circo-virus vaccine not only has kept hogs alive, but has improved growth. If this is correct, we could have pulled hogs ahead. Last fall, there was little circo-vaccine. If we pulled hogs ahead, slaughter could have peaked. Let’s hope so, fewer hogs and increased exports (demand) will help prices.

Ten days ago, there was a retirement reception held in Ames, Iowa for Randy Stoecker, President Western Operations, Murphy Brown LLC (Smithfield). A former president of PIC, Randy joined Wendell Murphy of Murphy Farms fame twenty years ago. Twenty years later, the swine industry has been transformed. Randy Stoecker was a major catalyst in the change.

I was not at the reception, having just returned from Asia. A colleague, Bob Fraser was there, and wrote the following report:

Bob Fraser Reports

Last Friday evening, I had the privilege of attending a retirement reception. Now, nothing particularly remarkable about that, except this was to honour a particularly remarkable contributor to the North American swine industry.

Randy Stoecker, President Western Operations, Murphy Brown LLC (Smithfield) came out of Kansas to the best of my knowledge, unlike Dorothy on the crest of a tornado, but on the crest of sweeping changes never the less. Whereas Oz was mostly unimaginable to Dorothy and us, the land Randy went to was very much the creation of his imagination. But what an imagination! Think if twenty plus years ago, you had suggested the possibility of:

  1. A billionaire pig farmer
  2. A production company owning and operating one million sows
  3. North Carolina becoming the number one sow state in the union
  4. The Midwest improving its cost of production by over $30 in twenty years

If not unimaginable, certainly a stretch to anyone’s credibility, claiming such possibilities. Now, I’m not suggesting Randy predicted theses happenings, but they all occurred under his tenure and there were many, many people at this reception clear that Randy was the key driver making it all happen.

How was this all possible from ‘a man from Kansas’? The number one reason, I believe, was Randy’s intuitive understanding that to win you have to become the low cost producer. Although as Larry Pope (CEO Smithfield Foods) pointed out at the reception in this twenty-year acquaintance of Randy he was relentless with “Couldn’t they (the packer) just sell the meat for a little more money than take it out of the producer’s hide?” Randy knew there were limits to how much that dog was going to hunt.

So Randy took the counter point to Sam Walton’s ‘Lower Prices Everyday’ and drove with laser focus to ‘Lower Costs Everyday.’ Now, this may seem elementary, but most important fundamental things are. We pay a lot of lip service to cost of production, but even today how many producers know what there is or needs to be? There’s a reason we call them producers, not marketers or low cost producers. They focus on production and because that’s what they focus on, tend to be very good at production, but they may want to consider whether they have the right focus or at least a broad enough one.

Albert Einstein said “Imagination is more important than knowledge.” Randy, who certainly has no shortage of knowledge and pursues it at every opportunity, proved this maxim that imagination trumps knowledge. By first imagining that costs could be consistently and continually lowered, Randy created the environment (necessity) for the application of knowledge (mother of invention). Then Murphy Family Farms, now Murphy Brown LLC (Smithfield) from Randy’s direction were absolute early adopters of lean genetics and pioneers of three-site production as a commercial application. That rapid uptake of proven science and technology applied to pork production was a hallmark of Randy’s tenure. Did he get it all right? Probably not, but Murphy Brown LLC has a million sows and nobody else does.

Springhill Gets Purchased

Springhill Farms slaughter plant in Neepawa, Manitoba will be purchased by Hytek Ltd (Canada’s second largest swine producer – approx 42,000 sows). The purchase of the existing Springhill plant ends Hytek’s announced plan to build a state of the art in Winnipeg. We had speculated last December that Hytek’s dream of building a new plant in Winnipeg would never happen – too expensive and too much risk for an organization their size. The purchase of Springhill makes sense for Hytek and is good for all players in Manitoba and Saskatchewan. Why?

  • For Hytek, though there is no announced purchase price, the 20,000 head a week plant will have been purchased for a cost far less than the $200 million plus necessary to build new in Winnipeg.
  • The plant is working and killing hogs with same markets, which is a plus for Hytek. The previous owners of Springhill have been able to sell what has not been the most financially successful plant around. Hytek will be challenged to develop a brand, not just sell commodity pork.
  • Hytek, if they can get all their hogs finished in Canada, will be able to fill the plant with their own hogs. The good news for all producers – these hogs have a home and off the market.
  • Maple Leaf Foods wins. The largest player in Manitoba, with weekly kill capacity of 80,000 plus, will now have the opportunity to purchase the hogs of the Independents that went to Springhill. They also know where Hytek is going and though we doubt they ever really thought a new plant would be built in Winnipeg, they now know for sure it will never happen. Certainty is always good for business.

We congratulate Hytek for the purchase. It takes capital and courage to undertake a risk of this nature. We wish them luck. The purchase is good for everyone.

PCV2 Vaccine

Kansas State field studies show that vaccinated PCV2 pigs have increased growth rates of 10%, resulting in almost 20lb heavier pigs marketed at a similar age as unvaccinated pigs (why we have more pigs this fall?). Two field studies had vaccinated pigs showing $3.94 and $8.58 advantage over unvaccinated pigs. Combination of better growth rate (heavier carcasses) and better feed conversion. At the end of the lecture, it was the words of Al Leman 20 years ago, at the same conference.

They are as relevant now as then!

  • Would I hire myself
  • Use producer support groups and ranking farms
  • Develop training programs for hired managers
  • Analyze existing information
  • Become a system analyst
  • Seek out the best producers as clientele
  • Concentrate on reducing costs
  • Become an advocate of animal welfare
  • Broaden disease control options
  • Develop the courage to say, “The best action in this case, is take no action.”
Al Leman’s list of guiding points is as appropriate today as twenty years ago. The more things change, the more they stay the same.

5m Editor