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2/3/2012

AgStar's Video Hog Blog

In this week's Hog Blog, AgStar's Mark Greenwood discusses the swine industry's financial recovery and what to watch for as the status of the industry continues to remain strong.

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Published: 2/3/2012 | Permalink | Email this Post | Comments (0)

2/2/2012

February Swine Update

Can We Repeat 2011 Results?
2011 was a very good year for the swine industry. If I could summarize 2011, it would be estimated that the average swine producer made more than $15 per head and the very good systems making more than $20 a head. Balance sheets and working capital have improved and the mood across the industry is very bright. In looking at margins for the next 12 months, (see attached chart) the margins look like producers can make close to $20 per head. The key to success for the pork industry has been export demand. Pork export in 2011 will be at record levels. Will we be able to maintain that sort of volume in 2012? Only time will tell. China has now been importing pork at a record pace (see chart). The issue is whether this trend will continue for 2012. We know from previous years (remember 2008) that this can change very quickly.

Can we handle prosperity without expanding?
This is a question I am asked by many people looking at our industry. In the December Hog and Pigs report, we did not show any real sizable expansion in 2011. In our view, numbers will be about one to one and a half percent more this year. Almost the entire increase will be accomplished through productivity gains, not through sow expansion. The concern I have is in the past, when we’ve made money for a period of time, we have had a tendency to want to expand numbers. In recent months, the industry has shown very good restraint on expansion. It will be interesting to see if this continues. Higher feed prices and volatility in the global marketplace have probably helped in curbing expansion. As balance sheets continue to improve, the urge to expand will be greater. This will be worth watching in 2012.

So what should I do with my money?
There are producers that we talk to every day asking us this question. They do have balance sheets that can allow them to expand? The question that I come back with is “where can you put capital to use to make your business more valuable?” Here is what we are seeing some clients doing instead of expanding overall sow numbers:

· Owning more of their overall facilities — the swine industry has many producers that don’t own all of their facilities and, in fact, we have many contract arrangements. We have had several systems that are now trying to own more of the buildings (sow, nursery and finishing) instead of more contract production. This, to me, is a good place to invest capital.

· Improvements on existing assets — We have many systems that are adding farrowing crates, sow filtration systems, feeders, etc. that can make existing facilities more valuable than they are today. This also makes sense.

· Farmland — Although I don’t believe paying $10,000 an acre for farmland is a good idea, we are seeing swine producers looking at owning or controlling more land as a way of controlling feed costs. This can be done by renting more land or owning more land—and has been a growing trend as a way of managing feed costs.

Swine updates in the future by AgStar
Going forward, our swine team, which consists of Kent Bang, Steve Malakowsky and Justin Roelofs, along with myself, will be taking turns on this column. At AgStar, we are very fortunate to work with a lot of great clients that have allowed us to acquire knowledge to share with the industry.

Published: 2/2/2012 | Permalink | Email this Post | Comments (0)

1/27/2012

AgStar's Video Hog Blog

In this week's Hog Blog, AgStar's Justin Roelofs discusses the current margin opportunities available as well as the long-term effect some protein sources could have on hog prices.

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Published: 1/27/2012 | Permalink | Email this Post | Comments (0)

1/23/2012

AgStar's Video Hog Blog

AgStar's Steve Malakowsky shares insights on recent developments in the markets as well as his take on the impact China's economy is having on the U.S. swine industry.

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Published: 1/23/2012 | Permalink | Email this Post | Comments (0)

1/11/2012

AgStar's Video Hog Blog

AgStar's Mark Greenwood discusses his views on shared learning between lenders and clients and introduces a new member of the AgStar Swine Team in this week's Hog Blog.

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Published: 1/11/2012 | Permalink | Email this Post | Comments (0)

1/6/2012

January Swine Update

2011 in Review
2011 will turn out to be a very good year for most producers. In looking at the information we’ve received from clients though October, and projecting what November and December earnings will be, our estimate is that most producers will average around $15 per head profit for 2011. Even with higher feed prices, revenue for producers has been an all time high. We’ve had a nice run of profits for the last two years, and if you want me to give you a perspective on what we believe most producers’ financial year end numbers will look, like here is our “best guess.”

· Average Owner Equity should be close to 50% - this is a GAAP number that uses a factor of lower of cost and/or market. I believe this is a conservative estimate.

· Average working capital per sow equivalent > than $700. This is a very important measurement. It is based on a farrow to finish operation. If, for example, you have 2,000 sows, you should have a minimum working capital amount of $1,400,000. (Working capital means current assets less current liabilities.)

Compared to a year ago, when we were still coming out of the very difficult years of 2008 and 2009, we have made an improvement on owner equity of an estimated 15%. -. We at AgStar are very fortunate to work with an elite group of producers with owner equity over 60% and working capital per sow well over a $1,000. The average 2011 earnings per head for this group will be over $20. This group is not a function of size. It is about very good production, cost control and managing optimum margins. This group is constantly working on improving every facet of their business.

We are working on a database that we hope to share some time in 2012. This database would represent over 17% of the US pork industry. This data would show average costs, profit per head, sale weight, etc in a very generic dataset but would also provide a snapshot of what we are seeing on a portion of the US pork industry. This is a work in progress but we believe it is of value to share hopefully down the road.

PRRS Breaks?
It’s that time of year where we are seeing PRRS breaks again. The weather in the Midwest has been perfect from spreading this virus and it will be interesting to see how the sow filters place help with this. I don’t believe that it is any worse and or better than last year, but it is amazing virus that this time of year really creates havoc on producers.

December Hog & Pig Report and a Look in 2012
We did not see any sizeable expansion numbers coming with this report, but I do believe most numbers as we start to look forward all numbers will be greater than 2011. (see below) It would be my best guess that total pork supply in the US will be 1-2% more than 2011. Most of all of this will come through continued production efficiencies by producers. In looking at profit margins for the next 12 months they are close to $15 a head. My concern with this is that producers, from a financial perspective, will want to expand pushing lower revenue for 2013. Another concern I have is processing capacity. The US pork industry is really in a sweet spot right now and if we increase numbers too much we might not have adequate processing capacity. The other point is how our higher revenue has been driven all by exports. Let’s not forget that this could change and any reduction of exports could bring prices down.