1. Portfolio Approach to Production
2. Producers Moving to Own the Processing Side
3. Genus (ABS) buys Sygen (PIC)
4. MetaMorphix, Monsanto Join to Improve Pork Quality
5. Japan Opens Beef Market to US
6. Not Much Expansion in the US Pork Industry (At Least Not Yet)
7. December Report Makes Industry Happy, Profits to Continue (For Awhile)
8. Pork Demand Drops in 2005
9. US Pork Exports Grow in '05, May Slow in '06
10. Production Efficiency Improves, Carcass Weights Go Up
11. NC State Research Finds No Cost-Effective Manure Alternative
12. Indiana Wants to Double Pork Production
13. Canadian Corn Duties
14. Precision Feeding (Eco-Feeding) to Reduce Emissions, Mineral Excretion
15. Animal Welfare Begins To Trump Production Efficiency

1. Portfolio Approach to Production

It's very clear to me that the industry is heading to what I thinkof as a "portfolio" type of business structure. What I mean is that large-scale systems, whether vertically integrated or coordinated, will end up with a portfolio of different types of production flows. Some will be commercial (commodity) pork production, some will be "natural", some will be antibiotic-free, some will be designed to produce "legacy" or "heritage" pork [see the articles I've linked]. These flows are already happening within the industry, but it looks to me like they will consolidate so that individual companies will hold a mix of these designated product-focused production systems.

The question is what will be common across all types of production systems. In other words, what are the common business requirements no matter what type of production flow it is. My guess is that environmental management systems, animal welfare management systems, and precision feeding systems (eco-friendly) will be common denominators rather differentiators.

The biggest differentiators will likely be genetics (as illustrated by the stories I've linked to) and "natural" / "organic" systems (what-ever those designations mean, i.e. antibiotic-free, truly organic, etc.). Anything that focuses on taste and eating quality will be a big winner (see Berkshire pork, for example).

Smithfield Launches New, Fatter Pork Line
PSF, PIC Introduce Premium Legacy Sireline

2. Producers Moving to Own the Processing Side

Here's my prediction: Over the next __ years (not sure, maybe 10? make your best guess), pork producers will end up owning the kill-cut, product and packaging side of the processing industry. The one big reason for this may surprise you because it's not profit, it's information. Pork producers may be able to add a little profit to the equation by owning the kill-cut side, but what they really need is a clear path to where the value is for their products. Typically, there are two value matrices that packers work with: the first is the packer buying grid, the one that's visible to producers. The second is the packer selling grid, the one that packers use to optimize their product mix. This one is not visible to producers except in situations where producers own or are in a joint-venture with packers. As an example, the best kill sheet out there today is the one Meadowbrook Farms creates for their producer-owners. There is no buying grid; as a producer-owner, you see exactly where the value is for the cuts coming from your hogs.

Triumph Foods -- Pork Producers Pool Resources
Second Triumph Foods Pork Plant Approved
Meadowbrook Farms -- Producer-Owned Pork Processing
Meadowbrook Farms - Cooperative Advances...
Olywest, A Producer-Packer Joint Venture
Olywest Overview From Big Sky Farms

3. Genus (ABS) buys Sygen (PIC)

Genus bought Sygen, the sale closed in early December. Cattle genetics company (ABS) buys a pig and shrimp genetics company (PIC). I'm not sure if this is a big story or not. I think it it is, but mainly I chose it because it was a surprise. Here's what Genus said about the benefits: (1) economies of scale, particularly in the mature bovine and porcine markets, which they expect to reduce costs; (2) reduce risk by reducing dependency on one species (cattle); (3) combine R&D programs and become a world leader in animal genetics research (better chance of growing the total business; (4) benefit from Sygen's experience in selling to food processors; (5) increase efficiency and improve profitability and cash flow.

British firm buys Sygen's operation

5. Japan Opens Beef Market to US

The important thing here is the potential effect on pork exports. Some analysts think it will cause them to drop, but probably not for some time since the Meat Export Federation figures it will take at least 3 years to build back the Japanese import levels of US beef to where they were before the ban due to BSE. But it could start to impact pork exports by late 2006; it's something to keep your eye on.

End of beef ban lowers hog prices (MeatingPlace.com)
Pork Producers Watch for Japanese Impact (Steve Meyer interview)
3 years needed for U.S. beef exports to Japan to recover (USMEF)

6. Not Much Expansion in the US Pork Industry (At Least Not Yet)

Despite dire predictions of an additional 200,000 to 300,000 sows being added to the US breeding herd inventory in 2005, it didn't happen. Each time a new quarterly Hogs & Pigs report was due to be released, there was much wringing of hands and gnashing of teeth about the anticipated expansion and subsequent drop in prices, but each time the post-release stories said the same thing -- "producers keeping a lid on expansion" -- in a surprised and not-sure-what's-going-on-here-but-maybe-pork-producers-are-smaarter-than-we-think sort of tone. 

Producers Staying Disciplined on Expansion (December '04 report analysis
No Move to Expansion Yet(March '05 report analysis)
More Pork in Next Year, but Lid Stays on Expansion (June '05 report analysis)
Hogs & Pigs Report Analysis: Hints of Expansion (September '05 report analysis)

7. December Report Makes Industry Happy, Profits to Continue (For Awhile)

A string of 23 consecutive months of profitable pork production should continue. "By and large, the December report is very good news for hog farmers. Producers will maintain the profitable run in 2006, although it may be with tighter margins", says Ron Plain, University of Missouri.

Hogs Pigs Report archive
Ron Plain & Glenn Grimes Hogs & Pigs Analysis

8. Pork Demand Drops in 2005

"Both the beef and pork sectors are going to have to wake up to
lower domestic demand trends," notes James Minert, Extension economist at Kansas State University. He points to third-quarter 2005 domestic pork demand, showing a 8 percent to 9 percent drop from 2004 levels. "I think we'll see the fourth-quarter demand numbers reflect that too."

Domestic Pork Demand at a Breaking Point? (Pork magazine)

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9. US Pork Exports Grow in '05, May Slow in '06

Plain and Grimes: "The brightest picture for the hog industry continues to be exports. In the January-October period pork exports were up 23.4% from 2004, and 2004 growth was 27%above the 2003 level. 2005 is the 14th consecutive year with record high exports. We expect pork exports to increase again in 2006 but believe the odds are high that the growth will be substantially less than in 2004-05.

Click to read their analysis...
Pork producers celebrate Mexican market

10. Production Efficiency Improves, Carcass Weights Go Up

Production efficiency as measured by pigs weaned per litter and litters/sow/year continued it's inexorable increase in 2005. We can continue to expect these year-over-year increases in litter size, driven mainly by genetic improvement. LSY improvements eventually will drop off as the industry completes its consolidation to large-scale production systems. Although we don't have published benchmark data for throughput (YET), I'm sure that throughput as measured by pigs per farrowing space per year or weight sold/sow/year continued to increase as well. Carcass weights went up again and will keep going up as long as feed cost remains low and packers don't change their grids to increase discounts on heavier hogs.

11. NC State Research Finds No Cost-Effective Manure Alternative

Under an agreement with the state, North Carolina State University researchers were to identify waste handling alternatives to lagoons and pits. Smithfield Foods, Inc. and Premium Standard Farms Inc., parties to the agreement, were to switch to the new disposal system within three years, if it was affordable. (Key words!)

With the help of $17.3 million from the pork producers, researchers identified five alternatives. But none of the systems appear to be financially viable, according to Mike Williams, NC State ag engineer and project head.

Here's where it gets interesting...

"An economic advisory panel that Williams has consulted during the research deadlocked on a definition of feasible. The panel eventually gave Williams one report written by the majority of its members and another by pork producers. The majority of the panel endorsed the idea that farmers should accept at least some increased cost, even if it meant decreasing the number of hogs in the state by 12 percent. But the farmers decided economic feasibility means no increased cost of doing business."

This story will be very interesting to watch in 2006. Look for some very tough politics, fighting and negotiation. It has huge implications for the rest of the industry because it will set precedent and you can bet other states are paying close attention. I don't see producers winning on this one.

Manure-technology Studies Near Completion
NC State Report on Alternative Manure Technology
Hog waste debate goes on
N.C. hog farmers see new waste treatments as too costly
The latest poop on handling hog waste isn't encouraging
Costs should not prevent them from being used

12. Indiana Wants to Double Pork Production

Kudos to the state of Indiana (Governor Mitch Daniels and Ag Sec'y Becky Skillman, in particular) for making a bold move and highlighting economic development associated with agriculture and specifically growing the pork industry. The most important part of this story will be the staying power in the face of critics and advocates trying to block "industrial" farming. See the link on "Conservation or Commodities" to get a flavor for the debate. And this is a real debate, not with crazies but with the Izaak Walton league.

An interesting snippet from that article...

"It is simply the case," he said [referring to a spokesperson for the Izaak Walton League], "that the increased commodity production or 'arms race' being waged among state ag departments -- Iowa vs. Minnesota vs. Kansas vs. Indiana and so forth -- hinges on one fact: grain has to be cheap for any of the uses, ssuch as feeding hogs, distilling ethanol or making soy bio-diesel, to be profitable."

Arms race among state ag departments? Hadn't heard that before.

By the way, congrats on a big step forward.... Natural Pork Production II recently got approval to build an 11,200-sow operation in Williamsburg, Indiana.

Indiana Agricultue's Strategic Plan
Indiana Ag's Economic Development Summit (presentations)
Conservation or commodities? Farm debate continues
County Closer to Zoning Changes
Study: Pork Industry Key to Indiana Economy

13. Canadian Corn Duties

Big question here is not whether but by how much weaned pig and feeder pig imports from Canada will increase.

Analysis of Canadian Corn Duty Impact on US Pork Industry
The Year in Review: Canadian-American Relations
Canada Ratchets Up Trade Issues
Canadian Corn Users Frustrated with New Grain Corn Tariffs

14. Precision Feeding (Eco-Feeding) to Reduce Emissions, Mineral Excretion

Lots of research done on this topic over the past decade, but now it's time to implement. 2006 will be the year now that the big Air Emissions study is ending, producers have signed the EPA Consent Agreement, and CAFO plans have to be put in place.

Low-Phytate Diets with Phytase Drop Phosphorus Excretion
USDA Air Emissions Study - Diet Reduces Nitrogen Excretion
Air Emissions Study Nears Completion
Time To Think about Eco-Friendly Feeding

15. Animal Welfare Begins To Trump Production Efficiency

I am slightly famous (at least I think I may be, er...maybe not) for a statement I made 7 or 8 years ago that "health trumps genetics." The idea was that the production paradigm had switched; the change to modern genetic lines basically was complete across the industry but health problems were keeping producers from fully realizing genetic value, and even more importantly, health problems were causing serious business risk. So the key decision threshold became health as opposed to genetics, and companies like PIC were caught a little flat-footed at the time. Most genetics companies recognized that and moved as quickly as biology allows to a more higher-health pyramid.

Well, it's clear to me that animal welfare is moving right into that same role. Welfare will trump straight economics on production system design. Producers will fight this but at the end of the day welfare will win.

AVMA Statement on Pregnant Sow Housing
Sow Stalls vs. Pens
A Clash Over Sow Stalls
AVMA Revises "Pregnant Sow" Housing Policy
AASV releases official position on swine welfare
Delegates Endorse Swine Animal Welfare Program

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