When Jon De Jong meets pork producers, one question he always likes to ask is: who is your competition? While the answers range from “my uncle” or “Fred around the corner” to an integrator or China, the president of Pipestone Nutrition says it’s important to know who you’re competing with, but also to recognize that there may be opportunities within these supposed rivalries. .
“Maybe Fred and I could split the labor because labor, as we all know, is hard to come by. Maybe Fred and I can go together and buy ingredients or better buy pigs,” De Jong said. “Farmers are independent, that’s why they’re so great, but sometimes that can also be a barrier because ‘I’m competing with everyone.’ Well, maybe we don’t have to compete with everyone, maybe if we work together we can link some of those scales and that efficiency.”
The Pipestone network of independent producers aims to be in the top third of revenue and the bottom third of production cost. Reducing production costs is crucial; however, De Jong argues that there are massive ranges of income with “haves and have-nots”. One way to become a “have” is to try to get a cutting contract.
“It’s not always the easiest thing to do, but I think it’s important to understand that revenue distribution is quite important in our industry today,” De Jong says. “The production cost gap has narrowed. Everybody’s a pretty good cost producer.”
On the revenue side, value-added opportunities such as earning a bounty for not feeding Paylean, breeding Durocs, practicing open pen gestation (OPG), meeting Prop 12 and the transition to antibiotic-free production exist. However, the window to see a return on investment can often be short.
For example, a Michigan producer that De Jong works with decided to get a premium for open pen gestation production. Six months later, they were still getting a bonus, but they had lost their favorite dock hours. Thereafter, no premium was offered, but OPG’s production hogs were still needed by the plant to meet value chain expectations.
“I’ve watched this over and over again with the producers at this stage of events. First there’s a bounty, then there’s no bounty, then you get a discount,” De said. Jong. “We don’t need to be on the cutting edge of some of these changes, but I would definitely like to go for some of these bounties that are out there. I may have to give up some things and maybe disagree, but there is an opportunity.”
Producers who own and control their assets are also generally better at production costs, says De Jong. These assets include ownership of the feed mill, sow barn, finishing barn and, in some cases, the packing plant.
Before taking on an additional property, De Jong advises growers to know their risk strategies:
- What is your ability to withstand changing market events?
- How flexible is your operation?
- How fast can you expand or contract?
- What is your capacity to tolerate risk?
De Jong notes that risk and volatility have been high over the past five years with notable events such as African swine fever in China, COVID shutdowns, slower packaging line speeds and the administration prompting renewable diesel, eliminating fat from diets in some cases. If ASF reaches the United States, greater production flexibility will have to come into play.
“If ASF gets here, 30% of our export production disappears overnight, potentially for six months or more,” De Jong says. “Can your operation withstand this? Can you bend and contract enough to get through this?”
De Jong says the industry has learned a few lessons from the COVID shutdown, one being that farmers are incredibly resilient and creative. For example, one of Pipestone’s producers, Prairie Queen Pork, based in Nunda, South Dakota, breeds and sells to Wholestone Farms and Smithfield Foods. The farm was able to avoid euthanasia during plant shutdowns, instead selling more than 2,500 pigs directly to the consumer.
Other producers were able to ship hogs to other states. For example, Oregon, which has only about 5,000 hogs, took 10,000 extra fat hogs from the Midwest in 90 days.
Looking to the future, De Jong says growers must continue to weather market volatility. They must also identify and understand external profit centers. Acknowledge the competition, but also note that size and scale are necessary to compete. Finally, look for opportunities to move up the food chain through ownership, such as harvesting facilities.
“I think we are seeing a shift in people’s understanding of income,” De Jong said. “It’s hard to be competitive when you’re losing $140 in per head revenue to the guy next to you.”
Producers also need to consider whether they can run all parts of the business in-house or if they can use partners.
“Do I have the expertise to do these things, grind my own feed, formulate diets, diagnose diseases, produce 30 pigs per sow per year?” said DeJong. “If I have the expertise and the ability to do it, I should do it myself. If not, enter into a partnership that can bring value to these different things.”
Partnerships can also help solve lingering labor issues and make producers’ time more efficient on the farm.
“I think the future is bright for independent farmers and other players in the pork industry, but this idea that we are going to compete with everyone, I think we have to think a bit differently in this regard” said De Jong.