AgDM newsletter article, October 1998

The changing pork industry structure

John LawrenceBy John D. Lawrence, Extension Livestock Marketing Specialist, 515.294.6290, jdlaw@iastate.edu; and Marvin Hayenga, Professor of Economics, 515.294.6348, mhayenga@iastate.edu

A nationwide survey of pork producers was conducted during February through May of 1998 to identify structural changes in the pork industry.  The mailing list of Pork Magazine was used to identify producers and categorize them by size of annual marketings. 

Operations marketing 50,000 or more hogs annually were contacted by telephone.  All 18 operations marketing 500,000 hogs or more participated in the study as did 88 of the 127 operations marketing between 50 and 500 thousand head annually.  A random sample of operations in the other size categories were mailed a survey. About 25 percent of the mail surveys were returned.

To avoid duplication, the survey focuses on ownership of the hog production operations—employees and contract growers were excluded from the analysis.

Current market shares

As shown in Table 1, 145 operations with annual marketing of 50,000 or more hogs market 37 percent (13 + 24) of the hogs.  Another 58 percent are marketed by 23,438 operations selling 1-50 thousand head annually.  The remaining 5 percent are marketed by about 80,000 farms selling less than 1,000 head annually.

Table 1. Number of Operations and Share of Slaughter by Size Category (1997)

Annual Marketings
(1,000 head)

Number of Operations

Market Share
(Percent)

<1

80,000

5%

1-2

11,708

12

2-3

4,996

10

3-5

3,438

10

5-10

1,978

10

10-50

1,318

16

50-500

127

13

500+

18

24

Industry consolidation

Consolidation of the pork industry is continuing.  However, the changes are occurring primarily in the largest and smallest size groups.  The largest operations are gaining the greatest market share.  The very smallest are showing the greatest decline.

Table 2.  Number of Operations and Marketings by Size of Operation (1994 and 1997)

Size Class

Number of Firms

Marketings (mil.head)

(1,000 hd.)

1994

1997

1994

1997

Change

1-2

15,201

11,708

20

10

-10

2-3

6,192

4,996

14

8

-6

3-5

3,806

3,438

13

9

-4

5-10

2,209

1,978

14

9

-5

10-50

1,062

1,318

17

16

-1

50-500

57

127

8

14

+6

500+

9

18

10

24

+14

Total
28,536
23,588
96
90
-6

As shown in Table 2, producers in all size classes (marketing more than 1,000 head per year) marketed 96 million head in 1994, 6 million more than in 1997.  There were 145 operations with annual marketing of 50 thousand or more that marketed 38 million head.  This figure compares to 18 million head from 66 firms in 1994. The 50-500 thousand class more than doubled the number of operations and increased production 75 percent during this period.  The 500,000+ class doubled the number of operations from 9 to 18 and more than doubled production—a 140 percent increase in three years.  This is a dramatic increase in only three years. 

However, more than offsetting this increase was a decline in the smaller size classes.  Collectively, operations marketing less than 50,000 produced 33 percent fewer hogs in 1997 than they did in 1994.  It is estimated that farms marketing less than 1,000 hogs produced 77 percent fewer hogs in 1997 than 1994.

Accelerating trend

The trend to fewer and larger operations has accelerated over the last 10 years.  The share of hogs produced by very large firms marketing 50,000 head or more has increased from 7 percent in 1988 to 37 percent in 1997 as shown in Table 3. This gain has offset a decline in production from operations marketing less than 1,000 head.  Their share dropped from 32 to 5 percent over the same period.

Since 1994, the 10-50 thousand head group has gained market share at the expense of the 1-2 thousand head category.  The 2-10 head operations have maintained a relatively stable share of the industry over the last decade.  The decline in the less than 1,000 head category is consistent with an earlier study that found that 90 percent of Iowa farmers that quit raising hogs between 1992-1997 sold less than 1,000 head a year. 

For operations below 50,000 head, the average marketings by operation differed somewhat by region.  Marketing of the average Iowa firm are smaller than the national average, operations outside the Corn Belt are larger, and the Eastern Corn Belt and other Western Corn Belt states in the middle.

The 50-500 and 500+ thousand classes were usually involved in production in many states, most heavily in the Southeast.

Table 3.  Percent of Hogs Produced by Size of Operation (1988-1997)

Size Class Year
(1,000 hd.)

1988

1991

1994

1997

<1

32%

23%

17%

5%

1-2

19

20

17

12

2-3

11

13

12

10

3-5

10

12

12

10

5-10

9

10

12

10

10-50

12

13

13

16

50+

7

9

17

37

Type of operation

Most hogs are produced in farrow-to-finish operations as shown in Table 4.  Nationally, 83 percent of the market hogs are marketed by the operation that farrowed them.  The remaining 17 percent are sold as feeder pigs, weaned pigs, or seedstock.  There is a slight tendency for the larger medium sized operations (5-50 thousand head) to sell more feeder pigs than the smaller and larger operations.

Table 4. Type of Operation by Size of Operation

Size
Class

Market
Hogs

Feeder
Pigs

Seed-
stock

Total

(1000 hd)
(million head)

1-2

8.3

1.6

0.1

10.0

2-3

6.6

1.1

0.2

7.9

3-5

7.3

1.6

0.2

9.1

5-10

7.2

1.9

0.2

9.3

10-50

11.8

3.3

0.5

15.6

50-500

11.8

1.9

0.4

14.0

500+

21.4

2.2

0.4

24.0

Total

74.2

13.6

1.9

89.8

Summary

Structural change is occurring in the very large and very small firms.  The very largest (50,000+) are growing.  The very smallest (under 1,000) are leaving. The change is beginning to occur in other size categories.  The 1,000-2,000 head size group is also loosing market share.  The 10,000-50,000 head size group is gaining market share.  But for the most part, those size groups in the middle (2,000-10,000 head) have maintained a stable market share over the last ten years.

Most of the sow liquidation has traditionally come from farms with less than 1,000 head. However, this group currently represents a relatively small share of the market.  So it may be more difficult than usual to force liquidation during the current and future hog cycles.

 

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