Profits Continue - If you are involved in the swine industry, the last couple months have been encouraging. Cash prices have been over $80 the last month (see chart) and producers are finally able to start improving their balance sheets. The industry needs a run of profits for an extended period in order to return to where the industry was in 2007. Unfortunately, the economic pain caused over the last couple years will take some time to repair. There is also a tremendous amount of items in many production systems that have put on the back burner because of lack of cash. If profits continue (and I do think they will), I believe you will see many production systems looking at the following investments over the next twelve months:
Sow Parity - The last few years, producers kept sows in their herds for longer periods of time. Then, they brought gilts back in to keep their parity distribution in line. We have seen many production systems with sows averaging over four parities. Now, with cull sow prices over $.50/pound, producers can replace these older sows with gilts and bring the average age of the sow herd back to a more typical level. Down the road, this will lead to better production in your sow herd.
Human Resources - I think many companies stretched their human resources to the limit over the last two years. In visiting with most companies, we learned that people could do more if asked; but, now may be the time to invest in these key employees (e.g. training, bonuses) which will pay dividends down the road. There is always a limit to how much you can push employees. Investing in human resources will be on the list for many production companies.
Fixing and Repairing - Many companies stopped completing any type of major repairs on existing buildings. Many production systems, because of limited cash, completed only the bare minimum to maintain their buildings. There will be many gates, feeders, crates, slats, etc. that need replacing across the industry. Equipment suppliers will likely be busy, as well businesses in new construction, as balance sheets continue to heal.
Invest to Where you Can Get Your Best Return - There are swine producers who managed through the last two years ahead of the industry average. During the last two years the average loss was $20-$25 per head. However, some producers lost less than $10 per head or even came close to break even. These producers worked hard to implement a risk management strategy and now will have very strong balance sheets as early as year-end. In meeting with them, I often challenge them to invest in areas where they can get their best return. Perhaps instead of expanding, what can you invest in your current system that will make you better and more efficient? In some cases, it may be hiring people such as someone to help oversee finishing. This person might help reduce mortality and make sure you are selling at the optimum weight for your system. For other operations, you may consider investing in extra grain storage to control more of your corn supply. Others may want to consider filtration in a sow farm that has had a history of PRRS. The point is, challenge your current thought process. If you have dollars you want to invest in your business, it does not always have to be a new sow unit. An expansion may not be what is best for your business long-term and ultimately, that is what you need to consider.