Production

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Prairie Swine Centre is an affiliate of the University of Saskatchewan


Prairie Swine Centre is grateful for the assistance of the George Morris Centre in developing the economics portion of Pork Insight.

Financial support for the Enterprise Model Project and Pork Insight has been provided by:



Author(s): Meyer, Steve R.
Publication Date: January 1, 2007
Country: USA

Summary:

The United States and Canada have occupied premier positions as pork production locales for the past decade. Virtually nowhere else in the world has the combination of natural resources and know-how for pork production that exists in our two countries. Policy decisions and the changing world energy situation, however, are putting significant pressures on pork producers and processors in both countries; changing the future direction of both industries and causing us to re-think the two countries’ positions in the future world pork industry. This paper addresses several trends in the U.S. industry that are shaping it at present and that will continue to shape it in the future. The U.S. is expected to remain a major player in the world pork market but these forces could affect that position in coming years. Nothing is having a greater impact on current profitability and future plans than the growth of corn-based ethanol production in the U.S. Driven by higher oil prices, changes in oxygenating ingredients and widespread public support, the number of ethanol plants has expanded rapidly and continues to do so. These plants, not surprisingly, are generally located near major corn producing areas of the Midwest – the same place that the bulk of U.S. hog production is located. The demand for corn by ethanol plants is changing corn basis patterns drastically, driving up Iowa and Minnesota corn prices, and thus removing a major source of competitive advantage. As corn prices have risen, so have feed costs for U.S. pork producers. More than corn prices have driven the increase in feed costs. Soybean and soybean meal prices have risen as the soybean industry bids up prices in order to compete for crop acres. Higher feed prices and, now, lower hog prices have put an end to one of the most profitable periods in the history of the U.S. pork industry. However, consumer-level demand for pork in the U.S. has been more-or-less steady since the mid-1980s. 2006 marked the lowest level ever for the University of Missouri’s demand index but it rebounded some in 2007 and was 1.9% larger than in 2006 through August 2007. Export demand for U.S. pork remains strong even though productivity thus far in 2007 has been less than stellar. It appears likely that the U.S. will set its 16th straight record year for pork exports. U.S. productivity growth will resume over the next year or two. Much of the herd has now switched to later weaning and once that is accomplished, any true gains in sow productivity will be compared to the same production system one year earlier thus allowing the gain to show up in the data. In addition, circovirus vaccines are having the same “miraculous” impacts in the U.S. that they had in Canada and will thus begin to contribute greatly to productivity growth in terms of pigs reaching market weight and higher market weights as the number of light pigs is reduced. This has an impact on the U.S. hog cycle which can be traced back over 200 years, production changes being steadily and slightly positive over the past 3 years has made the hog cycle obsolete. Along with the demise of the hog cycle, is the presence of a highly inelastic hog demand that penalizes any large increases in output. The impacts of these trends on the U.S. climate for hog production is mixed. Environmental and social, small-farm pressure is still intense in many regions and serves to prohibit or at least significantly slow pork production expansion. Corn availability could well become an issue for industry expansion but many grain farmers are starting to question the wisdom of using corn for ethanol versus pigs simply due to the fact that ethanol doesn’t produce valuable crop nutrients in the form of manure. The pressure for more corn-on-corn production will enhance manure’s value and make pig feeding more attractive to many Midwestern grain operations. Whether the social climate will allow this production to happen remains to be seen. Things are changing but with change comes opportunity. It will be no different for the U.S. pork industry.

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