Highlights

Production moving to farms specialised in single phase of production    Production shifts towards Midwestern states from southwestern states    Technologies and scale of production lowering costs

January 7, 2008

 

US hog production trending towards larger, more specialised farms

 

 

US hog farms are more specialised than ever as the traditional approach of farrow-to-finish production, where all phases of production are performed on one operation, is being increasingly replaced by operations that specialize in a single production phase, according to a USDA report.

 

This report uses data from an in-depth survey of U.S. hog producers in 2004 as part of USDA's annual Agricultural Resource Management Survey (ARMS).

 

In 2004, farrow-to-finish operations averaged about US$332,000 in production value, while specialized farrowing, weanling, and hog finishing operations averaged a million or more.

 

Large specialized hog operations are a fairly recent phenomenon, the typical farm had been in business an average of no more than 13 years in 2004, compared with 20 years for the farrow-to-finish operations.

 

The specialized operations also invested more in production facilities and equipment, and technology such as artificial insemination, terminal crossbreeding, and all-in/ all-out management, than farrow-to-finish operations.

 

Hog farms with the lowest costs of production in 2004 tended to be large, located in the Midwest, and operated by farmers whose primary occupation was farming.

 

Performance indicators-- such as pigs per litter, death loss, and feed and labor efficiency--were also better on such lowcost operations.

 

The better performance may be due to their greater use of improved technologies in such areas as breeding, feeding, and facilities management, the report said.

 

Small and medium hog operations were far outnumbered by large and very large operations during 2004, but large and very large operations accounted for most of the production.

 

The bigger the size of the operation, the more likely they would use contracts for finishing hogs. Contracts were used by 75 percent or more of large and very large hog finishing operations compared with less than half of smaller operations.

 

Operators of small and medium operations were generally older and more often reported plans to exit the hog industry in the next 5 years, suggesting that the trend toward fewer and larger operations will likely continue, the report said.

 

Small operations are also less likely to operate at full capacity and exhibit more inefficiencies due to the lack of technology being deployed.

 

Production costs are inversely proportional to the size of the hog operation.

 

Among small operations, production costs varied widely, and more suffered when hog prices declined.

 

Still, despite the higher average costs of small operations, several had costs competitive with those of larger operations.

 

Although US hog production was highly concentrated in the Heartland in 2004, its largest operations were in the Southern Seaboard, where hog finishing operations averaged more than 12,000 head sold or removed per year.

 

The larger hog finishing operations in the Southern Seaboard were more feed and labor efficient than those in other regions, but their production costs were higher than in the Heartland, where lower corn prices offset the better feed efficiency.

 

A separate report by the same authors also found that the number of farms with hogs has declined by over 70 percent in the past 15 years, as hog enterprises have grown larger.

 

The effects of the changes have extended beyond the industry, as restructuring has heightened environmental risks, raised concerns in rural communities and generated debate over animal welfare, but also lowering pork prices for consumers.

 

Even as the number of hog farms fell by more than 70 percent between 1992 and 2004, hog inventories remained stable as large enterprises took the place of small farmers. 

 

The average hog operation grew from 945 head in 1992 to 2,589 head in 1998 and to 4,646 head in 2004.

 

In 1992, farms with more than 2,000 hogs formed less than 30 percent of farms. By 2004, 80 percent of all hog farms in the US have more than 2,000 hogs. Half the farms have more than 5,000 head. 

 

Whereas specialized finishing operations accounted for 22 percent of output in 1992, by 2004, that had risen to 77 percent.

 

Farrow-to-finish operations share of output meanwhile fell from 65 to 18 percent.

 

Hog operations under production contracts grew from 3 percent of operations in 1992 to 28 percent in 2004 and accounted for more than two-thirds of hog production (sales and removals) in 2004.

 

Operations producing under contract were larger than independent operations and were more likely to specialize in a single production phase.

 

The rapid growth of hog operations along the US East Coast during 1992-98 slowed partly due to political considerations.

 

North Carolina, a leading hog producing state, placed a moratorium on expanded hog production as a result of environmental concerns. The move also shifted the centre of hog production growth to the Midwestern state from 1998-2004.

 

The change also came at a time of substantial efficiency gains for hog farms, particularly on specialized hog-finishing operations.

 

Feeder-to-finish operations had annual reductions in the amount of feed and labor used per unit of output of 4.7 percent and 13.8 percent, respectively, between 1992 and 2004.

 

Besides cheaper feed and labour, production costs per hundredweight of gain also declined at an average annual rate of 4.7 percent.

 

For feeder-to-finish farms, total factor productivity increased at an average annual rate of 6.4 percent from 1992 to 1998 and 6.3 percent from 1998 to 2004, thanks to technology and scale efficiency.

 

Further increases in scale efficiency are likely to be limited for large farms. However, there is greater scope for efficiency gains in the sector as a whole from further increases in scale.

 

Trends in farm productivity in two major hog-producing regions, the Southeast and the Heartland, mirrored trends in farm output: productivity increased more in the Southeast between 1992 and 1998 and increased more in the Heartland between 1998 and 2004.

 

Growth in average farm size and the resulting improvements in scale efficiency accounted for most of the differences in productivity growth between the Heartland and Southeast since 1992.

 

Farms in both regions had similar rates of technical advance over the study period.

 

The use of production contracts continues to be associated with higher farm productivity, which led to lower consumer prices.

 

Productivity gains contributed to about a 30-percent reduction in the price of hogs at the farm gate.