Bl2—Lancaster Farming, Saturday, November 1,1980
How the hog industry is changing
LANCASTER Swine
growers, meat packing
companies, and consumers
are concerned about the
future of the hog business.
Innovations in production
technology are bringing
structural changes to the
industry as evidenced by
changes in the number and
size of hog operations
Additional stress has been
created by cyclical low
prices which have brought
heavy financial losses to
most producers since rmd
-1979.
Many of the changes in the
business are associated with
vertical integration or
coordination
Will vertical integration
take over the hog business as
it did the broiler industry’
This question has been
constantly asked since the
late 1950 s but the answer is
still elusive. The 1980 s,
however, should finally
answer that question, says
H. Louis Moore, professor of
agricultural economics
extension; and John H
Ziegler Jr, professor of food
science at Penn State
The number of hog
operations in the United
States has dropped
dramatically.
In 1950 about one million
farmers produced and
marketed hogs By the late
1970 s the number had
dropped to about 600,000
More significant has been
the change in size of hog
production operations The
growth in the size of the
average operation has offset
the decline in the number of
production units.
It is estimated that as
recently as 1964 farms
marketing over 1000 hogs
per year accounted for only
seven percent of total
marketings By 1979 farms
marketing over 1000 hogs
each per year accounted for
about 40 percent of all hogs
sold.
During the same penod
smaller producers have lost
a large share of the market
In 1964 producers selling
fewer than 200 hogs per year
accounted for about 46
percent of all hogs sold
Today this size producer
accounts for less than 18
percent of total hogs
marketed.
The fast pace of technical
development in the hog
business has made it
necessary for producers to
increase production so that
total costs can be averaged
over more hogs sold The
efforts to achieve lower unit
costs have increased the
optimal farm size.
Yet large numbers of
marginal producers remain
in the industry, indicating
that producer numbers will
continue to fall during the
years ahead
Despite the growth in hog
numbers in Pennsylvania,
North Carolina, Georgia,
and other states outside the
Com Belt, hog production
remains basically a Com
Belt industry lowa, Illinois,
Minnesota, Indiana, and
Missouri accounted for 56
percent of the nation’s hogs
on June 1, 1980 compared to
60 percent 20 years ago The
14 leading states account for
84 percent of total hog
production today compared
to 87 percent 20 years ago
Pennsylvania is not
considered one of the leading
14 hog states
It is interesting to note,
however, that Pennsylvania
fanners had 920,000 market
hogs in inventory on June 1,
1980 ranking the state 15th in
hog production Though
Texas is considered one of
the 14 leading states, their
inventory of hogs was 20,000
head less than Penn
sylvania’s on June 1,1980.
In the early 1960 s Penn
sylvania ranked 18th in
production.
A major part of Penn
sylvania’s growth in hog
production has occurred
since the mid- 1970 s - The
number of hogs on Penn
sylvania farms on June 1
was up 12 percent from a
year ago while the nation’s
total was up in just one
percent
Despite the growth,
Pennsylvania accounts for
just 14 percent of the
nation’s hog production, up
from seven tenths of one
percent two decades ago In
the last two decades Penn
sylvania increased its share
of hog production in the
Northeast from 46 percent to
nearly 50 percent.
On December 31, 1979
there were 4007 federally
inspected red meats plants
in the United States Of this
total 514 or 12.8 percent are
in Pennsylvania
Pennsylvania ranks
second among all states in
number of federally in-'-
spected plants Penn
sylvania is the most im
portant slaughter state
outside the major production
areas, ranking 11th in cattle
slaughter and 7th in hog
slaughter
Pennsylvania plants rely
heavily on shipments of
livestock from the midwest
to fulfill slaughter needs
While many plants slaughter
hogs in Pennsylvania, most
of the hogs move through
three major packers These
plants encourage more local
production of hogs because
of their dependence on hogs
shipped in from the midwest.
In 1979, for example,
Pennsylvania plants
slaughtered 3 3 million hogs
About 800,000 were marketed
by Pennsylvania producers,
leaving about 2 5 million
head to be shipped in from
other production areas
Rising fuel prices ana other
costs associated with
transportation concern
packers who must ship hogs
great distances to their
plants.
A look at the surrounding
states in the northeast
reveals the relative strength
of the hog slaughterers in
Pennsylvania The northeast
includes New England, New
Jersey, New York, West
Virginia, Maryland,
Delaware, and Penn
sylvania
In 1949 the northeast ac
counted for 11 3 percent of
the nation’s hog slaughter
This percentage has
declined steadily to just 4 9
percent of the total in 1979
Pennsylvania has main
tained its percentage of total
hog slaughter over this 30
year period Pennsylvania
Fewer packers but more pigs
plants slaughtered 3 8
percent of the nation’s hogs
in 1979 compared to 4 7
percent in 1969,3 6 percent in
1959 and four percent in 1949
Pennsylvania has in
creased its share of hog
slaughter in the northeast
from just 35.6 percent 1949 to
37 percent in 1959, 63 9
percent in 1969 and 76.4
percent in 1979. Penn
sylvania packers, in addition
to buying Pennsylvania and
midwestern hogs, have been
purchasing hogs from the
surrounding states
Producers throughout the
region have become
dependent on Pennsylvama
packers as the market for
their hogs Pennsylvania’s
share of hog slaughter is
likely to increase during the
next decade when Penn
sylvania plants will account
for nearly all of commercial
hog slaughter in the nor
theast
The loss of a local
slaughter base will likely
bring abut a decline in hog
production in much of the
northeast, except Penn
sylvania Once slaughter
plants close in areas of
marginal production, they
are seldom reopened or
replaced
Pennsylvania’s growth in
meat processing has been
exceptional in recent years
The Commonwealth ranks
second only to Illinois in
value of shipments with
products valued at nearly
$BOO million shipped an
nually A decade ago Penn
sylvania ranked only fifth in
meat processing
But an air of uncertainty
surrounds the entire port
slaughter and processing
industry at this time Many
of the nation’s old line
packers have been unable to
generate profit with an
tiquated plants and
staggering labor costs
At mid-year Esmark, the
parent company of Swift and
Company, announced plans
to close three of their most
inefficient plants and to sell
off the remaining nine
plants. The decline at Swift
is a blow to the 125-year old
firm which was the industry
leader until the mid-1970’s
The pork industry is
concerned, too, over the
recent decision of lowa Beef
Processors Inc to enter hog
slaughter and pork
processing with the same
vigor it used in becoming the
leader m the beef business in
just 17 years. If they become
a major force m the hog
business by the mid -1980 s,
they will become a part of a
business which will be even
more concentrated than it is
today
Smaller processors con
tinue to drop out or are
absorbed by larger plants,
while inefficient plants are
merely phased out The
number of pork processing
plants in the l.mlecl States
dropped 15 percent from 1974
to 1978, yet the slaughter of
hogs was a record high in
1979
There *fs
belief that during the last 25
vears continuous im
provement has been made
in the type of butcher hogs
that are being proui.v ed and
•marketed The kind and
amount of changes in car
cass characteristics are
constantly being measured
and vary from •‘some” to
“considerable ”
Pork production increase,
27 percent between 1957 and
1979 Much of the growth in
pork production has been
hidden by improvement in
quality. The average
liveweight per hog increased
slightly from 234 pounds in
1957 to 242 pounds in 1979
The big difference is in what
the carcass produced
In 1957 the average car
cass produced over 34
pounds of lard In 1979 the
average carcass produced
only about 14 pounds of lard
So there has been a
significant replacement of
fat by meat as a result of
both genetic and nutritional
improvements in recent
years
The USDA standards for
hogs carcasses were
established to predict dif
lean meat, chiefly m the
form of four trimmed lean
cuts including arm picnics,
blade Bostons, loins, and
hams. The yield of these four
lean cuts is important
because their total weight
accounts for nearly two
thirds of the value of the hog
carcass
Prior to 1968 when the
current standards became
official, grades for hog
carcasses were based
primarily on size as
measured by weight or
length and backfat
thickness Some slight
consideration variations in
muscle development but
none to the quality
characteristics color,
firmness, texture, dryness
of the lean meat
The top three grades, U.S
Nos 1,2, and 3, which in
cluded about 98 percent of all
hog carcasses graded,
changed significantly bet
ween 1961 and 1968.
The leanest No 1 grade
increased 16 percent, while
the fattest No 2 and No. 3
grades decreased 3 and 14
percent, respectively This
could be interpreted as a
minimum increase of one
percent in the yield of four
lean cuts during the seven
year period covered
Because of the progress
made in the production of
lean muscular No 1 grade
hog carcasses, which ac
counted for one-hall ut all
hogs marketed in 1968, the
USDA promulgated and
began using new grades in
that year. When graded
according to the new stan
dards, hog carcasses in 1&8
were 8 percent No. I, 42
percent No. 2,36 percent No
3, 12 percent No 4, and 2
percent Utility The latter
were hog carcasses so
graded because they lacked
sufficient lean quality to be
placed in one of the
numerical grade
disignations
From preliminary results
involving research currently
in progress, once again
significant changes have
occurred When compared
with 1968, hog carcasses are
now about one-third inch
longer and carr.
correspondingly one-third
inch less backfat
There has been about one
full grade upward change
across the board, and now 30
percent of all hog carcasses
grade No 1 and 60 percent
grade No 2 The vast
majority or 90 percent of all
hog carcasses fall into the
two top and leanest grades
and because of this, for all
practical market purposes,
the USDA hog carcass
grades are of little value and
probably destined for
another revision soon.
It appears the im
provements in hog carcasses
will continue in the im
mediate future because
carcass characteristics are
highly heritable and they
can be improved quickly by
selection programs In a
central swine test station,
when carcass cutouts for
barrows and gilts entered in
progeny tests were com
pared for the years 1967 and
1977, there was a decrease of
20 percent in the average
backfat, and mcreases of
five percent in length, 25
percent in loin eye area, and
9 percent in ham and lorn of
the carcass
This, coupled with the
information that between
1958 and 1976 there was a 22
percent decrease m average
backfat of all boards tested
at centra! test stations in the
United States, assures
continued production of
leaner and meatier hog
carcasses as a response to
modem consumer demands
for more protein and fewer
calories
In addition to quality, the
new pork has another factor
in its favor price The
retail price of pork has
traditionally been lower than
the price of beef In 1965 a
pound of pork cost 16 8 cents
less than beef, in 1970 it was
24 3 cents less; and in 1975
20 2 cents less By the 1979
the margin had widened to
82.2 cents less. By mid-1980
the average retail price of
beef was about $2 30 per
pound, $1.06 per pound
higher than a pound of pork
This wide margin has
attracted inflation-weary
consumers to buy more pork
and has tended to keep the
retail price of beef from
moving "higher In May pork
was 44 percent of total beef
and pork products, com
pared with 42 percent in 1979,
38 percent in 1970, and 37
percent in 1965
Hog production has been
shifting rapidly toward
larger enterprises The
larger enterprises will
become increasingly im
portant in the 1980 s
The trend toward
specialized buildings and
more confinement with
greater control of all aspects
of production will continue
Nearly 50 percent of all
hogs sold are now produced
in confinement housing. As
producers enlarge their
operations, new technologies
are generally adopted Thi
most sophisticated
technologies find their way
into the largest “hog fac
tory” type units
Investment per unit of
production generally in
creases when the large
facilities are first added,
because production takes
place at less than the
capacity of the facilities As
the facilities are broken in
their production costs
decline
Currently the total cost of
producing hogs in Penn
sylvania’s largest units is
probably in the range of 45
cents per pound. Medium
sized producers with 200
sows can probably beat this
cost right now.
This-leads many to con
clude that the larger units
will not be competitive and
therefore will not long be a
factor in the hog business.
An individual firm is ef
ficient when it can achieve
short-run profit
maximization However, to
be efficient in a
environment in the longer
run, a firm must be able to
bring about organizational
changes which will lower
unit costs
We haven’t answered the
question of which sized firm
will be most dominant at the
end of the 1980 s because we
don’t know which is going to
be the most efficient in
terms of lowest unit costs
The first half of 1980
demonstrated another
complication to the concept
that “the most efficient will
survive ” In the long run this
is true, but in the short run
the ability to survive during
periods of low prices may
depend more on the “battle
of capital ’’
It is possible that the
larger operator, with
production costs of 45 cents
per pound but with acess tqf
captial to tide the enterpriser
over will be more likely to
survive then the slightly
smaller producer, who has
production costs of only 39
cents per pound but has
cash-flow problems and and
unsympathetic ear from the
bankers In this kind of a
bind, efficient producers
sometimes; find they are
forced out before they can
demonstrate just how ef
ficient they are
Well-managed larger
operations have done better
then smaller units and
provide the growth element
for the future. Once capital
is sunk into commercial hog
production units, producers
do not readily respond to
changes in the price level of
hogs It would be expected,
therefore, that hoag
production in the future wilr'
show less cyclic movement
than in the past
The larger units have
more marketing leverage,
too By obtaining and
holding better markets and
reducing transportation
costs, the better producers
improve their coordination
operation.
There will be fewer hog
packing plants in the 1980 s as
well as fewer and larger
producers Pork quality will
co. tinue to improve and the
family farm vs corporate
farm debate will continue
Pennsylvania has many
farmers who want to stay on
the farm, more bankers with
a stronger commitment to
agri-business, and a number
of strong packing plants
With all of these assets
plus nearness to markets,
Pennsylvania’s future in tfußl
hog business should be one oP 1
growth