Can we sell sows fast enough to reduce supply?

The most common question asked by every vendor and producer at the World Pork Expo was – ‘when will the pain end?’. It’s not fun being in the pork business right now, and the prospects don’t look promising for some time. While we don’t often think in terms of time-lines, the matings that are being completed now are the pigs that will go to market next April. Thus, we are already locked in on the supply side of the price equation through the fall lows and late winter markets.

 

The second most asked question was – ‘who is selling sows?’. In my discussions with several lenders at the Expo, the common theme was ‘what do I as a lender do with the production facilities if I stop financing a pig unit?’ Lenders are in a real bind. If they stop financing a unit, they are left with an asset that currently has almost no value.

 

The only value in a sow unit is to try and sell it as a producing entity. I am aware of several groups that have been looking at sow units that are for sale, and the only way they will even look at a unit is if it is operating. Evaluating a production unit while it is functioning makes it much easier to determine the status of the all of the equipment, the quality of the employees, etc. Buying a unit in production means the buyer has immediate income from sale of pigs, rather than having to finance a startup. Thus, lenders continue to finance losses in the hopes that they will eventually be able to get some return for the money they keep tossing into the pyre. However, many are getting close to admitting this type of lending can’t continue and admit they will have to close their financially weakest producers.

 

As to who is selling sows – the answer remains – not many! There was word of 2 production systems in Canada filing for bankruptcy at the end of May, and of a few systems in North Carolina seeking Chapter 11 or Chapter 12 protection in the US.

 

One of the hot points of discussion was the newly created Producer Retirement Program (http://www.producerretirementprogram.org/). This effort is modeled in the dairy buyout, where producers are self-financing a herd reduction program. I encourage readers to go to the web site to learn the details of this program. The group has scheduled a series of 4 webinars on Tuesday, June 9 for a full explanation of the program and to respond to the many producer questions that are being asked.

 

Will a producer financed retirement program be successful enough to change the supply side of the supply/demand equation? I don’t know, but as many others have stated, we need to try something to remove the stone wall that appears to have stopped liquidation efforts that should have begun last year.

 

One concern that many have – do we have the capacity to kill a larger number of sows? I don’t know the answer, but I suspect sow slaughter capacity will be an issue in coming months if we see an increase in sows coming to town. At Expo, several producers told me they already had to schedule sows 3 weeks in advance for slaughter.

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