Last February the spot market for SEW pigs hit $71 on the week ending February 4. This past week the spot market was at $69 as listed in the Friday USDA report. Forty pound feeder pigs are $77 on the spot market, right where they were last year at this time. Prices are high for 2 reasons – a belief that summer profits can support such prices and a shortage of pigs to fill barns due to the impact of PRRS on breeding herds.
The impact of PRRS on breeding herds this winter has been large in the upper Midwest. There are reports of severe abortion storms and even sow deaths as the virus goes thru a unit. I’ve talked with several shareholders of units that have been hit by PRRS and many times they are in the market for weaned pigs and/or feeder pigs to fill existing facility spaces. A common question at the Minnesota Pork Congress was ‘got any weaned pigs for sale?’.
Selling weaned pigs or feeder pigs is indeed a feast or famine experience. While the pig price was very high in January and February last year, by late May SEW pigs traded as low as $10/pig with 40 lb pigs averaging $45-50/pig. Sellers of pigs aren’t going to make large investments in production facilities with this type of variation in income. This type of variation explains why sellers of weaned pigs typically don’t invest in production facilities without a weaned pig sale contract of some type.
I’ve had a few calls with questions about SEW contracts, but with the spot market swinging this wildly, it is really tough to formulate a contract that is fair to both buyer and seller relative to the spot market. If lenders are involved, it has been tough to keep contracts together if the buyer is in a position of losing money on these purchased pigs. In the last market down-turn, many lenders refused to lend money to purchase pigs under a contract arrangement since purchase of the pigs would worsen the balance sheet of the producer, something the banks were unwilling/unable to do with federal bank auditors looking over their shoulder. Some of these broken contracts are still being settled in arbitration hearings and court filings.
Ultimately, the buyer of SEW pigs ends up owning shares in the weaned pig production unit, or the seller of SEW pigs ends up retaining ownership of some or all of the pigs. While we can talk about specialized production (breed-wean and wean-finish), ownership is consolidating to farrow-finish because of how profit risk has proven to be difficult to share.