Mike Brumm Commentary, June 15th, 2012, World Pork Expo Report
At Pork Expo last week I sat in on the annual user group presentation on cost of production comparisons compiled for clients of Latta, Harris, Hanon & Penningroth, a CPA firm headquartered in Tipton, Ia. John McNutt did most of the presenting and interpretation of the data. Since this is a confidential peer group I can’t give you the exact costs cited by John, but I can share with you some of the more interesting trends.
I think the biggest take home message of the day is that the best production units/systems are distancing themselves from even the ‘average’ producer. One of the basic economic principles is that to succeed long term you need to have a profit level at or above the average of all producers. Stated another way, if your cost of production is much above the group average, unless you have a market price advantage of some sort your long term survival is in danger.
John’s message – average is no longer good enough. The ‘average’ producer continues to lose ground compared to the top 10% of producers in terms of breakeven costs. By their estimates, the cost produce pork varies $7.35/cwt gain between the ‘average’ US producer and top 10% of producers. This is almost $20/pig at today’s heavier sales weights.
What are the top producers doing right – the same things we talked about 10 and 20 years ago with Enterprise Records programs at Iowa State University and the University of Nebraska. They don’t have the lowest feed ingredient cost, but they have low cost ingredients. They don’t have the best feed cost per unit of gain, but they have low cost per unit of gain. They don’t have the cheapest weaned pig cost, but they can produce weaned pigs at low cost relative to others. And the list goes on.
Even in the face of PRRS, SIV and other health challenges they manage to do enough things right enough times to be a leader in cost control. Yes they may be very good at timing purchases of feed ingredients and hedging of market hogs, but they also are very good at identifying other profit robbers such as incorrect ventilation rates that eat up propane in winter weather, management of feeder adjustments on a daily basis to minimize waste while maximizing gain, breeding sows to get 25-20 pigs weaned per female per year, etc.
The rules for successful pork production haven’t changed in 30 years, just the consequences. For a majority of readers of this blog, pork production may play a more important role in their economic well being (more eggs in one basket). If that’s the case, being sure fewer eggs are broken and no eggs are missed when gathering the eggs has big consequences.