Swine Industry in 2017: A Year of Change and Expansion

Posted: February 5, 2018 | Written By: Simon Kern, M.S.

swine industry

Change is the only constant and the swine industry was a prime example of this old adage over the past year. 2017 opened with a major change: the implementation of the updated Veterinary Feed Directive (VFD). The new VFD regulations tightened control over the use of antimicrobials in livestock feed and placed the use of many antimicrobials under the supervision of a licensed veterinarian. While there were certainly some challenges for producers in implementing these new processes, most were able to do so without interrupting their operation. Many found value in evaluating their previous practices and use of feed-grade antimicrobials. This resulted in a more targeted approach and possible reduction in antimicrobial use without a detriment to animal health or performance.

The winds of change also brought a new, and very welcome, perspective to the economics of pork production. In contrast to 2016’s negative farrow to finish margins (-$4.72 per pig marketed), 2017 brought an average profit margin of $11.95 per head with 7 of 12 marketing months showing margins in the black. Improved profits were driven by two primary factors: lower feed costs and higher lean hog values. While non-feed costs held relatively static, feed costs fell from $74.51 in 2016 to $70.99 in 2017 (-4.72%). This difference alone would have pushed profit margins close to breakeven as compared to 2016, but the unexpected increase in lean hog values in the wake of increased pork production put producers over the top. The average carcass price per hundredweight increased from $61.00 in 2016 to $66.88 in 2017 (+9.64%).

The only word which may fit 2017 better than change is expansion. The simultaneous occurrence of negative producer margins and large positive packer margins in 2015 and 2016 put into motion the expansion of the U.S. pork packing industry and the development of many producer owned plants in particular. These plans first came to be reality in with the opening of Prime Pork in Windom, Minnesota in late April (5,100 head per day). This was followed by the largest one-day increase in U.S. pork slaughter capacity when both the Clemens Food Group plant in Coldwater, Michigan (12,000 head per day, first shift) and the Seaboard-Triumph Foods plant in Sioux City, Iowa (10,000+ head per day, first shift) opened on September 5. In conjunction, these plants added a single-shift capacity of over 22,000 head per day with the potential to expand to over 40,000 with the addition of a second shift. While none of these plants opened at full capacity on day one, they will do much to free up chain space and create new marketing opportunities for producers.

“Build it and they will come” is a quote from the 1989 film Field of Dreams. While these words may still be echoing from the corn fields of the Midwest, they have taken on an entirely new meaning to pork producers. The construction of new packing plants coupled with a positive economic outlook has indeed created an increase in the U.S. hog inventory. The latest USDA Quarterly Hogs and Pigs Report (December 22, 2017) estimates breeding inventory at 6.18 million head (+1% over 2016) and market hog inventory at 67.1 million (+2%, largest ever). The September-November pig crop was estimated at 33.4 million head (+3%, largest ever). Farrowing intentions for December 2017-May 2018 are also increased by 3%, signaling no end in sight for expansion on the horizon.

There are many opportunities to look forward to in 2018 and the years ahead. Those of us at Form-A-Feed look to continue to be, or become your partner in bringing new innovations to the table which will improve your production and enhance the profitability of your operation.