PORK$HOP Speakers Identify Opportunities Tempered With Caution

From the 2009 cost of production benchmarks through the outlook for 2010 and beyond, presenters at the 2010 PORK$HOP seminar on June 8th in Amana, Iowa, defined the new boundaries of playing field as well as the rules pork producers will need to adopt to survive in the years ahead.

“The big change (in cost of production) is corn, which dropped on an average of $1.26 per bushel from 2008,” reports Mark Penningroth of Latta, Harris, Hanon & Penningroth L.L/P., which compiled the cost benchmarks from 41 operations. The $12.93 per live hundredweight range of production costs within farrow-to-finish participants illustrate the opportunities for even healthier profit margins, and in spite of conventional wisdom, the lowest cost producers are not necessarily the largest operations.

For more information on the LLHP benchmarks, visit their website at http://lattaharris.com/ or contact John McNutt at jmcnutt@lattaharris.com .

Kent Bang from the Bank of the West reported that the hog cycle is still alive, but has changed to a longer down cycle due to higher investments in fixed assets, more contractual arrangement and more specialized production segments. He believes the up cycle has also lengthened because of increased volatility which has limited lenders interest, as well as the unfavorable location and age of existing facilities and competition which discourages new entry.

Bang recommended these defensive strategies:

• Continually update your budget / projections


• Analyze liquidity and equity after projected losses


• Review loan covenants and communicate with your lender


• Watch for opportunities to lock in profits


• Know your costs and controllable expenses


• Reduce risk exposure you cannot afford


• Rather than focusing just on low cost of production and efficiency to manage risk, have a “margin” mentality

“In the past two years we were making decisions based on futures prices that were not materializing,” says Bang. “You need a written risk management plan. Bells need to go off when you hit the target margins.”