AgDM newsletter article, March 1998

Can family farmers compete in pork production

James KliebensteinBy James Kliebenstein, Professor of Economics, 515.294.7111, jklieben@iastate.edu

Swine operations of various sizes can be competitive if effective management and efficient production levels are present. Swine production records have shown that the top 20 percent of Iowa’s producers have some partial cost advantage over the large-unit producers and that the top 30-40 percent of Iowa producers are cost competitive.

The family farmer can compete and be a viable entity in the swine industry.

There will be a place for small-scale producers in the future, but studies suggest smaller operations with 100 or fewer sows will face competitors that have strong economic advantages. Adjustments will be needed for these producers to remain competitive. Networking to gain some advantages can improve their competitive position. Additionally, they may be able to effectively exploit some of the complimenting relationships of a diversified livestock/crop enterprise/production mix.

Iowa producers versus large operations

Cost comparisons between Iowa producers and some of the large integrated operations in the U. S. are shown in Table 1. 

Table 1.  Comparison of Iowa Family Operations with Large Operations (farrow-to-finish operations – 1995)

 

 
Iowa Producers
Most Profitable

Overall

Large

 

10%

33%

Avg.

Operations

Feed cost / cwt.

$22.23

$23.48

$25.29

$24.74

Fixed cost / cwt.

2.57

3.08

3.99

N/A

Total cost / cwt.

$33.06

$36.07

$40.53

$39.67

Feed Efficiency

3.37

3.45

3.61

3.15

Diet Cost

$6.63

$6.83

$7.02

$7.86

Litters / sow / year

2.02

1.97

1.90

2.31

Pigs / sow / year

20.5

19.7

18.7

23.5

Death loss (%)

16.7%

17.4%

18.2%

15.8%

Source: ISU Farrow-to-Finish Swine Business Record Summary.      

The most profitable one-third in Iowa had a $3.60 per cwt. advantage in total cost per hundred pounds of live-weight hogs produced, compared with the mega producer. The most profitable one-third of Iowa producers also had a feed cost advantage of $1.26 over the large producers. The mega producer had a cost advantage of 86 cents over the average Iowa producer. This shows that competitive production costs can be achieved by various sizes of operations.

Feed efficiency for the most profitable 10 percent in Iowa was not as good as that of the mega producers.  However, the diet cost of the megas was about $1.00 per cwt. higher.  The large producer was getting about three more pigs farrowed live per sow per year.

The most profitable 10 percent of Iowa herds average about 165 sows, showing that size is not the dominant driver in remaining competitive.  Management would appear to be a major factor in competitiveness.  The most profitable one-third of the producers had a $9 per cwt. cost advantage over the least profitable one-third, or about $22 per hog.

Diversified farming operations

Effective farm diversification can also provide whole-farm advantages for crop producers.  For operations achieving medium crop yields, adding a 120-sow operation to 400 acres of continuous corn increases annual return to management from $6,711 to $31,532 as shown in Table 2. The return increased to $39,320 with a corn-soybean rotation. This compares with $16,777 for 1,000 acres of corn/soybeans without swine. Efficient pork production can effectively increase income and provide an alternative for marketing corn.

Table 2.  Return to Management for Different Systems

 

Yield Level

 

Low

Medium

High

400 acres (corn/beans)

($1,616)

$6,711

$11,84

1,000 acres (corn/beans)

(1,410)

16,777

29,609

400 acres (cont. corn) 

 

 

 

& 120 sows

24,035

31,532

35,885

400 acres (corn/beans)

 

 

 

& 120 sows

29,283

39,320

44,668

Source: Duffy, Michael, The Role of Animal Production in Sustainability, Leopold Letter, Leopold Center, Iowa State University, Vol. 4, Nu. 4, 1992

Alternative production systems

Alternative production systems such as pasture production and hoop structures can also enhance farm income.  In addition, they offer greater flexibility to enter and exit production because of their lower initial investment. These systems trade increased labor for reduced capital and typically require greater stockmanship skills.  For example, pasture systems have low capital requirements while total confinement has high capital requirements. In comparison, confinement has greater control of the pigs’ environment, allowing for improved feed efficiency.

The net finishing cost was projected at $41.35 for confinement and $41.73 for a hoop structure.

A recent study compared production costs between a confinement system and a hoop structure system for finishing hogs. The net cost per hundredweight live pork is projected at $41.35 for a confinement system and $41.73 for a hoop structure system. While hoop systems had lower investment costs, confinement systems had lower feed costs per hundredweight pork produced.  See Ag Decision Maker Newsletter, June 1997, “Hoops for swine: A good choice for beginning farmers” for more information on the cost comparison between hoops and confinement.

Summary

The family farmer can compete and be a viable entity in the swine industry.  Iowa Swine Enterprise Record results show that the top half in the record system are very competitive.  This points out that size is not the key to success in the pork industry.  Management and the development of a production system that effectively fits together are two big determinants of success.  Moreover, the grain and livestock producer can exploit complementary relationships between the two enterprises. 

Size is not the key to success in the pork industry.

As the industry evolves, along with production efficiency, producers will need to assure that they have access to quality inputs at reasonable costs and have market access.  Individual producer volume is not the key ingredient.  Producers can network to enhance their competitive positions.  Profit margins will be squeezed still further in the future, leading to pressure to increase operation size to achieve selected operation profit levels.

 

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